Reports findings from an impact study that tested different reemployment bonuses on Unemployment Insurance (UI) claimants’ employment outcomes and UI receipt and a benefit-cost analysis to determine if the bonuses were cost-effective from the perspective of society as a whole and the UI program specifically.

The UI “program provides short-term income support to involuntarily unemployed individuals while they seek work” (p.xv).  In the late 1980s, “the program [used] work-search requirements and employment-service referrals [to promote rapid reemployment]; however, [there was] policy interest…expressed in providing additional job-search assistance and other employment­ oriented services to UI claimants, including additional monetary incentives for claimants to seek work on their own….The Pennsylvania Reemployment Bonus Demonstration tested the effect of alternative reemployment bonuses on the reemployment and UI receipt of UI claimants….

The Pennsylvania Reemployment Bonus Demonstration was designed to test the effect of alternative parameters of a reemployment bonus offer, including the amount of the bonuses that are offered and the time period in which the bonus offer remains valid--the qualification period. It tested six treatments, or bonus-offer variations, according to a design in which eligible claimants were assigned randomly to the six treatments and to a control group that was not offered a bonus. The purpose of this random assignment design was to allow differences in the behavior of claimants in the treatment groups to be attributed to the effect of the treatments with a known degree of statistical precision” (p.xv).

“Demonstration-eligible claimants were selected and bonus offers were made between July 1988 and October 1989, a period in which the Pennsylvania economy was quite strong (employment was growing, and the average unemployment rate was 4.5 percent). Over this period, 15,005 eligible claimants were selected and assigned to treatment and control groups. Of these claimants, 14,086 signed for the waiting week or received a first payment and were thus eligible to receive a bonus offer if they were assigned to a treatment group. These claimants were located in 12 offices throughout the state. The 12 offices were selected randomly to represent the UI population in the state” (p.xvi).

(Abstractor: Author and Website Staff)

Major Findings & Recommendations

“The demonstration showed that reemployment bonuses can reduce the amount of time spent on UI, thereby reducing benefit payments. The demonstration also provided some evidence that the bonus offers increased the employment and earnings of claimants. Overall, the demonstration showed that the benefits of reemployment bonuses can exceed their costs to society, claimants, and the government. However, for all the bonus offers tested, the amount of the bonus payments plus their administrative costs exceeded the savings in UI payments. Thus, reemployment bonuses do not appear to be cost-effective from the standpoint of the UI system itself” (p.xv). The research team noted the following impacts: “Impacts on UI Receipt[:] The demonstration treatments were expected to reduce UI benefit receipt among eligible claimants by inducing them to find reemployment quickly….[The research team’s] estimates based on these comparisons show that most of the bonus offers that were tested reduced UI receipt significantly over the benefit year” (p.xvii). “Impacts on Employment and Earnings[:] Because the bonus offers reduced UI receipt, [the research team] expected to observe an increase in employment and earnings among claimants assigned to the treatments, and…did find some evidence that this increase occurred. Data from UI wage records showed that the treatments had no impact on employment, but that they had a generally positive but insignificant impact on earnings…. Benefit-Cost Analysis[:] The bonus offers generally yielded net benefits to claimants and to society as a whole. Claimants responded to the bonus offers by giving up benefits that were approximately equal to the bonus payments that they received. Consequently, because claimants also experienced greater employment and earnings from having been offered the bonuses, they received net benefits from the bonus program. Society also received net benefits from the bonus program because the earnings gains exceeded the relatively low administrative costs of the program. Although the bonus offers generated net benefits to claimants and to society, they were not cost­ effective from the perspective of the UI system. The costs of administering and paying reemployment bonuses in the Pennsylvania demonstration generally exceeded the reduction in UI receipt caused by the bonus offers. The bonus offers thus yielded modest net losses for the UI trust funds.” (p.xviii-xix). (Abstractor: Author and Website Staff)