Overview of the Final Report of the Seattle-Denver Income Maintenance Experiment. Counseling/Training Subsidy Effects

05/01/1983

A unique feature of SIME/DIME among the four NIT experiments was the testing of a labor market counseling and training subsidy program in addition to a negative income tax transfer program.  The rationale for including these programs was to determine whether increased labor market information and increased education and training could offset the decline in work effort that was predicted to occur due to the negative income tax program.  As described at the beginning of this overview, the SIME/DIME counseling treatment was informational and non-directive in nature, and types of training deemed appropriate for subsidization were very flexibly defined.  The expectation was that the counseling would lead, at least eventually, to better labor market match of skills to jobs and thus higher wage rates, earnings, and possibly, job status.  The training subsidy was expected to lead to the same general outcomes, possibly after a brief period of decreased labor market activity in the short run as the extra training was acquired.

Participation

There was substantial participation in the counseling and subsidized training programs, particularly among single women.  Many of those who participated in the counseling program demonstrated interest in obtaining additional training, including even some who were not eligible for a training subsidy.  There was marked diversity in the goals of those who planned to seek training.  A majority chose relatively modest occupational and training objectives, but a substantial minority chose quite ambitious objectives that presumably held lower prospects for successful attainment.

Table 7 shows the proportions of the SIME/DIME sample that participated in the counseling and training subsidy programs.  Participation rates for counseling rose consistently as the amount of subsidy offered increased.  Husbands and wives participated at similar rates (nearly 40% for the counseling only group, just over 50% for the 50% subsidy group and about 60% for the 100% subsidy group).  Female heads participated in counseling at uniformly higher rates (54% for the counseling only group, 64% for the 50% subsidy group, and 72% for the 100% subsidy group).  A similar pattern emerges for participation in the training subsidy programs, though the percentages are lower.  Just over 20% of husband and wives chose to participate in the 50% subsidy option and 36% chose to participate in the 100% subsidy option.  For female heads, the figures are 35% and 47%, respectively.

Table 7. Rates of Participation in the Counseling/Training Subsidy Treatments

  Counseling only Counseling and 50 percent subsidy Counseling and 100 percent subsidy
H W FH H W FH H W FH
Number of eligibles 510 510 374 671 670 481 391 392 313
Percent attending at least 1 counseling session 39.8 38.2 54.0 51.4 52.8 64.4 60.6 56.6 71.9
Of those participating:
  • Average number of sessions
4.8 4.9 5.8 6.6 6.4 7.3 6.5 7.4 7.7
  • Percent receiving some subsidy
21.0 21.3 34.9 36.3 36.5 46.6
Of those receiving subsidy:
  • Average amount
$363 $401 $650 $666 $954 $857
  • Average number of academic quarters subsidized
4.0 3.6 4.1 3.8 3.9 4.1
Footnote:
1.  Demographic groups are husbands (H), wives (W), and female heads (FH).
Source:  Final Report, Volume 1, Part IV, Chapter 3, Table 4.1.

For those who participated in counseling, the average number of sessions also increased as the amount of subsidy offered increased — from the 4.8-to-5.8 range for the counseling only group to the 6.5-to-7.7 range for the 100% subsidy range group.  The average amount of the subsidy for those who chose to participate range from a low $363 for husbands on the 50% subsidy plan to a high of $954 for wives on the 100% subsidy plan.  The average number of academic quarters subsidized ranged between 3.6 and 4.1.

With respect to the amount of schooling received, counseling-only did not make a difference.  The subsidies did tend, however, to increase the amount of schooling received — mildly for husbands, more strongly for wives, and most strongly for female heads.  For the latter two groups, the effects on schooling were generally stronger the more generous the subsidy.

Impact on Labor Market Performance

The counseling/training subsidy treatment did not have the expected positive effect for most groups.  The effects on average annual earnings and hours of work are shown in Table 8.  Earnings declined during the experimental period and, quite unexpectedly, the negative results tended to continue into the post-program period as well, though these post-program reductions were not statistically significant.  Not all results for all groups are statistically significant, but the negative pattern shows clearly through the estimates — in earnings, hours worked, and wage rates.

Table 8. Effect of Counseling and Training Subsidies on Annual Earnings and Hours of Work.

  Experimental Year
1 4 6
Earnings Hours Earnings Hours Earnings Hours
Husbands
Counseling Only:
  • 3-year sample
  • 5-year sample
+$6
-31
-3.0
-2.8
-$5
-185
+24.1
-80.6

-$239

-115.6
Counseling and 50% subsidy:
  • 3-year sample
  • 5-year sample
-248(2)
-398(1)
-71.7(2)
-105.6(1)
-101
-161
+22.4
73.7

-33

-18.7
Counseling and 100% subsidy:
  • 3-year sample
-317(2) -88.8(1) -245 -37.9
Wives
Counseling Only:
  • 3-year sample
  • 5-year sample
+21
-187(3)
-8.6
-77.1(3)
-215
-534(1)
-61.8
-197.9(1)

-430(3)

-125.8
Counseling and 50% subsidy:
  • 3-year sample
  • 5-year sample
+6
-255(1)
-14.9
-107.8(1)
-199
-124
-63.9
-43.1

-301

-52.1
Counseling and 100% subsidy:
  • 3-year sample
-37 -10.0 -222(3) -96.1(3)
Female Heads
Counseling Only:
  • 3-year sample
  • 5-year sample
+148
-123
+36.1
+31.8
+144
+184
+13.2
+81.1

+426

183.4(3)
Counseling and 50% subsidy:
  • 3-year sample
  • 5-year sample
-32
-114
-4.6
-81.3
-207
-89
-98.1
-77.9

-37

-112.8
Counseling and 100% subsidy:
  • 3-year sample
-11 -20.7 -45 -35.7
Footnotes:
1.  Significant at the 1 percent level.
2.  Significant at the 5 percent level.
3.  Significant at the 10 percent level.
Source:  Final Report, Volume 1, Part IV, Chapter 3, Tables 4.5 - 4.7.

Table 8 shows the results for the three- and five-year samples for years 1, 4, and 6, to indicate both in-program and post-program effects.  For husbands, the three-year counseling only program had virtually no impact on earnings.  In contrast, the five-year counseling program had a predominately negative impact on earnings, even in the sixth year when experimentals were no longer eligible for counseling.  In addition, eligibility for counseling resulted, for those husbands who were working, in consistently lower wage rates than those of their control counterparts.  The training subsidy programs led to substantial and significant first year decreases in earnings and hours.  The 50% subsidy for example, led to a $248 decrease in annual earnings for the three-year sample and a $398 decrease for the five-year sample.  The 100% subsidy, only administered to the three-year sample, led to a $317 decrease.  In year 4, the decrease in earnings was smaller and not significant; in year 6, it had practically disappeared.

Wives show a similar pattern of response to the counseling-only program with even larger negative effects.  Both the three-year and five-year counseling programs resulted in lower earnings and hours of work for wives in every year, and these effects are generally significant for the five-year program.  For example, in the first post-program year, wives eligible for the five-year counseling treatment earned $430 less than did comparable controls, a 19% reduction.  Wives eligible for the training subsidy programs also had lower earnings and worked fewer hours than did controls.  These effects tend to be significant in the early years, but are also large and negative in the later years.

For single female heads, the counseling only program probably did have positive results on earnings.  Although not statistically significant, the effect on earnings is substantial:  in the fifth year, female heads eligible for the counseling only program earned between $275 and $300 more per year than did controls, approximately a 10% increase.  Furthermore, the counseling only program did have some significant post-program impacts on the wage rates and hours of work of female heads.

For the combined counseling/training subsidy program, in contrast, the effects were negative for female heads, as for the other groups.  As for husbands and wives, female heads eligible for subsidies generally had lower earnings and worked fewer hours than did comparable controls even in the post-program period.

It would be instructive to be able to separate out the effect of the counseling from the effects of the training subsidies, to test the possibility that the counseling was the driving negative influence.  While no definitive conclusion on this point can be drawn, because counseling was a prerequisite to the subsidy program, it is possible to infer the separate impact of subsidies when added to an existing counseling program.  Here the results for female heads suggest strongly and those for husbands suggest weakly that the addition of a training subsidy program causes even larger earnings and hours reductions than counseling by itself.  For wives, the negative impact of counseling plus subsidies is approximately equal to the impact of counseling by itself.

Possible Reasons for the Effects

How did programs intended to improve the employment and earnings experiences of eligibles actually lead to lower earnings?  If the results had indicated no effects, one might be able to explain the results by hypothesizing that very little actually happened in the counseling and training programs.  The findings of negative effects, however, cannot be so dismissed.  Something did occur in counseling and in training that actually reduced the earnings prospects of participants.

Analysis of date gathered on the objectives of participants suggest that a substantial fraction of the subsidized training was oriented to achieving ambitious career goals.  For an important fraction of participants, the goals were evidently overambitious, and the training did not translate into higher earnings even though it may have provided immediate satisfaction to the participants.  Evidently, the SIME/DIME counseling/training subsidy program induced short-run reductions in earnings without supporting the type of training or education that would enable participants to secure better paying jobs, at least during the one- to three-year follow-up period.  This "training ineffectiveness argument" would explain a zero treatment response, but it doesn't really offer an explanation of the obvious negative response.  Perhaps the counseling and training experiences of those with ambitious upward mobility goals actually made it more difficult to pursue a career consisting of a series of relatively low-paying jobs.  In any case, a different type of counseling might have resulted in training and education decisions that were less ambitious, but this is entirely conjectural.