Aggregate Effects in Local Labor Markets of Supply and Demand Shocks
Anti-poverty policy in the U.S. has emphasized labor supply policies, such as welfare reform or job training. Anti-poverty policy in the U.S. has not emphasized policies to increase labor demand for the poor, such as public employment or subsidizing private employers to hire the poor. What are the aggregate effects of such policies on wages and unemployment of different groups? This paper estimates and simulates a model with several types of labor, using data from the Current Population Survey on state labor markets. The simulations suggest that forcing more disadvantaged persons into the labor market can displace many other persons from employment in the short-run and medium-run, and increased public employment of the poor may be offset by reduced private employment of the poor in the long run. Wage subsidies to either the poor or the poor's employers have little effect on the poor's employment or market wages, although paying wage subsidies to the poor increases take-home pay. Finally education policies not only directly help those educated, but also increase average earnings of less-educated groups and reduce average earnings of more-educated groups.
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|Date of creation:||Jul 1999|
|Note:||A revised version of this paper appears as "Spillover Effects of Welfare Reforms in State Labor Markets" in Journal of Regional Science, Vol. 42, No. 4 (November 2002), pp. 667-701.|
|Contact details of provider:|| Postal: 300 S. Westnedge Ave. Kalamazoo, MI 49007 USA|
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- Mark C. Berger, 1983. "Changes in Labor Force Composition and Male Earnings: A Production Approach," Journal of Human Resources, University of Wisconsin Press, vol. 18(2), pages 177-196.
- Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
- George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
- Timothy J. Bartik, 1991.
"The Effects of Metropolitan Job Growth on the Size Distribution of Family Income,"
Upjohn Working Papers and Journal Articles
91-06, W.E. Upjohn Institute for Employment Research.
- Timothy J. Bartik, "undated". "The Effects of Metropolitan Job Growth on the Size Distribution of Family Income," Upjohn Working Papers and Journal Articles tjb1994jrs, W.E. Upjohn Institute for Employment Research.
- John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
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