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To-reiterate, the small weeks issue comes from the benefit-rate-calculation formula of EI. If the individual's insured weeks of work have met the minimum divisor, an extra week of work with earnings below his/her average weekly earnings will lower his/her weekly EI benefits in the future. In deciding to work an extra week, an individual has to consider the amount of earnings gained versus the amount of EI benefits lost in the future.⁶

Under the Small Weeks Pilot Project, an individual who has weeks of work that meet the minimum divisor requirement, an extra week of work with earnings of $150 or less will not lower his/her future benefit payment. It is thus inconsequential to the individual's decision to work or not. In essence, the disincentive to work small weeks has been eliminated.⁷

The following example illustrates the disincentives that may exist under the EI program in the absence of the Small Weeks Pilot Project for a typical female claimant. In particular, it shows the effect of accepting a week of work below average earnings and above the $150 upper limit. A female claimant may work for 21 weeks with total insurable earnings of $6,300. Her average weekly earning is $300 ($6,300 ÷ 21 = $300). For a regular claimant with no penalties, she will receive a weekly benefit of $165 ($300 x 55% = $165) for a maximum of 30 weeks in the absence of the Small Weeks Pilot Project.⁸ If she works one more week and earns $200, her weekly benefit falls by 2 dollars (i.e., her weekly benefit rate is now ($6,500 ÷ 22) x 55% = $163).⁹ Her $200 gain in earnings would be offset by a $60 reduction in benefits paid over 30 weeks. Her net increase in income over the time of the Rate Calculation Period (RCP) and the benefit period is $140.¹⁰

In deciding to work an extra week, an individual weighs the relative benefit of the amount of earnings gained versus the amount of EI benefits lost in the future. Under EI, working an extra week is less attractive the lower are the earnings generated in that week, the higher are earnings averaged over other weeks, and the greater is the length of the benefit period.

With the Small Weeks Pilot Project, an extra weekly earning of $150 or less for a typical male/female program participant will yield him/her the same amount of weekly and total benefit. The increase in income is the full amount of the weekly earning in that week.

However, for an extra week of work with a below average weekly earning and above the $150 cut-off line, the disincentive effect on net income is still there. While the Project eliminates the disincentive to accept weeks of work with weekly earnings of $150 or less, the disincentive to take up weeks of work with a “below average weekly earning and above the $150 cut-off line” remains.

To what extent the current Project has succeeded in eliminating the disincentive effect for workers to accept small weeks of work in the 31 regions is primarily an empirical question. For example, the small weeks worked by claimants may or may not be induced by the Project. Claimants might have worked the same number of small weeks irrespective of the incentives created by the Project. In this case, the Pilot Project has not led to a change in the behavioral response of the claimants. However, some claimants might have changed their work patterns and worked an additional number of small weeks because of the Project. The essence of this evaluation is to estimate this incremental impact on claimants' behaviour (i.e., the difference between what they actually did and what they would have done in the absence of the Project).

Footnotes

6	Since the earning gained is immediate and the loss in EI benefits occurs sometime in the future, the decision also depends on the individual's discount rate.
7	In general, an individual who chooses not to work the extra week will also gain some hours to devote to non-market activities. The decision to supply labour for that week will thus also depend on the hours of work required to generate the extra earnings and the individual's valuation of leisure.
8	The rules governing the calculation of the benefit rates are discussed in the EI guide.
9	Weekly benefit rate is calculated to 2 decimals and rounded to the nearest dollar.
10	The effect of an additional week of work on the length of entitlement is ignored in this calculation because in general, an average participant does not exhaust his/her benefit entitlement.