Testing the effectiveness of government support for business innovation

In January, Jean-Pierre Voyer, SRDC president, and Doug Tattrie, SRDC senior research associate, presented a study on field experiments and government support for business innovation to academics and experts at a roundtable discussion hosted by Industry Canada.

The innovation performance of Canada’s business sector has been poor compared to other G-7 countries. The government of Canada spent $5 billion in 2008 to help business innovation, but there is poor understanding of whether, and to what extent, government assistance makes a difference. As a consequence, Industry Canada commissioned SRDC to conduct a study on the feasibility of using randomized field experiments to test the effectiveness of government-support programs for business innovation as well as research and development (R&D). Field experiments have rarely been used with firms and have never been used to test R&D support programs.

For reasons of cost and sample size, the SRDC study focused on small firms who are already conducting R&D. For these firms, SRDC concluded that it would be feasible to use a field experiment to test the effect of an incremental increase in an R&D tax credit. SRDC also found that it would be feasible to test experimentally the effect of the potential to receive an incremental increase in a grant for R&D. Both experiments would make use of existing government organizations to minimize operational costs and complexity. The relative effectiveness of an extra tax credit versus extra grant funding could be tested in a larger experiment in which some firms have the potential to receive an extra R&D tax credit, while other firms have the potential to receive an extra R&D grant.

SRDC’s presentation of the study was followed by comments from academics and experts.

Gary Burtless of the Brookings Institution praised field experiments for their credibility and transparency. He said that alternative methods have difficulties in establishing causality and dealing with selection effect. He added that the R&D tax-credit experiment proposed by SRDC was better developed than the R&D grant experiment.
G.Burtless’s presentation.

Guy Lacroix, professor of the Université Laval, spoke in favour of experiments, but also proposed a regression-discontinuity design as an alternative method for evaluating R&D grants. He expressed concern that experiment results might be distorted due to spill over effects between firms inside the experiment and those outside it.
G.Lacroix’s presentation.

Ken McKenzie, professor at the University of Calgary, was also generally favourable, but he was concerned that sudden increases in government support for R&D might only increase the wages of researchers, not the number of R&D projects. He urged more examination of general tax measures and supply-side measures to encourage R&D.
K.McKenzie’s presentation.

Additional comments suggested that an experiment would need to allow sufficient time for firms to plan how to use government support. There was concern that an experiment might neglect the effect of government support on encouraging new R&D performers. Another concern suggested that firms might shift some R&D over time to capture the temporary incentives of the experiment. This effect may make government support appear more effective than it is in reality.

Read the SRDC feasibility study

Read the roundtable summary

Latest learn$ave report reveals real education impacts for low-income adults

In March 2009, SRDC released a report on the intermediate impacts of the learn$ave Individual Development Accounts (IDAs) Project. By matching low-income adults’ deposits in a special account, IDAs are designed

to encourage them to save money so as to accumulate major assets, such as a house, start a small business, or increase education as a means of improving their economic situation.

In learn$ave, program group participants received $3 in matched credits for each $1 they put aside in their learn$ave account. Participants could earn up to $4,500 in credits for education or a small-business start-up, which are activities expected to enable them to improve their economic well-being. They were also given financial education to enhance their budgeting and financial literacy skills, as well as case management assistance to reinforce savings goals. SRDC tested research hypotheses concerning learn$ave’s impacts on savings and education enrolment, among other outcomes. It used a random assignment design to compare the outcomes of program group participants to those of a control group of similar participants who did not receive the matching credits or services.

The first set of results presented in the report indicates that, over the first 40 months, learn$ave has not had much of an impact on overall average saving levels. Results further indicate that learn$ave has not appreciably increased average net worth. However, it has altered the composition of assets, leading specifically to higher bank-learn$ave account balances, fewer or cheaper household assets, and lower retirement savings. There were also positive budgeting impacts, where financial training and case management played a significant role. There is no evidence that learn$ave has caused participants to borrow, work more, or suffer increased hardship.

The other set of results indicates that the learn$ave IDA has fulfilled the objective of encouraging low-income adults to enhance their skills. The positive education impacts have been widespread for all low-income participants – those with only a high school certificate or a university degree, and those who are Canadian-born or new immigrants. Moreover, these impacts have taken place mostly in university and college programs, not courses. Completion of post-secondary education programs is more likely to pay off in terms of improved labour market outcomes, rather than the completion of individual courses or degrees at lower education levels.

This is the second of three impact reports, the last of which will be released later this year. The learn$ave project was conceived and implemented by Social and Enterprise Development Innovations (SEDI) thanks to the funding of Human Resources and Skills Development Canada. SRDC is conducting the evaluation of the project.

Read the report

Barriers students face when considering post-secondary education: study data collected

SRDC and CIRANO (Centre interuniversitaire de recherche en analyse des organizations) have just completed the data collection phase in an ongoing study that investigates some of the barriers students may face when deciding whether or not to enroll in post-secondary education (PSE). Funded by the Canada Millennium Scholarship Foundation and the Higher Education Quality Council of Ontario, the study involved close to 1,400 students across 4 Canadian provinces. Students were either in their final year of high school or their first year of CEGEP (collège d’enseignement général et professionnel); in either case, the outcome of interest was a willingness to pursue further post-secondary education.

Surveys were administered to students and their parents to capture some key characteristics that are known to influence PSE participation, such as academic ability, parental education, family income, and distance of residence from a university.  This study went one step further than most previous research in asking to what extent PSE participation was influenced by the financing options that were available to prospective students.  Because funding formulas for student financial assistance have been based largely on net cost (that is, cost of studies relative to family income), many applicants from disadvantaged groups have been eligible only for student loans rather than grants.  Low PSE participation rates among such groups may reflect an unwillingness to incur high levels of debt.  To what extent would participation increase if grants were more widely available?

The study addressed this question by using an innovative experimental design in which participants were asked to make real rather than hypothetical choices.  For instance, participants were given a number of choices between various forms of financing for full-time PSE (loans or grants up to $4,000) and significant but smaller amounts of money (up to $700).  They were informed that at the end of the session they would be compensated for one of their choices, selected at random.  Not knowing which choice would be selected meant that any of them could involve real stakes, and thus provided participants with a strong incentive to reveal their true preference in each case.

The study was designed so that students who are not interested in PSE should opt for the money each time, whereas those who are strongly motivated to attend PSE but need financial assistance should choose student aid most of the time, regardless of whether it is in the form of a loan or a grant.  The most interesting choices are those made by students at the margin, that is, those who are somewhat motivated to attend PSE, but may be debt averse.  They may vary their willingness to invest in PSE as a function of the financing options available – for example, they may be more likely to choose smaller amounts in the form of grants rather than larger amounts in the form of loans.  These decisions tell us how generous financial assistance needs to be in order to induce marginal participants to invest in PSE.

SRDC and CIRANO are hoping to release two reports in the fall of 2009 – one covering the entire population and another focusing on students in Ontario.

Achieving income security for people with disabilities

SRDC along with other experts from across Canada were invited to a one day roundtable discussion on achieving income security for people with disabilities at the MaRS Collaboration Centre in Toronto in January 2009. After a morning of insightful debate and discussion among roundtable participants, Karen Myers, a senior research associate at SRDC, delivered a presentation on increasing labour market access for persons with disabilities.

The issue is not an easy one to tackle. Although considerable research evidence suggests that substantial numbers of Canadians with disabilities are willing and able to work, in any given year, less than half of people with disabilities report paid employment.  People with disabilities are supported through an extensive patchwork of programs at all levels of government, including the Canada Pension Plan Disability Program (CPPD), employment insurance sickness benefit, private insurance plans, provincial and territorial social assistance and disability programs, workers’ compensation, and several disability tax expenditures. Most income disability programs have strong work disincentives. Going to work often leads to significant additional costs such as transportation. In addition, lack of integration across federal and provincial programs means that people with disabilities may be left without income and personal supports as they enter, stay, or leave the labour force. Perhaps more important, going to work can lead to the loss of program eligibility. This may create a serious problem if circumstances change and an individual is unable to work for a period of time.

SRDC presented four approaches for removing barriers and improving supports needed to assist persons with disabilities to access the labour market:

Given the well-established work disincentives built into most public income support programs, it was the last option (providing earning supplements) that generated the most interest around the table. This option involves the provision of an earning supplement to individuals with disabilities who work a minimum of 16 hours. The supplement would be designed to be generous enough to make working worthwhile. The total income from earnings plus the earning supplement would need to exceed the total income from continued income support payments and would need to cover additional costs associated with working. The ability to return to income support when needed gives working persons with disabilities that are episodic in nature, the flexibility and support to move in and out of the labour market.

The roundtable was organized by the Planned Lifetime Advocacy Network (PLAN) and the Canadian Working Group on HIV and Rehabilitation (CWGHR). Energized by the discussions of the day, participants agreed to meet again over the summer of 2009.

SRDC welcomes a new member to its Board of Directors

	SRDC is pleased to welcome Suzanne Herbert as the latest member of its Board of Directors.
	Suzanne Herbert has had a long and distinguished career in the Ontario

public service, working with different governments for over 25 years. She served as deputy minister of the Ministry of Northern Development and Mines, the Ministry of Education and the Ministry of Community and Social Services. Prior to these portfolios, she served as assistant deputy minister of Operations for the Ministry of Community and Social Services as well as CEO of the Ontario Housing Corporation.

A commitment to excellence in policy development led her to develop within the Ontario public service an initiative to promote excellence in policy leadership and program design, which she then co-chaired with the Secretary of Cabinet. She served on Queen’s School of Policy Studies Advisory Committee and represented Canada for several years in the Education Directorate of the Organization for Economic Co-operation and Development (OECD).

Ms. Herbert has an abiding interest in social and economic policy development and the interface between research, politics, policy formulation, and program implementation. Now retired, she lectures, offers consultancy services on a part time basis, and volunteers with several organizations.  

She and her husband have three children, who while they are independent, return home for sustenance on a regular basis.

SRDC’s upcoming presentations across North America