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Context

This report summarizes the results of research into the effects of Bill C-17, a piece of legislation which made a number of changes to the Canadian unemployment insurance (UI) system in 1994. Principally, Bill C-17 lowered the UI benefit replacement rate from 57 percent to 55 percent of insurable earningsintroduced a low-income with dependents category of recipient eligible for a higher replacement rate of 60 percent altered significantly the entrance requirements necessary to qualify for UI, making qualification harder, and amended the formulamapping weeks worked into UI coverage earned, reducing the typical length of UI entitlement for a given period of qualifying employment.Although these changes have since been superceded by the more comprehensive reforms introduced as Employment Insurance in 1996, there is interest in understanding the effects of C-17 itself as well as in gleaning the more general lessons that can be learned from this policy change.

The methodology of this study is to examine individuals with separations from jobs before and after the Bill C-17 changes and, controlling for other factors that may differ between the samples, thereby infer the "quasi-experimental" effect of the C-17 changes. Such methods have gained considerable analytical appeal in recent years and have the potential merit of being less reliant on an assumed model structure than traditional structural estimation methods.In addition, the clear changes from C-17 provide variation in program parameters that is reasonably viewed as exogenous to the individual, in contrast, say, to analysis of time-series data on UI where program variables such as benefit rates and eligibility are driven largely by individual-specific effects, such as past work history. To accomplish this evaluation, this study uses two waves of the Canadian Out of Employment Panel (COEP) administered to persons with job separations in specified time periods in 1993 and 1995, termed the COEP93 and the COEP95. In all, there were two cohorts in each wave, and these samples had similar intake periods in 1993 and 1995. For present purposes, we focus on the second cohort of COEP93 and the second cohort of COEP95, two samples that bracket the C-17 changes and that have almost identical seasonal patterns. Both unconditional quasi-experimental effects and conditional analyses are presented, the latter using methods of econometric duration analysis that seeks to explain the determinants of the length of an unemployment spell or a period of UI recipiency.

The evidence from this analysis shows, first, that the C-17 changes were large enough to reasonably expect a behavioural effect in these data. Measured at the date of job separation from administrative records, the percentage of separations that involved an individual eligibile for UI fell from 67% in COEP93 to 57% in COEP95. Moreover, among those eligible, the average length of UI entitlement fell from almost 45 weeks in COEP93 to 36 weeks in COEP95.

Second, these changes, coupled with the various replacement rate changes, led to a large effect on unemployment durations. Unconditionally, the rate at which individuals found jobs in COEP93 was always slower than the analogous rate for the COEP95 sample. Median unemployment durations, for example, were 34 weeks in COEP93 and 15 weeks in COEP95. Conditionally, in a large variety of duration models, and with a wide-ranging investigation of alternative determinants of these durations, the effect attributable to C-17 is always sizeable and significant. When local unemployment rates are added to control for changing macroeconomic conditions, and when other demographic determinants of duration are added, the effect is somewhat smaller, with the conditional median durations being 39 and 36 weeks, respectively, but the quasi-experimental C-17 effect remains present.

Third, the effects of these changes were found to be robust across a range of alternative models, including analysis of the joint determinants of UI recipiency and unemployment duration, and including an investigation of UI exhaustion effects around the period that an individual's UI entitlement was about to expire. Although there were some variation in estimated effects by province, these patterns were never strong, and the only robust demographic variable was sex, with men uniformly tending to have shorter unemployment durations.

Overall, the main conclusion remains that the C-17 legislative changes had a significant effect on unemployment durations and on the length of periods of UI receipt. Given the modest nature of the replacement rate changes, and the failure to find large effects from the replacement rate in much past Canadian research, it is natural to think that the significant entitlement and eligibility changes in C-17 had a decisive role in producing these results. Since one element (of many) in the more far-reaching EI reforms has been the lowering of the maximum entitlement period from 50 to 45 weeks, the present study suggests that one would expect a significant effect from this change.