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The Labor Market Effects of Welfare Reform

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  • Darren H. Lubotsky

    (University of California, Berkeley)

Abstract

The recent reform of the federal welfare system is meant to encourage recipients to leave welfare and enter the workforce. If the reform is successful there are likely to be effects felt throughout the low-- skilled end of the labor market. As former welfare recipients enter the labor market, they may exert downward pressure on wages or displace employment of others already in the labor market. Since there has been limited changes in eligibility for federal welfare programs from which to draw inferences, the magnitude of these labor market effects are open to debate. This study considers these issues in general and evaluates how labor markets in Michigan were affected when the General Assistance program in that state was eliminated in 1991. General Assistance was a large-- scale, state--administered program that provided benefits to people who fell through the cracks in federal anti--poverty programs. In all, about eighty to one--hundred thousand able--bodied adults lost benefits. Increased labor force participation among these people resulted in a decline in weekly hours among high school drop--outs of 1.2 to 2.4 percent. There is little evidence of declines in hourly earnings, except in the Detroit area, where wages fell by about five percent.

Suggested Citation

  • Darren H. Lubotsky, 1999. "The Labor Market Effects of Welfare Reform," Labor and Demography 9904001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpla:9904001
    Note: Type of Document - ; prepared on UNIX Sparc TeX; to print on PostScript; pages: 45; figures: included
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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

    Keywords

    Welfare reform; General Assistance; labor markets;
    All these keywords.

    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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