II. The Employment and Economic Status of Low-Income Families

Overall, the employment rates among low-income parents have risen dramatically in the past decade. This is particularly true for single mothers, especially those who had previously been on welfare, but not for most groups of less-educated men who experienced a decline in employment rates during this same period. For instance, labor force participation rates among single mothers rose from 67 percent in the early 1990s to 78 percent by the end of the decade; among those who had been on welfare in the previous year, labor force activity rose from about 30 percent to nearly 60 percent (Blank and Schmidt 2001). These increases in employment, along with declining welfare rolls, are widely attributed to welfare reform, the strengthening of supports for working families (like the earned income tax credit and child care subsidies), and the strong economy of the late 1990s.2

But, while their employment rates are now fairly high, the annual earnings and income of many individuals remain quite low. Acs and Loprest (2004), for example, found that, among those leaving welfare, average earnings remained below $3,000 per quarter and below $10,000 per year. Those who left TANF for work in 2002 had a median wage of $8.06 per hour (Loprest 2003), and about 52 percent of those who left welfare in 1999 had incomes below the poverty level (Loprest 2002). More broadly, the annual earnings of parents with less than a high school diploma, weak skills, and limited or spotty work experience are similarly low (Acs and Loprest 2005). In particular, employment rates and labor force activity for most groups of less-educated men have declined over the past decade (Holzer and Offner 2002).

Low-income individuals are a heterogeneous population with a range of employment patterns. Some individuals work very little, because they face significant barriers to work and instead rely primarily on cash assistance and other public benefits to support themselves. At least some of those who are able to work have high rates of job turnover, or low job retention; they lose or leave their jobs frequently, and sometimes experience lengthy periods of time between jobs. This joblessness directly reduces annual earnings, and also inhibits wage growth over time. Finally, even when working steadily, their wages and benefits are very low. Prospects for earnings growth through advancement in their current jobs (or other jobs) are very limited.

There is evidence that a number of individual and employer characteristics affect employment and earnings outcomes:

• Lack of basic skills and credentials. A wide range of research indicates that educational attainment and basic skill levels are linked to employment outcomes (see Martinson and Strawn 2003 for a summary). High school dropouts account for about 20 to 30 percent of the heads of low-income families where employment levels are fairly high, and about 40 percent of those where employment levels are low (Acs and Loprest 2005). These patterns are exacerbated by a major shift in the U.S. economy where new jobs that pay premium wages require postsecondary education or specialized training but where those with low skills see little or no real wage increases. Over two-thirds of all jobs require little education and U.S. Bureau of Labor Statistics projections indicate this trend is likely to continue over the next decade, suggesting the skills gap will persist (Nightingale 2002).

• Nature of employers and jobs. While poor education and skills among individuals contribute to their retention difficulties, the characteristics of their jobs and employers can be important as well. A recent study by Andersson, Holzer and Lane (2005) found that while most low earners enjoy substantial earnings growth, only about a fourth or fewer seemed to permanently escape their low-earnings status (in part because growth occurs from a very low initial wage level).3 Employment in higher-wage sectors of the economy—such as construction, manufacturing, transportation or health services—led to higher rates of advancement for lower earners than employment elsewhere. Working in large firms and those with low turnover rates also helped raise advancement prospects, as these firms generally offer more on-the-job training and opportunities for promotion (Holzer and Reaser 1999). Some low-wage workers also lack access to existing good jobs due to discrimination, “spatial mismatch,” transportation, and limited information or contacts in the labor market (Holzer 2001).

• Problems with work supports. Low wages and benefits (resulting both from low worker skills and low-wage jobs discussed above) often make it hard for parents to afford necessary work supports. For example, low-income parents often have trouble finding reliable, convenient child care, sometimes because they work nonstandard hours. High rates of worker absenteeism, often associated with child care and transportation problems, frequently results in quits or discharges for this group (Holzer, Stoll, and Wissoker 2004). State studies of employed former welfare recipients found that between 15 and 40 percent of parents report they have left a job or are not working because of child care problems (Wilkins 2002).

• Employment barriers. Some low-income parents experience physical or mental health problems, domestic violence, criminal history, substance abuse, or other crises that cause them to be unable to find or keep jobs. Research has found that welfare recipients with little employment experience generally experience multiple and severe barriers in these areas (Danziger et al. 2000; Zedlewski and Loprest 2001).

A range of employment strategies have been undertaken to influence the employment and earnings patterns of low-income parents, and particularly those of welfare recipients. Over the past 30 years, a significant body of research has accumulated on “what works” as well as what does not in moving individuals from welfare to work and helping them keep and advance in the job market. Several research syntheses of this accumulating body of research evidence to date have been conducted (Berlin 2002; Holzer and Martinson 2005; Martinson and Strawn 2003; Michalopoulos 2005; Nightingale 2002).

This program and policy evaluation literature indicates that there are no “magic bullets.” While several programs have shown success in improving employment and earning levels for welfare recipients, some have had limited effects. Moreover, few programs have had effects on improving longer-term employment retention and advancement for low-income populations or on improving the economic status of those individuals with multiple barriers to employment. Key findings from this past work are discussed throughout this report, particularly as they relate to identifying innovative yet untested approaches.

Given past successes and challenges, there is strong interest across a range of service delivery systems in developing new approaches to assist low-income individuals in succeeding in the labor market. Agencies operating the TANF program at the state and local levels have increasingly recognized that welfare reform must encompass helping poor parents not just find work, but keep work and remain financially stable. This has broadened the focus of TANF agencies to think beyond cash assistance and explore ways to more generally help both welfare and nonwelfare poor families improve their economic well-being (Martinson and Holcomb 2002). In addition, the Deficit Reduction Act (DRA) of 2006, which had the effect of establishing significantly higher participation rate targets for states, means states will be interested in developing new strategies and approaches for engaging TANF recipients in employment-related activities. One-Stop Career Centers established by the Workforce Investment Act (WIA) are increasingly involved in efforts to move TANF recipients and other low-income workers up the career ladder, while also meeting employer demands for skilled workers. Community colleges and other community-based organizations in many states and localities are also looking for new and innovative approaches for serving low-income populations.

Finally, it bears noting that much of the research for this project occurred before the enactment of DRA. Therefore, although it is likely that some of the programs identified in this report would help states meet DRA participation requirements, this paper does not focus primarily on identifying or highlighting programs that could lead to higher TANF participation rates. Overall, this report provides information on some approaches and programs that may be useful in developing strategies to meet the new TANF participation rules, but the primary goal of the project is to identify programs that could prevent or reduce dependency and improve the economic status of low-income individuals generally, including not only current TANF recipients but others as well.