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. Conclusions and Policy Implications

02/03/2004

In this paper, the evidence on several approaches to employment generation have been reviewed. In spite of their reputation from the alleged abuses that took place during CETA, public job creation programs appear to be a successful means of generating new jobs for low­skill workers. For such programs to work, however, care must be taken to keep the scale modest and the jobs attractive to both the workers and the employing organizations. The Earned Income Tax Credit is an effective tool for increasing employment of single­parent families, but the evidence is more ambiguous for two­parent families. The EITC does not create new jobs as a public employment program does, but instead provides incentives for low­skill individuals to work; the EITC is also an important means of reducing poverty among the working low­skill population. The literature on programs that affect employer tax liabilities, both individually targeted programs and geographically targeted programs, indicates that, although such programs often sound good in theory, in practice they are characterized by windfalls to employers with little employment generation.

These research findings have several implications for policy. If there is insufficient demand for low­skill workers, a carefully designed public employment program can be used to increase employment. Earned income tax credits, on the other hand, can provide an effective means of increasing the supply of the low­skill segment of the population and can help make work pay without increasing wage costs to employers. The evidence to date offers little support for using employer tax credits to increase employment. There is scant evidence supporting the efficacy of tax credits, such as the Targeted Jobs Tax Credit and the Work Opportunity Tax Credit, that offer employers a credit for hiring workers with certain characteristics. As Ladd speculates, the current form of empowerment zones in the U.S. may generate additional employment, but there is no evidence yet that this has occurred, and prior versions have proven very ineffective.