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 Demogrants and Employment Insurance (EI) because they are presently not a?ordable and rife with ine ciencies. One fundamental issue that underlies the reform of demogrants and Employment Insurance (EI) is the conicting objectives of providing adequate income protection on one hand and providing a more e cient incentive structure on the other hand. Explain the nature of the disincentive e?ects that are involved with demogrant payments and the disincentive e?ects 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 e?ect and the substitution e?ects. Support your answer with help of diagrams and at thesametimegiveanintuitiveexplanationof theeconomicbehavioural mechanisms.

1. 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 sits cone 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 LOY mechanisms.four