The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Can the Labor Market Absorb Three Million Welfare Recipients?. Evidence


Can the U.S. job market accommodate such an influx of welfare recipients into the labor force?  Analysts point to three kinds of evidence on this question:  BLS estimates of occupational and job growth over the next decade; responses of employers to surveys on the availability of jobs and the qualifications necessary to obtain new jobs; and the historical experience of job seekers after the supply of labor increases.

BLS Occupational Forecasts

Every two years the BLS makes detailed projections of the future growth in industrial and occupational employment.  Its most recent forecast was published in November 1997 and covers the period from 1996 through 2006.(11)  The occupational projections are helpful for assessing welfare recipients' job prospects, because each occupation can be classified by the educational and skill requirements needed for entry into the occupation.  The overwhelming majority of welfare recipients are high school dropouts or people who have failed to obtain schooling and institutional training beyond high school. The occupations most suited to workers with these limited qualifications require only short-term on-the-job training.  Workers can develop the skills needed for acceptable performance in these occupations with a brief orientation or with less than a month of on-the-job instruction and experience.  No formal schooling beyond high school is required.  In 1996, almost 54 million people worked in these low-skill occupations, and their jobs accounted for 40 percent of total U.S. employment.(12)

Significantly, more than half of the detailed occupations with the largest projected job growth between 1996 and 2006 require only short-term training. Table 1 shows BLS estimates of projected employment gains in the 11 low-skill occupations expected to see the largest absolute gains in net employment.  The first column shows the total number of people employed in the occupation during 1996.  The second and third columns show the projected increase in the number employed in the occupation, measured in absolute and percentage terms, between 1996 and 2006.  The last two columns show the annual requirement for new employees in the occupation measured on a gross and net basis.  New employees are needed in an occupation not only because net employment in the occupation will grow but also because workers will leave the occupation to find jobs in other occupations or to retire.  Over the 1996-2006 period approximately 1.27 million cashier jobs will have to be filled each year, although only 0.19 million will represent net new jobs for people with the skills needed to become cashiers.

Table 1.
Job Growth in Selected Occupations Requiring Only Short-Term On-the-Job Training

1996-2006 Average Annual Job Openings
Occupation 1996 Employment
1996-2006 Change in Employment
Percent Change Due to Growth and Total Replacement Needs (a) Due to Growth and Net Employment Needs (b)
Cashiers 3,146 530 16.8 1,265 190
Retail salespersons 4,072 408 10.0 1,272 170
Truck drivers 2,719 404 14.9 482 78
Home health aides 495 378 76.5 180 44
Teacher aides and educational assistants 981 370 37.7 296 50
Nursing aides, orderlies, and attendants 1,312 333 25.4 340 51
Receptionists and information clerks 1,074 318 29.7 336 52
Child care workers 830 299 36.1 322 39
Helpers, laborers, material movers 1,737 275 15.8 598 86
Food counter and related workers 1,720 243 14.1 841 125
Food preparation workers 1,253 234 18.7 559 87
a  Job openings due to growth plus total replacement needs represent gross annual average job openings stemming from projected employment change over the 1996-2006 period and replacement of workers who leave their jobs to work in another occupation, stop working because of retirement or other reasons, or die.  [Back to text]
b  Job openings due to growth plus net replacement needs represent annual average job openings stemming from projected employment change over the 1996-2006 period and net replacement of workers who leave their jobs to work in another occupation, leave the labor force because of retirement or other reasons, or die.  Net replacements are less than total replacements because a measure of entrants is subtracted from the number leaving the occupation.  [Back to text]
Source:  Bureau of Labor Statistics, unpublished data from 1996-2006 occupational employment projections.

Overall, the BLS predicts that net employment in low-skill occupations will rise 7.2 million in the 10 years after 1996.  The percentage gain in net employment in these occupations is only slightly below the increase in total employment (13.5 percent versus 14.0 percent).  The bureau therefore projects that employment growth in the lowest-skill occupations will be approximately as fast as growth of total employment.  Whether this job growth is fast enough to absorb welfare recipients leaving the rolls is uncertain.  The number of job openings in low-skill occupations certainly seems large enough to employ 2.5 million welfare recipients, at least eventually.  The 11 occupations listed in table 1 are projected to offer 6.5 million job openings per year over the next decade, although less than 1 million of those job openings represent net additions to the stock of employment in unskilled occupations. Welfare recipients and former recipients will obtain a share of these jobs, but the percentage they obtain depends critically on their relative qualifications compared with those of other workers who will compete for the same jobs, including teenagers, poorly educated immigrants, and less-educated childless adults.

Employer Surveys

Some of the most discouraging forecasts of the job prospects of welfare recipients are derived from employer responses to surveys about job vacancies and future skill needs.  Evidence indicates that the number of job openings, as documented in help wanted adds or employer listings with the Employment Service, falls short of the number of unemployed workers at every stage of the business cycle, including periods of peak employer demand.(13)  Most Americans who lose their jobs become reemployed within a few weeks or months, suggesting that the job shortage is not terribly severe.  A minority of workers, especially the unskilled, often remain jobless for long periods, however.  In May 1998, for example, more than 800,000 workers reported being unemployed for six months or longer in spite of an economic expansion that had lasted more than seven years and an unemployment rate of just 4.3 percent.

The difficulty that unskilled workers face in finding jobs is suggested by a well-known study of Harlem fast food outlets.(14)  The authors focused on job applications for some of the nation's least skilled positions, as cashiers and food preparation workers in fast food restaurants.  In spite of the low wages and poor fringe benefits offered by these jobs, the analysts report that there were 14 job applicants for each job opening in these restaurants.  In this kind of environment, an unskilled worker could easily file dozens of job applications without securing a single job offer.  Applicants' job prospects might be much better at fast food outlets in the low-unemployment suburbs, but many inner-city residents lack the knowledge or transportation to find suburban jobs.

Some of the most discouraging forecasts of all come from analyses of employer skill needs as described by employers themselves.  Data from a multicity survey of employers on the reported skill requirements of the most recent job vacancies actually show that very few of the jobs, even those open to workers without a high school diploma, can be filled by applicants who lack some general skills, including the ability to read and write or to interact respectfully with customers.  In addition, many job openings require applicants to possess certain job-specific skills, which might only be obtained through on-the-job work experience in a previous job.(15)

The results of a comparison between employers' skill requirements and geographical locations with job seekers' skills and residential locations are disheartening.(16)  They suggest that 9 to 17 percent of actual and potential job seekers will have severe problems finding jobs in the short run, with the largest problems occurring in metropolitan areas such as Detroit and Los Angeles, where large unskilled populations are geographically concentrated.  They also imply that up to 20 percent of white and 40 percent of Hispanic and African American welfare recipients will have severe difficulty obtaining a job.  These estimates are derived from surveys conducted before the 1996 reform was passed and most state reforms were implemented.  When the percentage of welfare recipients seeking work increases, as must occur when state reforms are fully implemented, the short-term job finding problems of recipients may worsen.

Historical Experience

If the short-term job prospects of welfare recipients seem discouraging, historical evidence about the long-term job creating capacity of the U.S. market is more reassuring.  Over the long run, the U.S. labor market has absorbed huge numbers of extra workers without a significant rise in joblessness. From 1964 through 1989, when the baby boom generation reached adulthood and entered the job market, the labor force grew by 50.4 million persons, or slightly more than 2 million a year.  Most of this surge was driven by the jump in U.S. fertility between 1946 and 1964, but part was also due to a growing demand for jobs among women, who entered the workforce in record numbers, and a fivefold increase in the rate of immigration.  From 1964 to 1989 the number of Americans holding jobs climbed by 47.7 million, or slightly more than 1.9 million workers a year.  About 95 percent of new job seekers in this period were able to find jobs, though the number of people available for work swelled by two-thirds.  The unemployment rate rose only slightly, increasing from 5.0 percent to 5.2 percent.  To be sure, unemployment climbed sharply in the 1970s and early 1980s when the labor market was unable to absorb promptly an enormous number of new entrants.  But most of the rise in joblessness during those decades was due to business cycle developments, not to the rapid rate of workforce growth.

Many people find it implausible that so many extra job seekers can be absorbed so quickly by the labor market.  They overlook an important characteristic of flexible capitalist labor markets.  In the long run employers are free to change their product lines and production methods to exploit the availability of abundant, low-wage labor.  Moreover, the doubters ignore the possibility that wages can rise or fall in response to the entry and exit of large numbers of potential workers.  In the 1970s, for example, the wages received by younger workers fell in comparison with those earned by older workers, in large measure because younger workers became much more abundant.  Wages received by new college graduates temporarily fell in comparison with wages received by young workers with less education, because of the rapid rise in college completion rates.  Faced with a huge increase in the availability of workers who had limited job experience, employers adopted production methods that took full advantage of less-experienced workers.  Restaurant meals were prepared and served by eleventh grade students and high school dropouts rather than by experienced cooks or waiters.  Gardening and domestic cleaning were performed by unskilled and semi-skilled employees rather than by homeowners themselves. In the end, 95 percent of new job seekers were successful in finding jobs. Of course, many of the new jobs were not particularly well paid.  The huge increase in the abundance of less experienced workers is one reason that pay in many occupations fell.

Even though most welfare recipients would eventually find jobs if forced to do so, the influx of these unskilled workers could depress the wages received by all less-skilled workers.  If 2.5 million to 3.0 million recipients were forced to accept jobs, for example, the wages available to less-skilled workers would almost certainly fall below the wages that would prevail if welfare had been left unchanged.  Employers might modify some existing jobs and develop new ones to take advantage of the abundance of less-skilled single mothers, but a

likely long-term effect of an influx of less-skilled workers is a reduction in hourly wages.  With fierce competition for unskilled and semi-skilled jobs, wage rates would be driven down, at least modestly, and welfare recipients could face worse job prospects than those faced by women who left the welfare rolls in the 1980s and early 1990s.

Recent Experience


Welfare reform and other changes in government policy have almost certainly affected the labor market status of several hundred thousand former recipients and mothers who would have been recipients if reform had not occurred.  The sharp decline in the rolls from their peak in 1994 is at least partly due to state-level reforms that began even before Congress passed the federal reform law in August 1996 (figure 1).  The decline may also be due to changes in the Earned Income Tax Credit (EITC) that greatly increased the amount of earnings supplementation available to low-wage mothers with two or more children.  The increased generosity of the EITC after 1993, combined with tougher state work requirements, has contributed not only to a decline in the welfare rolls but also to an unprecedented jump in labor force participation and employment among divorced, separated, and never-married mothers.

burtless-f2.gifThe change in labor force behavior of the group most likely to receive welfare benefits  separated, divorced, and never-married mothers who live with their own children under 18  is shown in figure 2.  The top panel in the figure shows a sharp rise in the labor force participation rate of unmarried mothers in relation to that of married mothers who live with their spouse.  The jump began in 1994.  The labor force participation rate of separated, divorced, and never-married mothers remained relatively constant from the late 1970s through 1993, while the participation rate of married mothers living with husbands rose steadily over that period.  Starting in 1994, the participation rate of unmarried and separated mothers began to rise, increasing 11 percentage points (or 17 percent) in the five years from 1993 to 1998.  The jump in the employment-population ratio of separated and unmarried mothers, shown in the lower panel, is equally impressive.  The employment-population ratio increased 11.1 percentage points (or 19 percent) between 1993 and 1998 after rising very little over the previous 17 years.(17)  There is no evidence in figure 2 that the labor force participation and employment rates of married mothers increased by comparable amounts.  The liberalization of the EITC, new welfare-to-work reform programs at the state level, and the 1996 federal welfare reform apparently induced major changes in the labor market behavior of unmarried mothers.

It is illuminating to compare the amount of caseload reduction with the increase in the number of unmarried mothers who are employed or in the labor force. From 1994 to March 1998 the number of AFDC or TANF cases fell approximately 1.8 million, or 36 percent.  Over the same period the number of separated, divorced, and never-married mothers in the labor force increased 882,000 (14 percent) and the number actually holding jobs increased 972,000 (18 percent). These tabulations suggest that a large part of the decline in the AFDC/TANF caseload was associated with a jump in employment among the mothers most likely to receive welfare.(18)

The entire increase in the number of mothers seeking work was matched by an increase in the number of mothers who actually hold jobs.  The unemployment rate of separated, divorced, and never-married mothers actually fell 2.9 percentage points (22 percent) between 1994 and 1998, and the unemployment rate of never-married mothers fell 4.4 points (23 percent).  If the American job market has had a serious problem absorbing mothers who have been pushed off the welfare rolls, the fact is not evident in these data.