The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Job Creation for Low-Wage Workers: An Assessment of Public Service Jobs, Tax Credits, and Empowerment Zones. Effectiveness of Public Service Employment Programs


The most important criteria for judging PSE in terms of economic impacts are effects on earnings and employment of participants, net job creation, and value of goods and services created.(11)  These goals are sometimes at cross purposes. Increasing earnings, for example, generally results from emphasizing human capital development rather than maximizing the value of program output, net job creation, or targeting participation opportunities.

Impact on Participants' Earnings. Estimates of earnings impacts are available primarily for the CETA program. Human capital development was an important PSE concern for part of CETA's history, but certainly not for the entire period. The addition of Title VI as a countercyclical program changed priorities significantly, however: "To encourage rapid implementation, Congress relaxed the requirement that sponsors attempt to find jobs for participants in unsubsidized employment. Placement was to be considered only as a goal that could be waived; indeed, more than 90 percent of all sponsors requested and received waivers."(12) 

Several evaluations of the impact of PSE and other CETA activities on earnings were undertaken in the 1980s. All of the studies consider participants who enrolled between 1975 and 1977, which was during the period when job placement was not emphasized; thus, they may yield lower estimates than would be obtained if an earlier or later cohort were analyzed. In addition, the studies used nonexperimental methods, so the estimates may be biased.

Table 2 provides a summary of the earnings impacts of PSE from the CETA evaluations reviewed in Barnow (1987). In general, the studies found moderately positive, statistically significant impacts on earnings for PSE programs. Many of the evaluations found annual impacts of $1,000 or more for women, but the estimates for men were generally lower and often lacked statistical significance. In comparison with other CETA activities, most authors found PSE to have smaller impacts than on­the­job training (OJT), about the same or slightly larger impacts than classroom training, and greater than work experience.

Table 2.
The Impact of CETA Public Service Employment on Earnings for Various Groups

  Overall White women White men Minority women Minority men Women Men
Westat (1981) $250* $950* $100 $650* ($50)
Westat (1984) FY 76 117
Westat (1984) FY 77 654*
Bassi (1983) 614*-701* 259-815* (213)-(23)
Bassi et al. (1984) nonwelfare disadvantaged adults 1,049*-1,229* 302-303 1,605*-1,623* 8-161
Bassi et al. (1984) welfare 1,558*-1,563* 1,218*-1,307* 1,648*-1,673* (32)-274
Bassi et al. (1984) youth 882*-990* (180)-(81) 1,125*-1,196* (396)-(314)
Dickinson, Johnson, West (1984) adults $464* ($836)*
Dickinson, Johnson, West (1984) youth 52 (403)
Geraci (1984) 1,121* (217)

*  Statistically significant impact.
Source:  Burt S. Barnow, "The Impact of CETA Programs on Earnings: A Review of the Literature." The Journal of Human Resources. Spring (1987).


One possible concern is that PSE was more of a countercyclical program during the period that was evaluated while any future PSE program is likely to be more structurally oriented. Bassi et al. (1984) looked exclusively at economically disadvantaged individuals, and they found that PSE had an impact over $1,000 for nonwelfare women and both men and women on welfare. They found no statistically significant impact, however, for nonwelfare men.

Finally, it should be kept in mind that increasing earnings was not a goal of PSE during the period being evaluated. As noted above, most prime sponsors obtained waivers from placement goals. In conclusion, it is reasonable to assume that under CETA PSE worked about as well as classroom training in increasing earnings, even when that was not an explicit goal of the program.

Job Creation Effects. The job creation goal is most important when PSE is used as a countercyclical program, where the primary goal is to add jobs to the economy.(13)  Job creation is still important in a structural PSE program because if the program is not creating additional jobs, then other workers are being displaced. Additionally, if there is no job creation, the federal government is paying for existing state and local services, which may be more appropriate under revenue sharing than a PSE program.(14) 

Evaluations of the job creation effects of PSE programs have involved both the use of econometric models of government employment and field surveys of state and local governments. In the econometric modeling approach, researchers develop equations to predict state and local government employment (or the wage bill) and then determine the impact PSE slots have on the number of regular employees. A study by Johnson and Tomola (1977) concluded that although there was no substitution in the first 3 months of funding CETA PSE positions, by the end of 18 months the PSE funds substituted for regular state and local funding so that no jobs were created by the program. Using similar models, Mirengoff and Rindler (1978) found that over the first 10 months of funding in the CETA PSE program, an average of 65 percent of the positions funded represented net new employment. Later work by Bassi and Fechter (1979) also found substantial substitution, although Bassi and Fechter were less sanguine about their point estimates. Cook et al. (1985) found that each dollar of PSE funding led to an increase in state and local expenditures on salaries and wages of $.28 in 1977 and over $.76 to $.78 in 1978 and 1979 when the eligibility rules were modified to restrict the program to the economically disadvantaged.(15) 

The fragility of the underlying econometric models was illustrated by Borus and Hamermesh (1978). In reanalyzing Johnson and Tomola's data, they found that by making reasonable alternative assumptions they could obtain estimates of substitution ranging from 0 to 100 percent. Borus and Hamermesh concluded that the data and models available to use are simply too crude to reliably estimate the substitution effects of the CETA PSE program.

The alternative to estimating quantitative models is to have researchers conduct field studies and record how much net job creation results from PSE funds. The utility of this approach depends on the ability of the field researchers to accurately assess what would have happened in the absence of PSE funding. A major field evaluation of PSE was carried out in 40 sites selected to be representative of the national program; the research was conducted in four rounds between 1977 and 1980.(16) 

This study found that between 80 and 90 percent of all PSE positions funded in the sites studied constituted job creation rather than job displacement. A controversial aspect of the findings was that a significant portion of the job creation was "program maintenance," defined as "cases in which PSE employees were used to maintain existing services that would have been curtailed without PSE funding."(17)  The researchers concluded that displacement would have been higher in later years had the restrictions on wages, eligibility, tenure, and projects not been added. They found that displacement was highest in rural areas (31 percent), but not especially high in large distressed cities (18 percent), where the researchers classified many of the PSE positions as program maintenance.

It is difficult to reach a firm conclusion about the level of displacement that occurred in the CETA PSE program.(18)  Some observers have found the field study estimates of 10 to 20 percent substitution lack credibility, but the quantitative estimates follow no consistent pattern, so they are not of much help. On the other hand, later studies indicate that CETA amendments added to reduce displacement by increasing targeting of participants more toward the economically disadvantaged, reducing wages, limiting participation time of individuals, and requiring positions to be used in special projects of limited duration all were successful in reducing the problem.(19)

Value of Output. Unlike classroom training programs, PSE programs are frequently judged in part on the basis of the value of the output produced by participants. In this section, studies on the value of output produced in PSE and related programs are discussed. There have been no general evaluations of the value of the output in CETA programs, so we must rely on studies of other programs and special PSE programs.

A fundamental problem in assessing the value of output from government programs is that there is no market mechanism to assign a value to the output. Usually the programs are used to produce services rather than goods, and the outputs are usually not sold in a free market. Thus, we cannot observe the "value" of the output as economists would usually use that term. Instead, researchers can observe or estimate potential proxies such as what the cost would be of producing the output from the PSE program (referred to as supply­side estimates) by using regular government workers or private­sector workers, and what society would be willing to pay for the output (demand­side estimates). While imprecise, such measures can provide some reassurance that the projects are not simply "makework."

The National Supported Work Demonstration was conducted between 1975 and 1979 to test the utility of providing selected target groups — disadvantaged out­of­school youth, ex-offenders, former substance abusers, and AFDC recipients — with work experience under conditions of graduated stress to increase their employment and earnings.(20)  The cost­benefit analysis for the evaluation used the costs for alternative suppliers to estimate the value of the output produced by participants during their enrollment.(21)  The value of output per participant ranged from $2,973 for ex-offenders to $4,520 for AFDC recipients. Although these values were close to the wages paid to the participants, the projects also involved substantial costs for material and overhead. From the perspective of society as a whole, the researchers found that the value of the output defrayed between one­half and two­thirds of the costs of the project, depending on the target group.

The Youth Incentive Entitlement Pilot Projects (YIEPP) demonstration was a large­scale intervention that determined the feasibility, costs, and impacts of guaranteeing part­time school­year jobs and full­time summer jobs to all youth who remained in high school or returned to school in the 17 program sites.(22)  Participating youth were assigned to public­sector or private­sector jobs for their work experience. Although a formal analysis of the value of output produced was not undertaken, a random sample of 250 projects were visited to assess quality of the work being performed by YIEPP participants. The researchers concluded that "the quality of work in the demonstration was, on the whole, adequate or better, with some 86 percent of the worksites falling into this category."(23)  A comparison of youth performance in public­sector, nonprofit­sector, and private­sector YIEPP jobs indicated that performance was more similar than different across sectors.

The final and most relevant value of output study relates to the Employment Opportunity Pilot Projects (EOPP) to test job search assistance and subsidized employment and training activities to welfare recipients and other low­income employable adults. An important aspect of the program involved placing participants who could not find a job on their own into PSE positions or training programs through the CETA program. EOPP participants in PSE positions were highly disadvantaged in the labor market — over 98 percent were eligible for CETA, 73.5 percent were receiving AFDC, 38 percent had less than a high school education, 82 percent were women, and 65 percent were members of minority groups.(24) 

A review of 68 EOPP PSE projects found them to be quite successful from a value­of­output perspective:

  • With respect to the relative productivity measures, participants were, on average, about 77 percent as productive as the alternative suppliers in terms of the number of production (nonsupervisory) hours alone. If the need for supervision is taken into account, however, the productivity ratio falls to about 73 percent. These measures show that, although EOPP participants produced, on average, at a rate consistent with the minimum wage, they were only about three­fourths as productive as the workers who would normally perform the work — workers whose wages were, on average, well above the minimum wage. (Whitebread 1983, p. 77.)

Thus, the experience from the EOPP demonstration indicates that economically disadvantaged participants were not quite as productive as regular government workers, but their low wages compensated for their lower productivity.

In summary, previous research indicates that PSE workers are generally slightly less productive than unsubsidized workers, but the lower wages they receive partially or fully offset this lower productivity. Although the estimates are admittedly crude, studies from work relief programs during the Great Depression and more recently from CETA PSE programs found workers in subsidized employment programs to be between 70 and 80 percent as productive as unsubsidized workers. The productivity findings are not limited to highly qualified workers hired in some of the early CETA countercyclical projects. Programs targeted on disadvantaged youth, AFDC recipients, and other disadvantaged workers all found such workers to be highly productive.

What of the frequent allegations of fraud and waste in CETA programs?  Mucciaroni (1990) repeats some of the more intriguing stories reported in Time, the Reader's Digest, and other sources.(25)  He also notes that the problems included CETA training programs as well as PSE and that the prevalence of such incidents may have been exaggerated in the press.(26) 

Conclusions on the Effectiveness of PSE Programs. This review of the literature focused on how well PSE programs have performed along three dimensions: increasing human capital, net job creation, and value of output. On two of these yardsticks, PSE has performed fairly well — certainly better than its reputation would lead one to believe. The consensus from evaluations of CETA PSE is that it increased participant earnings by several hundred dollars per year for women, at least initially. Regarding net job creation, the evidence is mixed and inconclusive. PSE programs have generally been given high marks in terms of the value of their output. Evaluations that have been conducted have generally found PSE participants to be about 75 percent as effective as regular employees. By producing output of value, a PSE program's net costs are significantly reduced, thus adding to the attractiveness of such a program for specific target groups.