You have just been appointed to evaluate some of the social programs.

Your mission, which you have no choice but to accept, is to reform De-

mogrants and Employment Insurance (EI) because they are presently

not affordable and rife with inefficiencies. One fundamental issue that

underlies the reform of demogrants and Employment Insurance (EI) is

the conflicting objectives of providing adequate income protection on

one hand and providing a more efficient incentive structure on the other

hand. Explain the nature of the disincentive effects that are involved

with demogrant payments and the disincentive effects that are involved

with EI. Your response should be set in the framework of the labour

supply model, which means a discussion of the income effect and the

substitution effects. Support your answer with help of diagrams and at

the same time give an intuitive explanation of the economic behavioural

mechanisms.