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. Public Service Employment and Related Programs in the U.S.A.


Direct job creation programs have been used on a limited basis in the U.S. since the Great Depression. These programs have been controversial throughout this period, with the programs often being the butt of jokes and long periods when such programs were not operated. The Job Training Partnership Act (JTPA), the nation's former major federal employment and training program, specifically prohibits PSE. This section reviews the use of such programs, and the next section summarizes the evidence on the effectiveness of PSE and related programs.

During the Great Depression eight major work relief and public works programs were initiated.(5)  Under President Hoover, the Reconstruction Finance Administration provided loans to state and local governments for welfare and public employment. Although this program was in operation for less than a year, $300 million was spent on work relief, and at its peak nearly 2 million people were employed through the program. When Franklin Roosevelt assumed office, a number of PSE-like programs were enacted, and as many as 4.3 million workers were employed in PSE-like jobs in the largest program.

There were no significant federal PSE programs between the end of the Great Depression programs and the early 1970s. In fact, there was little government involvement in employment or training programs between 1943 and 1961. Federal involvement in training increased with enactment of the Manpower Development and Training Act (MDTA) of 1962.

The first significant PSE program in recent times was the Public Employment Program (PEP), which was authorized by the Emergency Employment Act of 1971.(6)  PEP was a countercyclical program with a two-year life span. Because of the virtual lack of restrictions on eligibility and wages, it was not surprising that the PEP participants resembled the public­sector workforce more than the participants served under MDTA; this is not necessarily an undesirable result for a countercyclical program.

In 1973, the Comprehensive Employment and Training Act (CETA) was enacted. As the title implies, CETA was intended to be a comprehensive program, replacing the numerous categorical programs that existed at the time. The program was intended to replace the training programs provided through MDTA and PSE funded under PEP. CETA reflected President Nixon's strong interest in federalism through block grants and revenue sharing by passing most of the money through to units of state and local government who were to act as "prime sponsors" for the program. The prime sponsors, in turn, funded service providers for training programs and administered the PSE programs.

The original CETA legislation authorized classroom and on­the­job training and work experience under Title I and PSE under Title II. A significant increase in the unemployment rate led to enactment of the Emergency Jobs and Unemployment Assistance Act of 1974, which added a new countercyclical PSE program as Title VI of CETA. In the original CETA, PSE was not the dominant part of CETA that it later became. In FY 1974, for example, $620 million was appropriated for PSE, compared to $1,010 for training activities under Title I; by 1978, $4,684 million was appropriated for PSE, and $1,880 was appropriated for the training title.(7) 

The CETA program was amended significantly three times over its life.(8)  The 1978 amendments had the greatest impact on the PSE programs, but the other amendments also modified the program. The modifications were made to improve targeting and reduce perceived problems with fiscal substitution. Characteristics of the PSE program in the original program and after the amendments are described below.

Eligibility and Targeting. Eligibility for PSE under CETA varied considerably over the life of the program. The major eligibility and targeting requirements have been summarized by Mirengoff et al. (1980), and they are reproduced in table 1. To be eligible for PSE under the original Title II program, an individual had to reside in an area of substantial unemployment (an area having an underemployment rate of at least 6.5 percent) and be either unemployed for at least 30 days or underemployed. Preference was to be given to the most severely disadvantaged in terms of length of unemployment, former training program participants, and Vietnam veterans.

Table 1.
Eligibility and Targeting in CETA Public Service Employment Programs

Date Title Eligibility Targeting
12/28/73 II (Areas of substantial unemployment) 1. Unemployed for 30 or more days or underemployed. 1. Consideration for the most severely disadvantaged in terms of length of unemployment and prospects for obtaining a job; Vietnam veterans; and former training program participants.
12/31/74 VI (Countercyclical PSE) 2. Unemployed for 30 or more days or underemployed; if unemployment rate 7% or higher, unemployed 15 days or more. 2. Same as 1 above plus UI exhaustees, those ineligible for UI except new entrants, people unemployed at least 15 weeks, and recently separated veterans.
10/01/76 VI (Countercyclical PSE) 3. For half of vacancies in regular positions above June 1976 level, same as in 2 above. 3. For half of vacancies in regular positions above June 1976 level, same as in 2 above.
    4. For the remaining half of regular vacancies and for new project positions: member of low­income family and either received UI for 15 or more weeks, was ineligible for UI and was unemployed for 15 or more weeks, exhausted UI entitlement, or was an AFDC recipient. 4. For the remaining half of regular vacancies and for new project positions: same as in 2 above, plus equitable allocation of jobs among members of low­income families who received UI for 15 or more weeks, was ineligible for UI and was unemployed for 15 or more weeks, exhausted UI entitlement, or was an AFDC recipient.
10/27/78 IID (PSE for the economically disadvantaged) 5. Unemployed at least 15 weeks, unemployed at time of determination, and member of low-income family; or member of family receiving AFDC or SSI. 5. Intended for most severely disadvantaged in terms of length of unemployment and prospects for obtaining employment. Consideration to be given to Vietnam­era veterans, public assistance recipients, groups facing labor market disadvantages including offenders, persons with limited English proficiency, people with disabilities, women, single parents, displaced homemakers, youth, older workers, dropouts, and others identified by the Secretary.
  VI (Countercyclical PSE) 6. Unemployed 10 of last 12 weeks and unemployed at time of determination; and an AFDC or SSI recipient or a member of a low­income family. 6. Same as in 5 above.

Note:  UI = unemployment insurance
Source:  William Mirengoff, Lester Rindler, Harry Greenspan, Scott Seablom, and Lois Black. 1980.  The New CETA:  Effect on Public Service Employment Programs.  Washington, D.C.:  National Academy Press.


At the end of 1974, Title VI was added to serve as a countercyclical PSE program; the program was originally scheduled to last for only one year until the unemployment rate receded.(9)  Eligibility was the same as for Title II except that eligible individuals needed to be unemployed for only 15 days if they resided in an area where the unemployment rate was at least 7 percent. The 1976 amendments added low­income eligibility criteria for some Title VI positions.

In 1978, Congressional concern with creaming among the eligible population, enrollment of significant numbers of ineligible participants, and substitution of federal funds for state and local funds led to major amendments to the CETA PSE programs. Eligibility for the structural program, now under Title IID, required unemployment of at least 15 weeks and low family income or receipt of Aid to Families with Dependent Children (AFDC) or Supplemental Security Income (SSI). The countercyclical program now required that participants be unemployed for at least 10 out of the last 12 weeks and unemployed at the time of determination as well as meeting the same income/welfare requirements as Title IID participants. In addition, prime sponsors were required to establish independent monitoring units to assure compliance, and they were required to repay the federal government for all wages paid to ineligible participants.

Wages and Supplementation. The original 1973 legislation restricted the federal contribution to Title II wages to a maximum of $10,000 per year, but employers were permitted to supplement the wages without limit. The Department of Labor was permitted to make general recommendations to maintain an average annual wage of $7,800. The requirements for Title VI were similar.

Amendments passed in 1978 reduced the national average wage for participants entering the program after March 1979 to $7,200. The average for specific areas was indexed to relative wages in the area. The average was adjusted annually for changes in average wages for unsubsidized jobs. Maximum PSE wages were restricted to $10,000 in areas with below­average wages and $12,000 in areas with average wages above the national average. Wage supplementation by employers was prohibited for new Title IID participants, and supplementation for Title VI participants was generally limited to 10 percent of the maximum CETA wage for the area.(10) 

Limits on Individual Participation and Job Length. There were no limits on either individual participation or position duration in the original Title II program and the Title VI program added in 1974. In 1976, Title VI was amended to require that all net new positions be funded in special projects that were to last no more than 12 months. Under the 1978 amendments, projects were permitted to last up to 18 months and be extended for an additional 18 months. The amendments also limited individual participation in both Title II-D and Title VI to a maximum of 18 months in a five­year period, but the Department of Labor was permitted to grant waivers for up to 12 additional months to areas with an unemployment rate of at least 7 percent and hardship in finding unsubsidized jobs for participants.

PSE's role as a significant part of federal employment and training programs ended with the enactment of JTPA in 1982. Johnson and Lopez (1997) note, however, that several state and local programs and some demonstration projects have instituted public employment on a limited scale. These programs include youth corps programs operating in 37 states, the AFDC Homemaker­Home Health Aide Demonstrations (which included a short period of training followed by up to a year of subsidized employment), and the New Hope demonstration project in Milwaukee.