Brookings: Experts - Harry J. Holzer

The Future of Middle-Skill Jobs

Harry J. Holzer and Robert I. Lerman — Thu, 26 Feb 2009 09:02:42 -0500

INTRODUCTION

Are jobs in the middle of the education and earnings distributions really disappearing, as some research and popular reports suggest? Or will the middle of the labor market remain robust? And what does all of this mean for education and training policy?

Over the 1990s, gains in jobs and wages rose more rapidly at the top and bottom of the earnings distribution than in the middle, in part because computers more easily replace jobs in the middle of the market than at the top (where abstract reasoning is required) or the bottom (where social interactions are needed). David Autor of MIT and others have warned of a growing “polarization” between workers with high and low earnings, conveying popular images of a “dumbbell” labor market, or an “hourglass economy.”

Given this picture of the labor market, some observers suggest that policy should focus almost exclusively on enhancing cognitive skills and the attainment of college degrees while deemphasizing occupational training for middle-skill jobs. However, if the trends towards labor market polarization are exaggerated and if the demand remains robust for workers to fill jobs requiring less than a B.A. degree, then education and training policies should have a broader focus and should encourage occupational training that targets middle skill jobs as well.

In this paper, we analyze the likely trends in supply and demand for workers with different levels of education and training over the next decade and beyond. We present data on the current distributions of jobs and wages and how these have evolved in the recent past. Next, we draw on data and projections from the Bureau of Labor Statistics to forecast the mix of occupations demanded in the coming decades. We compare these demand-side projections with forecasts of the supply of workers with varying levels of education and training.

Overall, we conclude that the demand for middle-skill workers will remain quite robust relative to its supply, especially in key sectors of the economy. Accordingly, accommodating these demands will require increased U.S. investment in high-quality education and training in the middle as well as the top of the skill distribution. Many current and future low-income workers are likely to take advantage of the added training for middle-skill jobs and thereby raise their earnings and their family’s living standards. If such investments are made on behalf of those who are currently poor, this could also lead to higher earnings and lower poverty rates for those currently at the bottom of that distribution.

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Harry J. Holzer
Robert I. Lerman

Living Wage Laws: How Much Do (Can) They Matter?

Harry J. Holzer — Wed, 10 Dec 2008 00:00:00 -0500

Executive Summary

In recent years many municipalities and counties throughout the nation have enacted living wage laws, which require businesses that benefit from government contracts or other forms of public financial assistance to pay wages well above the federal minimum wage, and sometimes benefits, to their workers. Advocates of these laws often view them as ways to raise the earnings of low-wage workers and reduce wage inequality. Opponents often believe that the laws reduce the number of jobs available to low-wage workers and drive businesses away from the jurisdictions that enact them.

This discussion paper describes the living wage laws that currently exist and reviews the academic evidence on their impact. It focuses on the laws’ impacts on labor market outcomes such as wage levels, employment rates, poverty, and inequality. The review’s most important findings for policymakers and practitioners are:

Living wage laws affect very few workers directly. Few workers work for firms that are subject to living wage laws. Most studies suggest that the laws cover only 2-3 percent of the bottom tenth of wage-earners. Even in a city of 1 million people, only about 1500 workers are likely to be covered. However, it is possible that the impacts of living wage laws spill over to other workers who do not work for covered employers.
Living wage laws have both modest benefits and modest costs for low-wage workers. Living wage laws raise the wages of the lowest-wage workers. They may also result in lower turnover, better worker morale, and modest reductions in poverty. However, they lead to modest reductions in employment for the lowest-wage workers and may also result in reductions in training and in the use of part-time or overtime work.
Living wage laws can be useful but meaningful increases in the earnings of low-wage workers and reductions in poverty require more powerful public policies. Because of their limited coverage and modest affects on wages, living wage laws cannot have a large impact on low wages or poverty. Other public policies, such as those to expand collective bargaining, education and training, and publicly financed health insurance and parental leave, are likely to have more impact. Living wage laws can be useful if they raise awareness of pay disparity issues and build support for more powerful policies to raise the earnings of low-wage workers.

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Harry J. Holzer

Encouraging Job Advancement Among Low-Wage Workers: A New Approach

Harry J. Holzer — Sat, 01 May 2004 00:00:00 -0400

The welfare reforms of the late 1990s, along with a strong economy and an expansion of work supports for low earners such as the Earned Income Tax Credit, helped reduce welfare rolls and raise employment rates among low-income single mothers. Not only did employment rates rise for these women, their rates of job retention are currently quite high as well. But most current or former welfare recipients earn low wages—usually in the range of $7 to $8 per hour. Most of these workers do not receive health and other benefits on the job. Nor do they move up the job ladder very much over time. Thus, most former welfare recipients continue to be poor or near poor, even after entering the labor market, and their prospects for escaping poverty or near-poverty in the foreseeable future seem low.

The problem of low wages for unskilled workers extends well beyond the current or former welfare population. The real wages of less-educated males have either stagnated or declined (depending on how we adjust for inflation) over the past 30 years, and the earnings of less-educated men and women have fallen well behind their more educated counterparts. The gains associated with education and training programs for disadvantaged workers have generally been quite modest—at least partly because the investments in such training per person are modest as well.

This policy brief presents new evidence on the determinants of earnings advances for low earners. The results are based on a new source of longitudinal data for very large populations of workers and their employers. This brief also considers what these results imply for a refined job advancement strategy for welfare recipients and other low earners. The evidence strongly suggests that an effective job advancement strategy would stress the placement of low earners into jobs with higher-wage employers and would integrate targeted training with private sector advancement opportunities. Policymakers should consider designing programs to encourage the creation of higher-wage jobs. Private labor market intermediaries—including for-profit temporary help (or "temp") agencies as well as other nonprofits—could play important roles in these efforts.

A New Study of Low Earners Over Time

Over the past few years, the U.S. Census Bureau has been developing a new source of data for the study of labor markets. The Longitudinal Employer-Household Dynamics (LEHD) data begin with the universe of unemployment insurance records dating back to the early 1990s for participating states (representing over 70 percent of the U.S. workforce). These data are then merged with various household and employer surveys administered by the Census Bureau. The result of this effort is an enormous datafile that tracks virtually all workers in these states over many years, and provides extensive information on their employment histories and the characteristics of the employers for whom they have worked.

Along with Fredrik Andersson and Julia Lane, my coauthors on the book Moving Up or Moving On, I have analyzed the earnings levels and growth rates of prime-age workers in several states over a period of nine years. We defined low earners as those who earned less than $12,000 per year (in 2000 dollars) for three consecutive years in the period 1993-95; we then followed them over the next six years (1996-2001) and evaluated their rates of earnings growth. Among the questions we explored were the following:

How frequently, and to what extent, do low earners transition out of this status? Which groups of low earners do so more frequently than others?

Are rates of advance for low earners heavily dependent on the characteristics of their employers? If so, what kinds of employers in which economic sectors provide the greatest advancement opportunities?

Are low earners more likely to advance by staying with their initial employers over time and gaining work experience and seniority (i.e., job retention), or by moving to other employers who provide better opportunities (job mobility)?

Are returns to any kind of early work experience (as emphasized in work-first approaches) very high, or is it better to wait and gain employment with a higher-wage employer (as welfare recipients have been encouraged to do in Portland, Oregon)? And what role is played in this process by labor market intermediaries—specifically temp agencies—that provide job placements and sometimes training as well?

Rates of Advance: How Much and For Whom?

Among all prime-age workers who consistently earn less than $12,000 a year between 1993 and 1995, significant earnings improvements are observed in the six subsequent years. In fact, over two-thirds of these workers earn above $12,000, and over half earn above $15,000, in one or more of those years.

At the same time, only about 27 percent of these initially low earners consistently earn above $15,000 by the end of this period—which would be needed (along with the Earned Income Tax Credit) to lift the earnings of single parents above the poverty line for a family of four. Earnings advances for women appear to be smaller than those of men, and advances for minorities and the foreign-born (especially among men) generally lag behind those observed for native-born whites. Transition rates out of low earnings are also lower among high school dropouts and others with poor skills, as Helen Connolly and Peter Gottschalk of Boston College noted in their recent work.

The Role of Sector and Employer Characteristics

The earnings gains of these workers vary with the industry, size, and turnover rates of the employer. For example, advancement rates are considerably higher among workers who end up in high-wage sectors such as construction, manufacturing, transportation/utilities, and wholesale trade than among those in retail trade or the services sector. Those who work in larger firms and/or those with lower turnover rates also experience greater earnings gains over time.

Of course, there is considerable variation in wage levels across firms within these broad industrial categories. Within manufacturing, firms producing durable goods such as cars and appliances pay significantly more than those producing nondurables such as textiles and apparel; in retail trade, supermarkets and department stores generally pay considerably better than restaurants and other small retail outlets; and, within the service sector, the financial sector and health services generally pay more than personal services and the hotel and entertainment sectors. In general, low-earning men are much more likely to transition out of low earnings by work in construction, manufacturing, transportation and wholesale trade; while most women (and presumably welfare recipients) who advance do so within the service sectors.

Even within more narrowly defined sectors of the economy, and within particular states, there is wide variation in wages that firms pay comparably skilled workers. These firm-level earnings premiums are highly correlated with the rates of earnings increases experienced by our initially low earners. In fact, just 30 percent of those who completely escape low earnings by 1999-2001 still work in the bottom quartile of firms (in terms of earnings premiums), as opposed to 70 percent of those who remain low earners.

Of course, these findings beg an important question: why do some firms choose to pay higher wages while others do not? As Eileen Appelbaum of Rutgers University and her colleagues point out in their recent volume Low-Wage America: How Employers are Reshaping Opportunity in the Workplace, some employers such as Wal-Mart respond to competitive pressures and new technologies by reducing worker compensation and replacing semi-skilled labor with low-skilled labor; but others respond by increasing training opportunities and providing career ladders so that unskilled workers can become more productive over time and reduce their turnover. Employers generally base their decisions on local labor market conditions, corporate culture and values, pressure from unions, assistance from outside organizations, and the information about alternatives available to them.

Job Mobility vs. Retention among Low Earners

Our data clearly indicate that, on average, earnings growth is higher among those who change jobs than among those who stay with the same employer over time. Roughly three-fourths of those who manage to fully transition out of our low earnings categories do so by changing employers rather than staying with the same one.

On the other hand, these results do not imply that all job mobility is productive, or that returns to work experience and tenure with a given employer are irrelevant. For instance, it is well known that voluntary job changes produce more positive earnings gains than those that are involuntary (or driven by child care or health care problems); and moving from one job to another is preferable to moving from a job into unemployment. Clearly, the gains we observe for job changers occur not because they change jobs per se, but because they have opportunities to improve their earnings with better employers.

But, even among those who change jobs, returns to experience and tenure with an employer are still important. To economists, the latter reflect on-the-job training and advancement opportunities within particular firms. Generally, we find that those who move to new jobs experience earnings growth there at least as high as that observed in their earlier jobs. This growth is in addition to the initial wage gains they enjoy upon making these moves, usually to higher-wage firms. Thus, the greatest earnings gains among initially low earners are experienced by those who change jobs fairly early, and then accumulate work experience and wage growth with their newer and higher-wage employers.

Early Experience: Work First, the Portland Model, or Temp Agencies

Does a worker's early employment experiences while they remain low earners matter? We have analyzed three characteristics of work experience at earlier employers—accumulating work experience with any employer (i.e., work first); gaining employment at a higher-wage firm right away; or working initially for a temp agency—and how these affect the earnings ultimately attained by low earners who change jobs later on.

The work-first approach suggests that any work experience generates job readiness skills and signals readiness to other potential employers. In contrast, some welfare-to-work service providers (e.g., those in the Portland site of the National Evaluation of Welfare-to-Work Strategies, or NEWWS) have urged recipients to be more selective and choose better initial jobs. Temp agencies often provide low earners with a period of consistent low-wage employment, but the agencies might then place them with good employers subsequent to this initial period.

Our results show some support for each of these three options. For instance, we find some clear returns to the early accumulation of job tenure with any firm, including low-wage employers. On the other hand, these returns are also quite modest. In fact, work with low-wage employers generally raises subsequent earnings by well under 1 percent per quarter worked. In contrast, early work with a high-wage employer has somewhat more positive effects on earnings beyond that period with a different employer. In fact, a 20 percent rise in the wage premium paid by the early employer generally leads to an increase of 4 percent to 8 percent in earnings with a later employer.

Finally, we find that those who work for temp agencies initially have lower earnings than others, but 6 percent to 10 percent have higher earnings with their subsequent employer even after controlling for various personal characteristics and work histories. Furthermore, the higher subsequent earnings are completely accounted for by the higher earnings premiums on the jobs that they ultimately attain. The data strongly suggest that temp agencies improve subsequent job placement opportunities for low earners—perhaps by helping them gain early work experience, or by improving their access to higher-wage employers.

Implications for Policy

Our results indicate that low earners are most likely to advance in the labor market when they have access to higher-wage employers who also provide on-the-job training and/or career ladders. These findings are broadly consistent with the previous literature on advancement for low earners or those with little experience. For example, Rucker Johnson and Mary Corcoran of the University of Michigan have shown that job quality strongly affects earning prospects for welfare recipients. Similarly, Robert Topel and Michael Ward, at the University of Chicago and Unicon Corporation in Los Angeles respectively, have shown that job mobility contributes importantly to earnings growth among young workers. Helen Connolly and Peter Gottschalk of Boston College and Katherine Newman of Harvard also provide evidence of large earnings gains for some very low-wage workers in the 1990s.

Our results imply that job advancement depends not only on the skills that welfare recipients have, but also on their access to higher-wage employers. Unfortunately, low-income and especially minority workers living in poor neighborhoods often have limited access to firms in their local labor markets due to limited transportation options and limited information about (or contacts in) that market.

Efforts to improve the access of welfare recipients to better employers could thus have important payoffs in terms of worker outcomes over time. This conclusion is consistent with the positive results observed in the Portland site of the NEWWS evaluation, in which welfare recipients were encouraged to look for higher-paying jobs with some benefits. Federal legislation can play a role here. The Senate Finance Committee version of the welfare reauthorization bill, for example, replaces the existing credit for caseload reduction with an employment credit for those leaving cash assistance—and placements in jobs with higher earnings receive a larger credit.

Temp agencies seem to be an effective vehicle for improving access to good jobs. In some states they have served as many as 20 percent of welfare recipients entering the workforce, and even higher percentages among minorities. Some critics of these agencies claim that they simply skim the best qualified workers within the population of low-income workers. But, even if this is accurate to some extent, the temps generate access to employers that low-wage workers otherwise would have difficulty reaching on their own.

Many temp agencies provide limited training in computer skills for their clients; some also give their clients chances to obtain new job placements if the first one or two are not successful. Some preliminary work by David Autor of M.I.T. and Susan Houseman of the Upjohn Institute, using an experimental approach to evaluate the impact of temp agencies on welfare recipients in Michigan, suggest that these results might indeed be positive. Other kinds of private (nonprofit) labor market intermediaries might be able to play similar roles.

Besides temp agencies, local one-stop offices and other service providers need to have better data on the kinds of jobs available to less-skilled workers in their local labor markets. In fact, such data can now be accessed through the LEHD program. At their website (http//:lehd.dsd.census.gov), data on recent employment growth and earning levels are available at the detailed industry level for most counties in the United States. These data could enable local providers to improve the quality of their job placements for low earners quite substantially.

Of course, the skills that welfare recipients and other low earners bring to the labor market still matter enormously for their employment and advancement prospects. That is why job placement and training efforts must be better integrated in order for both to be successful. Some of this integration already occurs for welfare recipients and less-skilled workers more broadly. Besides temps, many other labor market intermediaries—such as the Center for Employment and Training (CET) in San Jose and WireNet in Cleveland—work closely with employers to ensure that the workers they refer are adequately skilled for the jobs they will fill.

In fact, the success of CET and other models like it has often been attributed to their close contacts with local employers. Sectoral training strategies, in which growing sectors of particular local labor markets are identified and targeted for participation, are one version of this approach. Training providers and other intermediaries gain significant knowledge about the exact skills needed in the particular sectors they target, and often have close ties with employers in those sectors. Some well-known examples of the sectoral approach—such as Focus: Hope in Detroit (which trains disadvantaged workers for jobs in the auto industry) and QUEST in San Antonio (which builds links between community colleges and employers in health care, financial services, and other key sectors)—have been widely praised in the Aspen Institute's recent report, Grow Faster Together, or Grow Slowly Apart, among others.

Our research also suggests that successful advancement strategies for welfare recipients and other low-income workers might involve not one particular job, but planning for a sequence of appropriate jobs along with training for each. Most of the training can be provided on the job by employers, as long as the candidates demonstrate the right basic general skills. The emphasis of work-first approaches on early job placement does not appear inappropriate, in light of this need for demonstrated job readiness. But since the returns to these first jobs might diminish fairly rapidly, helping poor workers move on to better jobs after a brief time period would be a sensible strategy. Karin Martinson of the Urban Institute and Julie Strawn of the Center for Law and Social Policy in Washington, D.C. have written about career planning for low-income workers, and the role that private intermediaries could play in that process.

Can public policy also encourage the creation of more higher-wage jobs so we do not simply displace workers who currently have these jobs with others whom we help? A few options are available. Moderate increases in the minimum wage can help lift the earnings levels of some low earners without seriously reducing overall employment levels. Grants or tax credits are already being used in some states to support higher wages through on-the-job (or "incumbent worker") training; these efforts could be expanded by the federal government.

The potential role of private intermediaries is also important. Intermediaries not only train workers and place them with employers; they also can work with employers to build career ladders and improve their human resources policies. Cooperative Home Care Associates in the Bronx, for example, builds careers for long-term care workers employed in hospitals and nursing homes. Additional examples are provided by the Chicago Manufacturing Institute and the Wisconsin Regional Training Partnership, both of which work closely with employers to build career ladders for their clients.

Of course, many of the ideas presented in this policy brief need to be implemented at the local level and rigorously evaluated. Policymakers also need to assess whether they would be cost-effective, and whether they could be brought to scale. In the meantime, these job advancement strategies provide us with potential models for advancement that heavily rely on the private sector, and therefore might be more successful than many of the training programs that have been undertaken in the past.

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Harry J. Holzer

The Workforce Investment Act: Reauthorization to Address the ""Skills Gap""

Professor of Public Policy, Georgetown University and Margy Waller — Mon, 01 Dec 2003 00:00:00 -0500

The need for skills enhancement among the nation's less-educated workers remains acute and evidence on the cost-effectiveness of publicly funded training is generally positive. Nevertheless, public funding of the nation's workforce development system remains modest, and has markedly declined over time. The reauthorization of the Workforce Investment Act, now before Congress, provides an opportunity to implement a number of proposals—including increased funding, regional coordination, better outreach to immigrants, and improved reporting—that could significantly advance the nation's employment and training options.

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Professor of Public Policy, Georgetown University
Margy Waller

Worker Advancement in the Low-Wage Labor Market: The Importance of 'Good Jobs'

Fredrik Andersson, Harry J. Holzer and Julia I. Lane — Wed, 01 Oct 2003 00:00:00 -0400

Findings

An analysis of data on low-wage workers and their employers from 1996 to 2001 reveals that:

Smaller firms, and those in the retail trade and service industries, pay lower wages than other employers when worker characteristics are held constant. Worker turnover is also closely associated with wages: three-fourths of low-wage firms experience at least 100 percent turnover on an annual basis, compared to about one-third of high-wage firms.

Almost half of workers who had persistently low earnings from 1996-98 earned somewhat higher incomes in 1999-2001. Low earners who changed jobs during that time were considerably more likely to achieve higher earnings in the latter period than those who stayed at the same job.

Most low-wage workers who increased their earnings over time did so by gaining employment at a higher-wage firm. Low earners who began working at "temp" agencies were more likely to gain subsequent employment at high-wage firms than were other low earners.

Medium- and high-wage firms are more heavily concentrated in urban counties than in suburban or rural ones. At the same time, certain better-paying industries that employ large numbers of less-educated workers, such as construction and manufacturing, are located outside urban counties more often than are other industries.

Giving for-profit and non-profit agencies a greater role in matching low earners to "good jobs" could raise earnings prospects for less-skilled workers, thereby enhancing their economic security over time.

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Fredrik Andersson
Harry J. Holzer
Julia I. Lane

Can Work Experience Programs Work for Welfare Recipients?

Harry J. Holzer — Sat, 02 Nov 2002 12:00:00 -0500

Work experience programs have played a limited role in welfare reform to date. While virtually all states and local areas have developed such programs, they are limited in both number and size. Only 40,000 Temporary Assistance to Needy Families (TANF) recipients are enrolled in work experience programs nationwide in any given month, and four states (Illinois, New Jersey, New York, and Ohio) account for about two-thirds of total enrollment. Most states have chosen to use TANF funds for other purposes, such as child care or other work supports, rather than for job creation.

However, state interest in work experience may rise over the next few years, especially if TANF is reauthorized with a higher set of work requirements on welfare recipients and states than has existed under current law. Specifically, TANF now requires 50 percent of recipients to be involved in work activities, at twenty hours per week for those with children under the age of six and thirty hours otherwise. Under the President's proposal and the bill passed by the House of Representatives, the requirements would rise to 70 percent of recipients and forty hours per week for mothers, of which at least twenty-four hours would have to be in paid or unpaid work, while the remainder could be devoted to training or other work-related activities. Many states have met the current participation requirements through credits for caseload reductions, which were quite dramatic during the period from 1996 to 2000. But caseloads are very unlikely to keep falling dramatically over the next several years, and the credits will be of much less use in meeting participation requirements. Thus, states may feel substantial pressure to raise employment among welfare recipients, perhaps by instituting mandatory work programs.

Several additional factors might also lead to wider adoption of work experience programs in the near future. If slow economic growth continues, and results in slack labor markets for an extended period, both current and former recipients may face more difficulty finding employment than they did in the very tight labor markets of the late 1990s. As time limits for welfare become effective and are enforced in many states, cash assistance for those without work may be limited, which might in turn generate calls for public job creation. Widespread concern about the "hard-to-employ," and limited eligibility for unemployment insurance among these former recipients, might reinforce public support for these calls.

This brief considers what we know about these programs: what forms they can take, the issues involved, the evidence on their effectiveness to date, and the implications of these findings for policymakers at the state and local levels.

The Many Forms of Work Experience Programs

Work experience programs have taken many forms over the years and been applied to many different groups and situations. These have included the large-scale Public Service Employment (PSE) program of the 1970s, the more recent Summer Youth Employment Program, and a variety of smaller efforts for disadvantaged adults (e.g., Supported Work in the 1970s) and youth (e.g., the Youth Incentive Entitlement Pilot Project [YIEPP] of the late 1970s and the more recent Youth Service Corps and Youth Build programs).

All of these examples entailed public funding of jobs, either in the public or private sectors, which paid an hourly wage to each worker and often included other supports and services. The most recent incarnations of this approach are usually called "transitional jobs." These programs have been implemented in a variety of local areas, with prominent examples appearing in Chicago, Philadelphia, and the state of Washington. Transitional jobs programs provide a short-term (i.e., three to twelve months) paid employment experience plus supports for welfare recipients or other very disadvantaged workers, including ex-offenders. Workers receive hourly wages and are also eligible for other public benefits, including the Earned Income Tax Credit (and sometimes cash benefits under TANF).

A quite different approach involves mandatory work programs for welfare recipients, commonly known as "workfare." Prominent examples have included the Community Work Experience Programs (CWEP) of the 1980s and New York City's program in the 1990s. (Wisconsin's welfare program also includes a subsidized employment component that is something of a hybrid of the two approaches.) Under "workfare," welfare recipients are expected to work in return for their cash grants, but do not receive hourly wage payments and are not eligible for the Earned Income Tax Credit.

The primary goal of most of the paid work experience programs described above has been to improve future transitions to private sector employment, though less intensive variants of this approach have also been used to raise the current employment rates of those with poor job prospects. In contrast, the primary purpose of "workfare" has been to raise current work activity among welfare recipients. The desire to raise work activity in the latter case is motivated not only by the hope that it will improve their future employment prospects, but also by a belief in the work ethic and a desire to impose reciprocal obligations on those receiving public assistance. Other possible benefits of mandatory work programs for governments include deterring welfare applications and use by those who already have jobs or can readily find work on their own.

Issues and Concerns Over Work Experience Programs

In either form, work experience programs lead to higher employment rates, while they are in effect, for those who are either unable or unwilling to find employment on their own. For instance, employment prospects in the private sector appear to be quite limited for a subset of current and former welfare recipients who have very little recent work experience and suffer from a number of "barriers" to work—such as poor skills, physical or emotional disabilities, substance abuse problems, and so forth. Indeed, Sheila Zedlewski and Pamela Loprest of the Urban Institute estimate that 80 percent of recent welfare recipients suffer from at least one of these barriers, and that 30 to 40 percent suffer from more than one.

Other individuals, such as ex-offenders, suffer similar problems and additional ones as well (such as legal barriers to their employment in many sectors and great employer distrust). These difficulties are compounded during economic downturns, or in localities where few jobs exist. Some individuals on public assistance may also be reluctant to accept low-wage jobs, especially if they pay little better than what they receive on welfare, and will not work unless required to do so.

Work experience programs should raise employment rates among most of these individuals. When combined with training, supports such as childcare or transportation, and treatment of the other barriers they face, such experience might also improve job-readiness or other skills and provide a transition to unsubsidized work in the private sector. In addition to increasing employment rates, public jobs and work experience programs may also produce goods and services that are socially valued, particularly in poor communities where public amenities (such as buildings and parks) are often unkempt or in great disrepair.

What, then, are the potential limitations of these approaches? First, they can be quite costly; second, they may generate little net new employment if they substitute for employment that is already available in the private or public sectors; third, they may generate little in the way of new goods or services, especially of a kind that is socially valued; and fourth, they may have little effect on the future employment and earnings of participants.

What has the evidence shown on these issues? Costs, of course, depend on the nature of the program and on the support services provided. Most of the transitional jobs programs reviewed in a recent Mathematica report cost $1,000 to $2,000 per participant per month, with administrative and support costs often exceeding those of wages. In contrast, mandatory work experience or "workfare" programs have zero wage costs (by definition), but administrative costs that have run anywhere from $1,000 to $8,000 per participant on an annual basis.

In their recent survey of public employment programs, David Ellwood and Elisabeth Welty note that estimates of displacement of existing employment, as percentages of the new employment generated by these programs, range from relatively low (about 20 percent) to quite high (about 70 percent). But displacement can be reduced in a variety of ways—for example, by targeting workers (and/or areas) with poor employment prospects in the absence of these programs; by designing jobs that do not overlap significantly with existing private or public sector jobs; and by limiting the duration of the programs. Smaller programs are more likely to achieve these goals than are larger-scale efforts, though even some of the latter (such as the YIEPP demonstration, which guaranteed jobs for youth in entire communities) have generated significant net employment expansion when carefully targeted towards the right workers and jobs.

As far as the value of the goods and services produced is concerned, Ellwood and Welty note that estimates of the ratio of value of output relative to wage and administrative costs in work experience programs have ranged from .25 to over 1.00. Again, careful design of programs of moderate scale are most likely to generate socially valued outputs, but even in larger-scale programs (such as the one currently operating in New York City) there has been evidence of improved local amenities (such as park cleanliness) that are valued by residents.

Perhaps the most difficult goal for work experience programs to achieve is the improvement of future employment and earnings prospects. A few programs have clearly succeeded in this regard—most notably, the Supported Work program for welfare recipients. Public Service Employment also generated improved post-program earnings for disadvantaged women, though less so for adult men and youth.

The evaluations also suggest that combining work experience with training and other supports, sometimes in an intensive fashion, is more likely to generate post-program improvements in employment and earnings. For instance, most of the Community Work Experience programs in the 1980s evaluated by the Manpower Demonstration Research Corporation did not significantly improve the future earnings of participants. The largest positive impact was achieved by the San Diego Saturation Work Initiative Model (SWIM) program, which combined mandatory work with job search assistance and limited training. However, little positive impact was achieved in West Virginia, which ran a relatively large program that relied almost exclusively on work requirements. The impacts of work experience on subsequent employment and earnings have not been estimated in the more recent evaluations of work experience and transitional jobs programs, though the Mathematica report on transitional jobs strongly suggests a positive impact.

Of course, the more intensive the approach, the higher the program costs. For example, the Supported Work program improved the subsequent earnings of welfare recipients by as much as a few thousand dollars. It was also a very expensive program to operate—although one that in the end generated greater social benefits than costs. Programs that emphasize mandatory work, but provide few other important supports and services, are less likely to improve post-program earnings, although they may well increase current employment and produce valued goods and services, as noted.

New Issues and Evidence

A primary motivation for the use of work experience programs is to impose a reciprocal obligation on those receiving welfare, rather than to increase future employment and earnings. Large-scale work programs can certainly help to achieve this limited goal. However, since minimum wage requirements (and other provisions of the Fair Labor Standards Act) apply to any mandatory work program, the amount of work experience covered by the TANF grant plus food stamps may be insufficient to fund twenty-four hours per week of work, especially in low-benefit states. Thus, states may need to supplement their mandatory programs with paid work experience in some cases, unless the new law allows them to receive credit towards meeting participation requirements in other ways.

The costs to states of supervision and other administrative activities may also be significant, as noted earlier. In fact, the Congressional Budget Office has estimated that the additional costs of child care and employment programs under the new House proposal would range from $8 to $11 billion. If sufficient additional resources are not provided in the federal legislation, most states would need to reallocate resources from expenditures (on items such as education, training, and childcare for former recipients) to meet these new work requirements. Indeed, the fact that most states have not chosen to spend many of their resources in this way before now suggests they do not view these work programs as the best use of their limited funds.

Interestingly, advocates of transitional jobs programs (such as Clifford Johnson of the National League of Cities) are often highly critical of large-scale mandatory work programs for welfare recipients. They argue that several features of transitional job programs that are necessary for achieving positive impacts on subsequent earnings are lacking in mandatory work programs—namely, the direct payment of an hourly wage, supplementation through the EITC and other benefits, flexibility in participation and job assignment, careful supervision, and provision of needed supports, such as counseling.

Some new evidence on these mandatory work programs for welfare recipients paints a more positive picture. For instance, a new report by the Manpower Demonstration Research Corporation shows that both welfare recipients and employers were very pleased with the mandatory Community Service Employment program undertaken in Vermont during the mid-1990s. Also, a recent report from the Urban Institute in Washington, D.C. shows that the New York City work experience program evolved from a "workfare-only" model initially to one that provided additional treatments and services for most participating recipients. But the Vermont program was extremely small, covering only about 2 percent of those required to work. The authors of the report on New York City also stress that the flexibility provided by the previous TANF law was critical to the successful implementation and evolution of the program there.

Thus, whether the gaps in impacts between these two program models are truly as great as some advocates claim, and whether implementation of the new law will force states to forego services and programs that they currently provide, will only be known for certain with time and further research.

Conclusions

The studies reviewed above suggest that carefully structured work experience programs can have a positive impact on the employment rates of disadvantaged groups and can generate socially valued goods and services. When poorly designed, they can be wasteful and have small net impacts on employment and output. Improving future (as opposed to current) employment outcomes is harder, and seems to require a greater expenditure of resources on a wider range of supports and services. As usual, a fairly clear tradeoff exists between more ambitious goals and the resources needed to achieve them.

Under any circumstances, these programs should be limited to those with very weak ability to find jobs on their own—though it is often difficult to make this determination on an individual basis. The case for work experience programs is also stronger during economic downturns, and in depressed local areas where few jobs are available in the private sector. Even in these situations, the length of time which participants can spend in publicly provided jobs should be limited, so as to generate incentives to seek other employment; and the jobs themselves should be carefully chosen to limit displacement of other workers.

Beyond these considerations, sensible decisions by state policymakers require that they be clear about what goal they are trying to achieve. Thus, if a policymaker's only goal is to raise employment among current welfare recipients, this can be achieved in many cases without wage payments or the provision of additional services, though the administrative and child care expenses involved in doing so will not be trivial.

A stronger case might be made for providing jobs to those not currently on the rolls—for example, to those who have reached time limits or who are not eligible for any other "safety net" program (such as unemployment insurance). But during a sustained downturn, or in areas where local economies are depressed, the numbers of individuals who could benefit from such programs (and the length of time over which they might need support) could be substantial, and program costs could rise proportionately. For states that are financially strapped (as most currently are), any such undertaking without additional federal support is hardly feasible.

On the other hand, if the policymaker's primary goal is to raise future earnings among those who face serious labor market problems, then the choice might be to create smaller and more carefully crafted "transitional jobs" programs with substantial supports and services provided at greater cost per participant. More research and evaluation are needed to precisely measure their impacts, but past evaluations already indicate some successful models. And, given the growing presence in the labor market of some very hard-to-place workers—such as ex-offenders—the case for moderate expansions of "transitional jobs" programs beyond those that exist for welfare recipients is a fairly strong one.

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Harry J. Holzer

Left Behind in the Labor Market: Recent Employment Trends Among Young Black Men

Harry J. Holzer and Paul Offner — Tue, 02 Apr 2002 00:00:00 -0500

With record numbers of low-income, single mothers having left welfare and joined the workforce over the past several years, many policymakers involved in the welfare reauthorization debate are focusing on strategies to promote the formation of two-parent families. This study finds that in contrast to their female counterparts, a significantly smaller proportion of young black men with no more than a high school education are working today than 20 years ago. In particular, central cities, and older industrial metro areas like Buffalo, Pittsburgh and St. Louis, appear to offer this group more limited employment prospects than the rest of the nation. The authors conclude with recommendations for how welfare policy could help disadvantaged young fathers succeed in the labor market and contribute to the well-being of young mothers and their children.

Authors

Harry J. Holzer
Paul Offner

Left Behind in the Labor Market: Recent Employment Trends Among Young Black Men

Harry J. Holzer and Paul Offner — Mon, 01 Apr 2002 00:00:00 -0500

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Harry J. Holzer
Paul Offner

Helping Low-Income Workers Weather the Recession

Thu, 06 Dec 2001 10:00:00 -0500

Event Information

December 6, 2001
10:00 AM - 12:00 PM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

Based on recent employment news, it seems certain that the American economy is now in recession. A major difference between this and previous recessions is that a much higher proportion of poor and low-income single mothers have joined the workforce in the past few years. In the past, many low-income single mothers were relatively protected from the effects of economic downturns because they could continue to receive welfare. Today, mothers who have left welfare and are working in low-wage jobs are more vulnerable to job loss and income loss during an economic downturn.

The Welfare Reform & Beyond initiative will hold a forum to examine the capacity of the current Unemployment Compensation and Temporary Assistance for Needy Families (TANF) programs to respond to these economic changes and to explore policy options that could help poor and low-income working mothers during this and future recessions.

After a brief summary of the status of the American economy by Robert E. Litan and of provisions in the Unemployment Compensation and TANF programs designed to help unemployed workers by Harry Holzer, we have invited two panels to address the question: "Do the Unemployment Compensation and TANF Programs Offer Adequate Protection to Low-Income Workers Facing Unemployment?" The first panel will include two members of Congress; the second will include representatives from states, organized labor, business, research, and the Bush Administration.

Participants

Moderator

Panelists

CHARITY WILSON

Senior Policy Analyst, Public Policy Department, AFL-CIO

ERIC J. OXFELD

President, UWC - Strategic Services on Unemployment and Workers' Compensation

REP. BENJAMIN L. CARDIN (D-MD)

REP. JIM MCCRERY (R-LA)

RICH HOBBIE

Unemployment Insurance Director, National Association of State Workforce Agencies

ROBERT GROSS

Executive Director, Department of Workforce Services, State of Utah

RON WILUS

Department of Health and Human Services