What lessons does our study of urban welfare and work patterns provide about the efficacy of various kinds of reform? Variation across our sites gives us some indication of the impacts of alternative poli- cies. Our analysis also provides us with information about the kinds of jobs welfare recipients obtain and the determinants of job stability. In this section, we discuss the implications of our findings for choices that policymakers face in their ongoing efforts to reauthorize U.S. welfare programs.
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The Trade-Off between Caseload Reduction and Employment From the inception of the latest round of debate on welfare reform in the early 1990s, one of the central questions has revolved around the potential trade-off between the goal of reducing caseloads and that of in- creasing recipient employment and assuring economic self-sufficiency. Those expressing caution argued that time limits and other restrictions would merely exacerbate the already-desperate conditions of the poor- est single parents, while reform supporters argued that such restrictions would create incentives to push and pull recipients into the labor market and find their own paths to independence. When welfare reform is de- fined broadly, including the substantial expansions of EITC, Medicaid, and child care in the early part of the 1990s, we find strong support for the latter view.
In our examination of specific programs, however, we do see evi- dence of trade-offs between case reduction and movement into employ- ment. This is clear for Atlanta, where regulations requiring recipients to sign self-sufficiency pacts in 1998 led to both increases in exit rates and, very likely, declines in employment rates. Similarly, in Fort Lau- derdale, when the two-year time limit began to bind, there were de- clines in employment rates for leavers, along with continuing high exit rates. Finally, in Houston, although we cannot identify a specific policy that is responsible, the very large caseload declines are associated with unchanging employment rates among leavers, in contrast to the upward trend at other sites.
These patterns confirm that ever-more-stringent welfare policies will not automatically lead to higher levels of employment. Despite the overall positive record, some state policies have had the effect of reduc- ing caseloads at the cost of recipient employment. In contemplating further policy changes, all states will need to recognize that the remain- ing recipients may be limited in their ability to adapt to the labor market and the new welfare regime. Time limits, or other reforms that make welfare receipt less attractive, may leave an increasing number of poor single parents with options that are dramatically worse.
Of course, reforms providing services and continued support to re- cipients, allowing them to expand or enhance their job skills or subsidiz- ing their job search and work activities, provide an alternative approach to reducing caseloads over the longer term. We turn next to a discussion
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of how our results bear on the question of what kinds of programs and strategies support successful transitions from welfare to work.
Work-First versus Human Capital Development
At each of our sites, recipients are required to participate in pro- grams designed to provide skills to aid in obtaining employment that will ultimately allow them to leave welfare and obtain economic self- sufficiency. The underlying philosophy of these programs varies from those that are focused on merely getting people into any job (“work- first”) as soon as possible to those that attempt to first augment their job skills through training. Although there are differences in focus across our sites, none of the programs provide long-term job skills training to a substantial share of welfare recipients. A recent review of evaluations of training programs for welfare recipients and others argues that seri- ous efforts to improve human capital through training have not really been attempted: participants in HCD programs evaluated as part of the National Evaluation of Welfare-to-Work Strategies (NEWWS) were mainly provided basic and adult education services (40 percent), rath- er than occupational skill training (28 percent) (King 2004). Further, NEWWS sites were only able to boost participation in vocational train- ing by 5 percentage points, while adult education increased by fully 20 percentage points. Supporters argue that skill development programs are essential to improving the long-term labor market prospects of cur- rent welfare recipients (for example, in addition to King 2004, see Hotz, Imbens, and Klerman 2000; Krueger 2004; and Martinson and Strawn 2002).
Our results provide some evidence in support of this claim. We find that the jobs obtained by welfare recipients are appreciably less stable and provide lower pay than jobs obtained at the same time by others with the same employer. Of course, such differences reflect the fact that welfare recipients may differ on average from other employees on a variety of personal characteristics, including education, gender, and family struc- ture. However, we find that even when we compare welfare recipients with one another, after controlling for characteristics we can observe, unmeasured personal characteristics have a large effect on job stability and earnings. Two welfare recipients with the same external character-
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istics who obtain a job with the same employer may differ dramatically in their expected success on the job.
These results suggest that there is substantial room for benefits from any program that can succeed in building individual job skills. If long- term training can, in fact, augment individual job skills, in effect mak- ing the least successful recipients more like those who are successful, such training will provide generous returns, possibly in the range of 10 percent or more (Krueger 2004). While our work opens up the possibil- ity of such benefits, it provides no indication of whether programs are in fact successful. Our reading of the literature (Barnow and King 2000; King 2004) is that some programs yield modest and continuing returns, while others have great promise, but results are hardly definitive. Our own results are also consistent with the alternative view that stable— and largely unalterable—personal characteristics play the primary role in determining who among welfare recipients will be successful in the labor market.
Does this mean that “work-first” programs do not work? Although our results indicate clear limits on their efficacy, there remains much room for such programs to affect recipients’ success in the labor market, certainly in the near term. We turn next to a discussion about the kinds of directed job search that may be most valuable to recipients.
The Value of a “Good” Job
One of the guiding principles of work-first programs is that imme- diate paid employment—almost any paid employment—should be en- couraged. Supporters argue that recipients without job experience will learn the everyday work skills that enable them to continue in employ- ment, and recipients with prior job experience will avoid unemployment and the personal debilitation and stigmatization that it often entails. In fact, recent evaluations indicate that near-term (i.e., 1–3 years) gains in employment and earnings from such programs are significant and sub- stantial (Hamilton 2002; Hotz, Imbens, and Klerman 2000). This view is often stated as “Get a job, any job,” or sometimes, “Get a job, get a better job, get a career.”
However, our results suggest that, in at least some cases, recipients may benefit by waiting for “better” job offers. Even after controlling for all personal characteristics (using a person fixed-effects model), we
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found that jobs in certain industries offered higher pay and more stable employment. Furthermore, high pay and stability tend to go together, so it is seldom necessary to sacrifice one to get the other. While this finding may accord with common sense, our results are unique in confirming the powerful effect of type of job in the welfare environment. Previous work has seldom controlled for unmeasured differences across people, nor has there been work focusing on the experiences of welfare recipi- ents.
More generally, programs that focus on helping recipients obtain those jobs with the greatest expected pay and stability may have sub- stantial benefits. Such benefits are particularly attractive, because they may occur without costly investment in new job skills. Of course, such programs should not be viewed as a panacea. Our analysis refers only to the returns from a single job, not to the future pattern of employment. It appears likely that even a short-term job is better than an extended
period without any job.5 A program that increases placements in bet-
ter jobs without reducing the likelihood of employment would almost certainly benefit workers. This is also consistent with the results from two key studies. The NEWWS evaluation found larger longer-term employment and earnings impacts from its Portland site, a hybrid em- ployment- and training-oriented program that encouraged participants to sort job prospects carefully and select those offering better pay, ben- efits, and chances for advancement. And, King et al. (2000) found that more stable employment and higher earnings resulted from programs that stressed skills training and more selective job search strategies in Illinois and Texas.