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

02/16/2000

During the 1980s, states were given wide latitude to experiment with programs aimed at increasing future employment and earnings of welfare recipients.  Many states set up services, such as job search workshops, that made it easier for participants to find work.  As part of these welfare-to-work projects, states were required to monitor the experiences of participants and a control group.

At one level, these experiments provide support for the proposition that early labor market experience yields subsequent benefits.  Three years after receiving job placement services, the earnings of experimentals were higher than the earnings of the control groups.(5)  The annual gains were, however, small.  Most differences were in the $200 to $300 range, with few of the programs showing gains over $600.(6)  While gains of this size are not trivial for people with limited incomes, they are not large enough to lead to self-sufficiency.  Even after reaping the benefits of the program, the earnings of the experimentals were still in the $2,000 to $3,000 range.

Two more pieces of evidence from the welfare-to-work experiments are relevant.  First, the gains in earnings of the experimentals were primarily the result of increased hours, not increased wages.  Women were working more but at the same low rate of pay, indicating that initial jobs were not stepping stones to higher-paying jobs.  Second, the benefits of almost all these programs did not continue through the fifth year.(7)  The five-year follow-up evaluation indicates that the earnings gains of experimentals over controls during the first three years largely reflected a shorter time to obtain the initial job, not better future outcomes for people who obtained these jobs.  Almost all of the employment gains were from a one shot faster job placement for experimentals, not from a lasting increase in wages or hours.  By the fifth year, the difference between experimentals and controls had largely vanished for all but one site.  And for this site (Baltimore's Options program) it is difficult to disentangle the effects of the training component from the work component, since it included a substantial human capital component and fewer work mandates.(8)  Furthermore, the gains were still not large, $475 in the fifth year, but at least they came from higher wages and were lasting.(9) 

The experimental evidence does not point to large and lasting benefits from employment services for less-skilled workers.  Putting a person in a job does have the immediate impact of raising their earnings, which may be sufficient grounds for advocating a work-based-strategy.(10)  But it does not support the hope that initial labor market experience will lead to self-sufficiency.