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Policy Framework
Worker displacement is a natural feature of flexible labor markets. Changing technologies, competition, and shifting demand all have the potential to push people out of long-term, continuous, and even well-paying jobs. While unemployment insurance enables such people to hold out for an attractive new employment opportunity, it may also prolong their joblessness by reducing the urgency of finding work. Canada’s Earnings Supplement Project (ESP) was designed to encourage rapid reemployment by offering financial incentives to displaced workers. Sponsored by the Canadian government, the demonstration was managed by the Social Research and Demonstration Corporation (SRDC) and evaluated in a random assignment study by MDRC in collaboration with SRDC.
Agenda, Scope, and Goals
Two primary benefits, each of which could last as long as two years, characterized ESP’s offer to unemployment benefit claimants who found a full-time job within 26 weeks:
- If the new job paid less than the old one, ESP enrollees received an earnings supplement equal to 75 percent of the difference between the two wages, up to a maximum of $250 per month.
- Earnings insurance protected ESP enrollees against a future reemployment earnings loss.
By designing its incentives in this way, the Canadian government sought to avoid the largely disappointing results of earlier programs piloted in the United States that offered a lump sum bonus to displaced workers who became reemployed quickly.
ESP’s goals were threefold:
- to compensate displaced workers for job loss associated with economic growth that benefits society as a whole
- to provide displaced workers with a source of temporary financial support that promotes rapid reemployment without lowering their earnings or increasing the unemployment rolls
- to reduce unemployment insurance costs
Design, Sites, and Data Sources
About 8,000 displaced workers entered the ESP study over a one-year period from 1995 to 1996. Half were randomly assigned to the supplement group, making them eligible for the earnings supplement or the earnings insurance if they found full-time work within 26 weeks. The other half were randomly assigned to the control group, making them ineligible for the supplement and earnings insurance but eligible for standard unemployment benefits. ESP’s effects on labor market reentry and other outcomes were estimated by tracking and comparing the two groups’ experiences over a 15-month period.
The demonstration sites were chosen to reflect a mix of labor market types and geographic areas. The sample — composed of Granby, Quebec; Oshawa, Ontario; Saskatoon, Saskatchewan; Toronto, Ontario; and Winnipeg, Manitoba — was therefore diverse but not fully representative of the Canadian labor market.
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