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• Purpose
• Background
• Data and Methodology
• Key Findings
• Conclusions
• Biographical Notes

Purpose

This brief highlights the findings reported in an evaluation study prepared for Human Resources Development Canada (HRDC) to examine the impacts of legislative changes which increased UI penalties for UI claimants who quit their job without just cause, or were dismissed for cause. Specifically, the study examines to what extent the increased penalties for quits and dismissals resulted in:

• a relabelling of quits and dismissals to types of separations still eligible for UI;

• a reduction in the propensity of workers to voluntarily leave their jobs; and

• savings to the UI account

Background

Prior to November 1990, UI claimants who quit their jobs without just cause or who were dismissed for cause were penalised by a maximum of six weeks disentitlement from UI benefits. Bill C-21, which came into effect in November 1990, increased the disentitlement period to between 7 and 12 weeks. In April 1993, Bill C-113 eliminated UI benefits for these two groups.

The evaluation of changes in UI penalties for quits and dismissals complements recent evaluation studies of the impacts of Bill C-113 on UI recipients and labour market activities. The other studies examine "the effects of voluntary quit disentitlement on UI take up rates", "effects of benefit rate reduction on unemployment durations, search behaviour and new job quality", "the impacts of UI benefit cuts on incomes and material living standards", and "the interaction between UI and social assistance".

Data and Methodology

To analyse the impacts of the UI penalties for quits and dismissals, Professors Kuhn and Sweetman use a data set which combines UI administrative data from the Record of Employment (ROE) and Status Vector (SV) files for the years 1979 to 1993. The ROE data file is a 10 percent random sample of job separations. Each job separation on the ROE file is categorised according to the same reason for separation as applied by the UI program. Each separation is listed as being due to shortage of work (i.e., a layoff), strike or lockout, return to school, illness, injury, quit, pregnancy or adoption, retirement, work sharing, apprentice training, age 65, leave of absence or some other reason. A separate category for dismissals was added in 1990. Matching the ROE file with the SV file enables the authors to determine the fraction of separations that results in a UI claim.

The study examines three UI policy periods:

• Period 1, which serves as the baseline period, extends from January 1980 to October 1990. It corresponds to the period when the maximum UI penalty was 2 weeks for workers who quit without just cause, or who were dismissed for cause.

• Period 2 runs from November 1990 to March 1993, and covers the period of Bill C-21 when the UI penalty was increased to between 7 and 12 weeks.

• Period 3 starts in April 1993 and corresponds to total disentitlement under Bill C-113.

The study begins with a general analysis of separations by age and gender for each of the three policy periods. The second part of the study develops a set of time series regression models to net out the possible confounding effects of cyclical and seasonal factors on the composition of separations for each of the three UI policy periods. Separate regressions are run for the UI claim rate for voluntary quitters, and various separation rates by age and gender. The independent variables in each regression include dummy variables for the different UI policy periods, seasonal dummies, a linear time trend, the age-specific unemployment rate and Statistic Canada's Help Wanted Index. The latter two variables are included as measures of aggregate business conditions. The authors also include an autoregressive distributed lag model to deal with autocorrelation in the residuals.

Key Findings

General Analysis by Age and Gender

Measuring the separation rate as the number of separations for any reason divided by the number of employed persons at the start of a given month, the descriptive statistics find some notable differences by age and gender. The separation rate for young men (age 15 to 24) is almost twice that of prime age men (age 25 to 54) for each of the UI policy periods. On average, the separation rate for young men is around 7 percent, while the separation rate for prime age men ranged between 3.4 and 4.1 over the three UI policy periods. For women, the age gap is smaller and the separation rates are slightly lower than for men - with separation rates of around 5.5 percent for the 15 to 24 age group and 3.5 percent for the 25 to 54 age group.

In the case of voluntary quits and dismissals, the main differences are by age group rather than by gender. For both men and women, the rate of voluntary quits per month is about 1.5 to 2 percent for the young age group and 0.5 to 0.8 percent for the prime age group over the three UI policy periods. Similarly, when the reason for separation is "dismissed or other", the separation rate is about 1.5 percent for the young age group and 0.8 percent for the prime age group.

In the case of layoffs, however, the main differences are by gender rather than by age group. The layoff rates for men are between 2 and 3 percent, while the layoff rates for women are in the 1.3 to 1.4 percent range for the three UI policy periods. The authors suggest that this result likely reflects differences in the industries in which men and women are employed.

Claim Rates for Voluntary Quitters

Using regression analysis to examine UI claim rates for voluntary quitters, the study finds:

• for all but prime age males, a significant and decreasing trend in the UI claim rate for voluntary quitters that is independent of the UI policy;

• a moderate and significant decrease in UI claim rates for all four of the gender and age groups during partial disentitlement under Bill C-21 (Period 2); and

• a large decrease in UI claim rates for all four gender and age groups following total disentitlement by Bill C-113 (Period 3), with men and women in the 25 and 54 age group both showing a reduction of about 7 percent.

Separation Rates by Reason for Separation

Using regression analysis to examine separation rates by reason for separation, the study finds:

• no evidence of a behavioural response to the UI policy changes in the case of prime age men;

• some evidence of a reduction in the rate of voluntary quits for younger men in response to total disentitlement under Bill C-113 (Period 3), but no evidence of a response to the partial disentitlement under Bill C-21 (Period 2);

• a significant reduction in the voluntary quit rates for both prime age and younger women under Bill C-113 (Period 3); and

• no evidence of relabelling, as the three groups exhibiting a reduction in the rate of voluntary quits do not show a parallel and significant rise in lay off rates or in the rate of "other and dismissed" separations.

Dismissed and "Other" Reasons for Separation

In the case of dismissals, a before-and-after comparison is not possible for all of the policy periods because the "dismissal" category was included in the "other" category prior to 1990. Comparing separation rates for Period 2 (Bill C-21) and Period 3 (Bill C-113), however, the authors find no evidence of a significant difference in either the "other" or "dismissed" categories after total disentitlement is introduced by Bill C-113. Also, the claim rate of the "other" category is quite constant across Period 2 (Bill C-21) and Period 3 (Bill C-113). Together, these results suggest that relabelling is not occurring.

Conclusions

This study finds clear evidence that voluntary quitters, and persons dismissed for cause, were in many cases disentitled from UI benefits. While the initial partial disentitlement of these two groups had little or no effect on separation behaviour, the complete elimination of their UI benefits under Bill C-113 reduced the propensity of young men and women (age 15 to 24) and prime age women (age 25 to 54) to voluntarily leave their job. In other words, Bill C-113 appears to have induced a behavioural change in the separation propensities of young men and women, and prime age women. At the same time, the study found no evidence that separations due to voluntary quits or dismissals were simply being relabelled to a UI-eligible separation.

These empirical findings imply that total savings to the UI system are greater than the savings indicated by reductions in the claim rate of quitters, because the Bill C-113 changes also increased the propensity for some groups of workers to remain in their jobs.

Biographical Notes

Peter Kuhn is a Professor of Economics at McMaster University, program director of the Canadian Employment Research Forum, and principal investigator of the Canadian International Labour Network. His past and current research includes work on unemployment, unions, displaced workers, discrimination, immigration, and the distribution of wages.

Arthur Sweetman is an Assistant Professor of Economics at the University of Victoria. He specialises in the study of labour markets and econometrics.