Will Welfare Reform Hurt Low-Skilled Workers?

Assessing the New Federalism Discussion Paper No. 01-01

Assessing the New Federalism is a multi-year Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states. It focuses primarily on health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments. Alan Weil is the project director. In collaboration with Child Trends, the project studies changes in family well-being. The project provides timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.

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Contents

Will Welfare Reform Hurt Low-skilled Workers

Welfare Mothers and Other Workers in the Workplace

Mediators of the Effects

How Many Workers Does Welfare-Reform Add to the Labor Force

Are Welfare Mothers Different from Other Low-Skilled Workers?

Estimating the Relationship Between Different Types of Workers

The Share of Workers in the Workforce

Estimated Effects of Welfare Mothers on Other Workers

Looking to the Future

Endnotes

References

About the Author

Will Welfare Reform Hurt Low-skilled Workers?

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) will place hundreds of thousands of women in the labor market. The exact number is difficult to ascertain, but the federal mandate is that 25 percent of adult welfare recipients with children over age 1 be engaged in work-related activities in fiscal year 1997 and 30 percent in fiscal year 1998. About 20 percent can be exempted from time limits, not work requests. In 1997 there were 1.2 million women ages 18 to 54 with children ages 0 to 5 in welfare.¹ Adding the 25 percent to the 1997 welfare population, and subtracting the exempted cases, could mean up to 240,000 additional workers in the labor market. But the increase in the labor force will be larger because some welfare users will not participate in work-related programs because of time limits and will join the labor force as they are pushed out of assistance. Further, welfare is now less attractive, and many women who might have entered welfare (and not the labor market) had the stricter regulations not been in effect will be joining the labor force.

Entering the workforce has important economic, psychological, and familial consequences for welfare participants themselves. But, does it also mean that low-skilled workers already in the labor force will be hurt?

Welfare participants entering the market will increase competition for scarce jobs, which may hurt the wages and employment chances of other low-skilled workers. If this is the case, it is certainly an unintended negative consequence of welfare reform, low-skilled workers have already had their share of economic adversity. Their employment and wage performance during the past two decades has been poor. The low-skilled labor market is characterized by low wages, employment instability, and little opportunity for advancement, (Acs and Danziger 1993, Blackburn, Bloom, and Freeman 1990, Holzer 1996, Pavetti 1997). The negative wage and employment consequences of welfare reform on other low-skilled workers are especially unfortunate considering that reform does not seem to produce clear winners. Various studies have shown that welfare-to-work programs are unlikely to move ex-welfare mothers out of poverty, and that their earnings will not be enough to compensate for transportation, child care, and other costs associated with labor market involvement (Acs, Coe, Watson, and Lerman 1998, Jencks and Edin 1990, Pavetti and Acs 1997). Welfare "leavers" are more likely than other low-income mothers to report serious economic struggles in providing food and paying rent (Loprest 1999).

The following section discusses the mechanisms by which welfare mothers might affect other low-skilled workers and presents data that estimate the size of the influx and its labor market effects.

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1. This statistic comes from the March Current Population Survey 1998. Only women who were householders, primary individuals, or wives are part of this figure.

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