A number of studies attempted to measure the impact of welfare reform on labor markets. Most studies focused on employment effects of welfare reform. These studies projected the number of welfare recipients who would leave welfare to enter the labor force and the number of low-skill job openings that would be available to welfare recipients. If there were more low-skill job openings than welfare recipients entering the labor market, then the conclusion was that the labor market would be able to absorb welfare recipients.
A study by Lerman, Loprest, and Ratcliffe(18) compared the growth of low-skill employment with the number of welfare recipients who entered the labor force between 1997 and 1998 in 20 metropolitan areas across the country. They found that, due to the growth in low-skill employment, only four metropolitan areas (Baltimore, New York City, St. Louis, and the District of Columbia) may have experienced an increase in unemployment due to welfare reform. A similar study by Leete and Bania(19) for the Cleveland-Akron metropolitan area found that welfare recipients would have to claim 34 to 61 percent of all low-skill job openings to be fully employed in the initial year of impact, meaning there would be enough jobs for welfare recipients. Most studies concentrated on large metropolitan areas, primarily because of data availability. Few studies to date have examined the impact of welfare reform on labor markets in rural or small metropolitan areas.
Past studies noted that low-skill wages might have to fall to employ all welfare recipients entering the labor market and that the fall in wages might cause other low-skill workers to lose their jobs (be displaced). Bartik(20) studied the wage and displacement effects of welfare reform using a model of labor demand and labor supply and elasticity assumptions. Based on policy simulations, this study predicted that wages would fall for workers with characteristics similar to welfare recipients. Despite theoretical discussions, we know of no study that has measured the actual impact of welfare reform on wages.