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Moving Public Assistance Recipients Into the Labor Force, 1996-2000
Kenneth Hanson and Karen S. Hamrick
Food Assistance and Nutrition Research Report No. (FANRR40)
46 pp, May 2004
Moving public assistance recipients into jobs is one goal
of the Personal Responsibility and Work Opportunity Reconciliation
Act (PRWORA) of 1996. Because public assistance recipients tend
to find jobs in low-skill occupations, the success of PRWORA
relies heavily on the labor market conditions for low-skill
workers.
What Is the Issue?
The growing U.S. economy of the late 1990s generated many new
jobs and, in particular, jobs in low-skill occupations. The
influx of public assistance recipients into the labor force
affected economic growth and also the wages and employment opportunities
of other low-skill workers. These "spillover effects"
are important indirect results of a welfare-to-work policy and
are important to understand. It is also important to determine
how a recession versus economic growth may affect low-skill
labor market conditions and public assistance.
What Did the Study Find?
Unintended consequences occur. The influx of public assistance
recipients into the labor force between 1996 and 2000 resulted
in about 2.4 million new workers. This influx accounted for
18 percent of employment growth and 1 percentage point of real
gross domestic product (GDP) growth during that time. It also
put downward pressure on wages for low-skill occupations. Wage
growth was reduced by 2.5 percentage points to 4.4 percent,
versus 6.9 percent that the authors estimate would have occurred
without the influx.
The influx adds to overall economic expansion. When the increase
in labor supply from the movement of public assistance recipients
into the workforce occurs during a period of economic expansion,
the increase contributes to the economic growth.
How Was the Study Conducted?
The authors focused on participants in the Food Stamp Program
(FSP) and Aid for Families with Dependent Children (AFDC) or
Temporary Assistance for Needy Families (TANF), and on low-skill
jobs. AFDC is the welfare program that was in place before 1996.
PRWORA replaced AFDC's entitlement program with TANF, which
has a "work first" focus. The FSP and AFDC/TANF are
the two assistance programs whose caseloads are most influenced
by labor market conditions and both have been affected by the
PRWORA welfare-to-work component. Only a small share of the
FSP caseload has been directly affected by work requirements,
but indirectly much of the caseload is affected because TANF
participants who leave that program to work either leave the
FSP as well or change their work status while continuing to
participate in the FSP.
A computable general equilibrium (CGE) model focusing on low-skill
jobs and workers was used to analyze the labor market impact
of public assistance recipients moving into the workforce. A
CGE model is an economy-wide computer simulation model that
captures the economic interactions among households, producers,
and government. One major contribution of a CGE model is its
comprehensive look at the impact of policy change on the economy,
as it works through the various linkages among the economic
entities. Three types of scenarios were analyzed through the
CGE model: (1) increase in labor supply from recipients of public
assistance joining the labor force; (2) recession; and (3) economic
growth. Each scenario focused on the low-skill labor markets,
and various sets of scenarios were developed for sensitivity
analysis.
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