Reports findings from an impact evaluation of the Washington Reemployment Bonus Experiment, which was designed to reduce the disincentive to find employment caused by Unemployment Insurance; the experiment took place in Washington State during 1988 and involved giving a financial incentive to randomly selected UI recipients who found a job and exited the UI rolls before the end of their entitled duration of benefits.

“The principal objective of… unemployment insurance (UI)…is to reduce hardship by providing labor force members with partial wage replacement during periods of involuntary unemployment. In performing this income maintenance function, UI has the potential of prolonging spells of unemployment. Indeed, leading economists began publishing research findings in the 1970s strongly suggesting that UI tends to lengthen jobless spells beyond that which would occur without UI payments. The 1980s saw several state and federal experiments, testing initiatives designed to reduce work disincentives while retaining the income maintenance functions of UI. A new program, offering bonus payments to UI claimants for speedy return to work, was tested in experiments run in Illinois in 1984-85 and in New Jersey in 1986-87. The apparent success of these experiments in reducing insured unemployment led the U.S. Department of Labor (USDOL) to launch expanded versions of these bonuses offer experiments in Washington and Pennsylvania in 1988.

The purpose of the Washington Reemployment Bonus (WREB) experiment was to validate the results of the previous experiments, test a new range of reemployment bonus plans, and identify the most cost-effective plan. The WREB was designed by the W.E. Upjohn Institute for Employment Research in collaboration with the Washington State Employment Security Department (WSEDSD) and the USDOL” (p.xiii).

This report provides final results from the random assignment evaluation of the WREB, which had “six treatments—three bonus levels and two alternative qualification periods” (p.xiv). “The goals of the experimental program were to reduce unemployment and to reduce costs to the UI fund” (p.xv).  The experiment was also designed “to select the most cost-effective combination of bonus level and qualification period for a bonus offer program” (p.xvi). The experiment targeted UI claimants who filed for benefits from February to November 1988 at 21 of Washington’s Job Service Centers. “In total, 12,451 eligible claimants were enrolled into six treatments, and an additional 3,083 were assigned as controls” (p.xiv).

(Abstractor: Author and Website Staff)

Major Findings & Recommendations

“The following is a summary of the principal findings: • The high bonus level treatments…caused substantial, and statistically significant, reductions in UI compensation and weeks of insured unemployment. • Treatment 6, the high bonus and long qualification period, had the largest effects; i.e., a reduction of $140 in compensation and 0.75 weeks of unemployment. • Three of the four low and middle level bonus treatments failed to produce statistically significant effects. • Across the six treatments, the mean response was a $65 reduction in compensation and a 0.41 week reduction in the duration of UI payments…. • Shifting from a low…to a medium…bonus level had no effect; • Shifting from a medium to a high…bonus level had a statistically significant impact, reducing compensation by $83, and weeks of insured unemployed by one-half week; and • Shifting from a short to a long qualification period somewhat reduced compensation” (p.xvi). The authors also analyzed impacts on selected subgroups, including “dislocated worker status, gender, race/ethnicity, age, base period earnings, and characteristics of local areas” (p.xvii). Many of the subgroup analyses did not find significant results; however, combining age and base period earnings uncovered the following: • “The impact was very strong on UI compensation drawn by high earning/older workers, possibly indicating that discouraged workers were responsive to job search incentives; • The impact was also strong on UI compensation drawn by low earning/young workers, who might not yet have been strongly attached to the work force and were encouraged to increase job search; • High earning/young workers did not respond to the experimental treatment; those workers may have already been strongly attached to the work force and maximizing job search effort” (p.xviii). “Some differences in response were found across geographic regions of the state and between areas experiencing different economic conditions…claimants filing in areas where the [total unemployment rate] was particularly low…strongly responded to the experiment, whereas claimants in areas experiencing moderate or high [total unemployment rate] responded weakly or not at all” (p.xviii). (Abstractor: Author and Website Staff)