Applied Research Bulletin - Volume 5, Number 1 (Summer 1999)

Wage Supplement Improves Sense of Security but Stimulates Little Re-Employment

How does an earnings supplement affect future employment, earnings and Employment Insurance benefit receipt of those who are unemployed? This is the question addressed by the Earnings Supplement Project.

The main objectives of the Earnings Supplement Project (ESP) were to hasten re-employment and to reduce dependency on the Employment Insurance (EI) program. The ESP was targeted towards two groups of unemployed: EI repeat-users and displaced workers. It was implemented in nine Human Resources Centres of Canada covering seven provinces. The two final reports from the projects have recently been released—one reporting on the effects on repeat EI-users, who regularly combine periods of work with EI benefit receipt, and the other dealing with the program's impact on displaced workers, who had permanently lost their jobs due to changing economic conditions.

The final reports on ESP highlight the fact that a majority of participants, when interviewed, said that the wage supplement made available by the program added to their sense of security and personal well-being after they lost their job. However, the reports conclude that the Earnings Supplement Project has not succeeded to the degree expected as an incentive for rapid re-employment.

The main reasons cited for this limited success are lack of jobs for displaced workers and high expectation of recall by a previous employer for repeat users of EI. About 60 percent of displaced workers participating in the experiment did not find a full-time job in time to qualify for the supplement, and almost 90 percent of repeat EI-user participants expected to be able to return to their most recent employer.

On the positive side, 91 percent of displaced workers interviewed for the report said that the supplement made “a bit” or “a fair bit” of difference in their personal well-being. Many respondents expressed the view that ESP made a substantial difference between “worrying all the time, and not” and also contributed to “taking off a lot of pressure.”

In addition to personal well-being, the financial situation improved for the repeat-EI users and displaced workers who received the wage supplement. Among the displaced workers interviewed who received the supplement, 94 percent said that the supplement had made “a bit” or “a fair bit” of difference to their financial well-being.

The impact on job search was also a focus of the evaluation. The report concludes that ESP had a limited effect on the job search behaviour of displaced workers. In fact, whether or not they received the payment, displaced workers started looking for new jobs quickly and diligently tried to become re-employed. Both repeat EI-users and displaced workers used similar approaches in their job search. The only difference is that ESP caused some displaced workers to consider new types of jobs.

The researchers also found that at its peak impact, ESP increased the percentage of displaced workers who became re-employed full time, by 4.2 percentage points. This improvement was short-lived, however, and almost disappeared after a year. For repeat EI-users, ESP had no significant impact on re-employment since only a small proportion of them took advantage of the wage supplement. Furthermore, ESP had no impact on either the duration of EI benefit receipt or the amount of benefits received.

The limited success of the ESP as a measure for stimulating re-employment is not surprising given the problem experienced by the program in attracting participants among repeat EI-users and the difficulty reported by displaced workers in finding a new job. Among repeat EI-users, only 4.7 percent of the participants actually received the wage supplement. For displaced workers, the proportion was only about 2 out of 10 participants.

Nonetheless, the pilot project has proven useful in testing on a small scale the effectiveness of re-employment incentives for displaced workers and repeat EI-users. The conclusions drawn from the ESP project should not preclude the possibility that other types of earnings supplementation programs could be successful at increasing re-employment.


More About the Earnings Supplement Project The Earnings Supplement Project (ESP) was one of the largest research projects of its kind conducted in Canada. It measured how a re-employment supplement affected future employment, earnings, and Employment Insurance benefit receipt. The ESP used an experimental technique known as random assignment considered by many specialists to provide the most reliable method to test program impacts. Program effects are estimated by comparing outcomes for participants who are eligible for the program (treatment group) to a similar group who are not eligible (control group). Enrollment began in September 1995 and supplement payments formally ended in October 1998. ESP's financial incentive was based on the notion of “earnings insurance.” Eligible participants who left Employment Insurance for full-time work within a specific period of time and took up a new job that paid less than their previous one could receive a supplement of 75 percent of the earnings loss. Participants could receive the wage top-up for up to two years. The supplement was time limited: in order to qualify, displaced workers were given 26 weeks to find a new job and repeat EI users were allowed 12 weeks. Why conduct a pilot re-employment project? The Unemployment Insurance Act and its successor, the Employment Insurance Act, both recognized the need to search for innovative approaches to help unemployed people to overcome the barriers they face in becoming re-employed. ESP is one of the innovations arising from these Acts. Since the earnings insurance concept had never been tested in Canada, there was a need to analyze its potential efficiency. The aim of the ESP experiment was to fill this information gap by testing on a relatively small scale the effectiveness of an earnings supplement targeted to specific portions of the Canadian population who are out of work. Social Research and Demonstration Corporation conducted the project for Human Resources Development Canada.

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