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Under both the former Unemployment Insurance (UI) and current Employment Insurance (EI) systems, Canada has offered extra benefits for some claimants with dependent children. Under UI, the family-related “top-up” was called the “dependency rate” (DR), and under EI, it is called the “family supplement” (FS). The major difference between the two programs is that the DR was calculated on the basis of individual earnings, whereas the FS is calculated on the basis of family income. Thus, the FS is intended to be more targeted to families who most need income (the DR could be received by a UI recipient with low earnings whose partner had a higher income, but on the basis of family income the DR recipient would not be considered poor).

This paper studies some of the consequences of replacing the DR under the Unemployment Insurance and the National Training Act with the FS under the Employment Insurance Act; the EI Act became effective on July 1, 1996, with the FS becoming effective January 1997.¹ While one of the objectives of the EI reforms is to improve incentives for paid work, the potential negative impact of such reforms on low-income families with children is to be reduced by the introduction of the FS. The FS is considered an “innovative feature” of the new EI legislation that is designed to provide “enhanced protection for low-income families.”² The intended effect of the FS is to provide on average a $30 per week top-up to the regular EI benefits for 350,000 low-income families of which about two-thirds will be headed by women.³ The FS is designed to better target low-income families⁴ by tying FS benefits to household income (rather than the UI/EI claimant’s weekly earnings) and by increasing the benefits for those families most in need.⁵

One point that is important to keep in mind while reading this paper is that the FS can only be received by individuals who are entitled to EI benefits as a result of past labour-market participation. Thus, when we talk of “low-income” families, we are throughout the paper referring only to some low-income families — those who are unable to participate in the labour force, for example, are not included.

While the “helping those most in need” rationale for this change in program structure is clear, the economics literature dealing with inequalities within families (see Phipps and Burton, 1996, for example, for a survey) points out that programs that income-test at the family level can potentially be disadvantageous for married women. Income is not shared equally within all families and, in fact, there is evidence that the share of income that each partner brings to the household is an important determinant of his or her bargaining power within the marriage. Thus, if (because women typically earn much less than their husbands) fewer married women receive benefits, income-testing at the household level would shift relations within marriages. There is also empirical evidence (see Lundberg, Pollak and Wales, 1994) and a long-standing “folk tradition” that income going to mothers rather than fathers is more likely to be used in a way that will benefit children.

The objectives of this research project are to compare the impact of the FS with that of the DR in terms of 1) who qualifies, 2) the benefit level received and 3) the impact on living standards. We do this in two ways: 1) we use survey and administrative data to analyze these issues in a quantitative way; and 2) we investigate women’s perceptions of the implications of the introduction of the FS using qualitative techniques. Focus group discussions provide important feedback on how the program is operating “on the ground.”

Throughout, we focus on three key themes. First, is the FS better-targeted? Second, does it do a better job than the DR of alleviating the financial hardship of low-income families (the official objective of the program change)? Third, to what extent do married women lose access to family related-benefits as a result of the family income-test, since women are more likely to be secondary earners? An increase in inequality within families may be the “other side of the coin.” Additional themes emerged in our focus groups.

The report is organized in five major sections. Sections 2 and 3 outline the microdata used and the quantitative results, respectively. Section 4 provides details of the qualitative methodology and results. Section 5 synthesizes the two parts of the study and offers a summary and some conclusions.

Footnotes

1	Ongoing evaluation of the impacts of the Employment Insurance Act on individuals, communities and the economy being carried out by the Strategic Evaluation and Monitoring Directorate of Human Resources Development Canada.
2	Enhanced income protection for low-income families is considered by HRDC to be one of the four core changes to the income benefits aspects of the system; the other three changes are 1) basing income benefits on hours worked rather than weeks worked, 2) tying benefits more closely to earnings and 3) introducing an intensity rule so that the benefit rate declines moderately with weeks of benefits used in a five-year period [http://www.hrdc-drhc.gc.ca/hrdc/ei/sc1236-e.html, p. 3].
3	The benefits accruing to single-parent families headed by women earning less than $26,000 were estimated to increase by 11 percent, and benefits to low-income, two-parent families were expected to increase by 6 percent [http://www.hrdc-drhc.gc.ca/hrdc/initiatv/eilaunch/newsrele/ 9609be.html, p. 2].
4	Throughout this paper we use the words “household” and “family” interchangeably, though of course they are not technically the same thing. By linking to the Child Tax Benefit, the FS is income-tested on the basis of the joint incomes of the husband and wife (legally married or living together), and thus it is not really family or household income-tested insofar as incomes of anyone other than the head or spouse would not be counted.
5	[http://www.hrdc-drhc.gc.ca/hrdc/ei/sc1236_e.html, p. 11].