The Low-Wage Labor Market: Challenges and Opportunities for Economic Self-Sufficiency. Work as a Stepping Stone for Welfare Recipients: What Is the Evidence? . Conclusion

02/16/2000

This essay has reviewed the evidence on the impact of work experience on future wages for individuals with limited skills.  The fundamental difficulty in obtaining any empirical evidence is that one must infer what the person's future earnings history would have been had the person had more early labor market experience.  Since it is impossible to observe persons both with and without early labor market experience, it is necessary either to use experimental evidence or to assume that the nonexperimental evidence gives an upper bound on the benefits of experience.

The experimental literature indicates that gains are small at best and not long lasting.  Earnings may go up by $300 in the first few years, but even these gains are the result of finding jobs more quickly while on the program or working more hours after the program, not receiving higher pay per hour.  The nonexperimental evidence offers some evidence of future effects of work but wages start from such a low base that even rather optimistic assumptions about growth in wage rates still leads to earnings below the poverty level for families working less than full time.

Does this evidence mean that work programs have few benefits  The answer depends on what is counted as a benefit of work.  Society (and the former welfare recipients) may value work in its own right.  Work does not need to raise future wages to be valued.  It is, however, important not to overstate the future benefits of work.

An important lesson can be learned from the U.S. experience with training programs.(27)  During the 1960s and 1970s training was viewed as the key to self-sufficiency.  Training would provide skills that would lead people off the welfare rolls.  The often-cited claim that teaching people how to fish is better than giving them fish became the conventional wisdom.  But in the final analysis, teaching people how to fish well enough to support a family turned out to be considerably harder than was initially thought.  The early evaluations of training programs showed little or no gains, while the more recent evaluations show modest gains for some, but not all, segments of the population.  Fairly ambitious training programs raised earnings of welfare recipients on the order of $500 to $1,000, which is in the same order of magnitude as some of the higher estimates of the future returns to work programs.(28)  While the benefits were small, they were larger than the costs in many cases.  Thus, they met basic cost-benefit criteria.  What they did not meet was the exaggerated claims that human capital programs would lead to self-sufficiency.  Having discarded these programs in favor of a jobs-based strategy, we now stand the very real chance that in 10 years, after careful evaluations, we will conclude that work is also not the magic bullet.