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The Labor Market Effects of Welfare Reform

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  • Darren Lubotsky

Abstract

A major goal of the 1996 federal welfare reform was to increase the labor market participation of welfare recipients. Some analysts have speculated that if the reform is successful, this increase in labor supply may exert downward pressure on wages and reduce the employment rate of other low-skilled workers in the labor market. The magnitude of these hypothetical labor market effects is uncertain because there have not been large changes in eligibility for federal welfare programs from which to draw inferences. This study treats the 1991 elimination of the General Assistance program in Michigan as a rough analog to the 1996 federal reform. In all, about 82,000 able-bodied adults lost benefits. Comparisons with other states indicate that employment in Michigan increased by two to four percentage points among high school dropouts, which corresponds to 25–50% of the original GA caseload. There is little evidence of wage or employment declines among other low-skilled workers.

Suggested Citation

  • Darren Lubotsky, 2004. "The Labor Market Effects of Welfare Reform," ILR Review, Cornell University, ILR School, vol. 57(2), pages 249-266, January.
    • Handle: RePEc:sae:ilrrev:v:57:y:2004:i:2:p:249-266
    DOI: 10.1177/001979390405700205
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    References listed on IDEAS

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    Cited by:

    1. Brian C. Hill & Matthew N. Murray, 2008. "Interactions Between Welfare Caseloads And Local Labor Markets," Contemporary Economic Policy, Western Economic Association International, vol. 26(4), pages 539-554, October.
    2. Nathan Berg & Todd Gabel, 2013. "Effects of New Welfare Reform Strategies on Welfare Participation: Microdata Estimates from Canada," Working Papers 1304, University of Otago, Department of Economics, revised Feb 2013.
    3. Divounguy Nding, Orphe, 2015. "Welfare Spending in the Long Run," MPRA Paper 68446, University Library of Munich, Germany.
    4. Timothy J. Bartik, 2002. "Instrumental Variable Estimates of the Labor Market Spillover Effects of Welfare Reform," Upjohn Working Papers 02-78, W.E. Upjohn Institute for Employment Research.

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    More about this item

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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