Key takeaways

• When unemployment benefits (such as employment insurance) replace a larger share of lost income, the people receiving the benefits tend to achieve higher productivity and wages. But this can also raise the overall unemployment rate and widen the gap in outcomes between those who receive the benefits and those who don’t.
• When a higher proportion of the workforce completes employability programs (such as training), the benefits are greater overall. Productivity and wages rise, and unemployment falls.
• The impacts of making changes to unemployment income supports or employability programs can differ according to a country’s economic, regulatory, and institutional structures, such as its labour laws and social safety nets. The study finds that the effects in the Canadian labour market are gradual and balanced.
• To balance economic efficiency and social equity, it is important to consider both income supports and employment training.

Plain language summary

This research modelled how changes to unemployment income supports (such as employment insurance benefits) and employability programs (such as training or job-search assistance) affect labour market outcomes for both individuals and the aggregate labour market.

The results are based on the effects of the changes on productivity, wages, job matching, job creation, and unemployment, considering both aggregate and individual outcomes. The research looks at two policy changes: increasing the unemployment benefits replacement rate, and increasing the proportion of workers who participate in employability programs. The models are applied to three countries (Canada, the U.S., and France) to examine how the results vary across different economic, regulatory, and institutional structures.

The research first looked at the impact of raising the unemployment benefits replacement rate, or the share of lost income that is replaced through unemployment benefits. This change leads to higher individual productivity and wages, partly because participants can afford to wait for the right job. However, as firms face higher wages, they are less inclined to create new positions, contributing to higher structural unemployment. Additionally, wages and productivity decline for those who do not participate in the programs.

The research also examined the potential impacts of increasing the proportion of workers who participate in employability programs. This has been found to increase net wages and productivity as more workers benefit from the programs. With more people participating, the average worker’s bargaining power increases, leading to higher net productivity, improved job matching, and lower unemployment. However, the gap in productivity and wages widens between those who do and do not participate, given that those who do not are less competitive.

For both scenarios, the results for the Canadian labour market show gradual and balanced effects. In Canada, compared to France or the U.S., there is less polarization between those who do and do not participate in the programs. In other words, in Canada, changes to unemployment income supports and employability programs are absorbed more easily, leading to smaller differences in labour market outcomes.

Definitions

• Employability programs are meant to help workers find and keep meaningful work, such as training and skill development programs.
• Unemployment income supports refer to financial benefits paid to workers during a period of unemployment, such as employment insurance payments.
• The unemployment benefit replacement rate refers to the share of lost income that is replaced through employment insurance or other income support programs.

Why the results matter

For individuals

The research provides insight into the complexities of labour market policy design and the benefits of income supports and employability programs for both individuals and the aggregate labour market.

For policy makers

This research provides useful insights into how different forms of worker support may affect individuals and the aggregate labour market. It also highlights the role of economic, regulatory, and institutional structures in predicting the impacts of new labour market policies and programs.

For researchers

This research provides new insights into the aggregate effects of employability programs, advancing the conversation beyond individual labour market outcomes.