How Have Households with Children Fared in the Job Market Downturn?

No. A-67 in Series, "New Federalism: Issues and Options for States"

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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During the 1990s, households with children greatly increased their earnings and incomes. Employment rates and earning levels rose for all families, but especially those headed by single mothers; their poverty rates declined substantially while their real incomes rose (Lerman 2005; Zedlewski 2002). Tight labor markets, along with welfare reform and expanded supports for working families (such as the Earned Income Tax Credit and child care subsidies), contributed significantly to these improvements.

But labor markets have slackened considerably since early 2001. While the recession that began in 2001 was officially declared over before the end of the year, employment rates and labor force participation continued to decline through 2003 and recovered only modestly in 2004.¹ It is important to assess how households with children have fared in the wake of this recession and sluggish recovery.

It is also important to assess the effectiveness of the social "safety net" when the economy worsens and jobs become less available. The welfare rolls dropped dramatically during the late 1990s and did not rise appreciably during the recent downturn. Traditionally, Unemployment Insurance (UI) has been the primary safety net program that cushions workers who become unemployed involuntarily through no fault of their own. But UI's strict eligibility rules, based on the reason for unemployment and a worker's recent hours and earnings history, restrict access for many unemployed workers. As a result, takeup rates vary widely, even among the eligible.² How well UI and other programs protected all workers, including low-income single mothers, during the nation's first post–welfare reform recession merits careful scrutiny.

In this brief, we explore changes in the employment rates and earning levels of adults in households with children between 2000 and 2003. We examine whether some households—such as those headed by single adults—were more affected by the recession than others. We also evaluate whether UI and other public programs, such as Temporary Assistance to Needy Families, Social Security, and food stamps, sufficiently safeguarded adult workers whose employment had declined.

Notes from this section

1. The National Bureau of Economic Research Business Cycle Committee declared the recession began in March 2001 and ended in November 2001. But annual unemployment rates rose from 4.0 percent in 2000 to 6.0 percent in 2003 before declining to 5.5 percent in 2004. The employment-to-population ratios in these years were 64.5, 62.3, and 62.3 percent, respectively.

2. To be eligible for UI, an unemployed worker must have been laid off; he or she cannot have quit or been discharged with cause. Eligibility is often limited to those available for full-time work. States also impose minimum hours and/or earnings requirements during a "base period" that usually excludes the current and most recent quarters of employment. For discussions of how these rules might limit UI eligibility among former welfare recipients, see Kaye (1997), Vroman (1998), Holzer (2000), GAO (2000), and Rangarajan and Razafindrakoto (2004).

Note: This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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