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An Urban Institute New Federalism Program to Assess Issues and Options for States Changing Social Policies

THE URBAN INSTITUTE Series A, No. A-46, December 2000

Unemployment and Welfare Recipients: What Happens When the Comes? Harry J. Holzer

In many ways, our national experiment an era when jobs may not be so plentiful as with has been more suc- they currently are, the “safety net” avail- cessful to date than many analysts had able to those who cannot find jobs may A recession will anticipated. Not only have welfare rolls have some significant gaps in it. declined by roughly half since the early Traditionally, the major “safety net” significantly limit 1990s, but also rates have program available to unemployed workers the employment risen for most former (and many current) during a recession has been the welfare recipients (Council of Economic Insurance (UI) system. options of recent Advisers 1999). Nevertheless, several However, several authors (Kaye 1997; welfare recipients important questions about the success of Gustafson and Levine 1998; Vroman 1998) and will require welfare reform remain—and one of the have noted that, in the next recession, eligi- most pressing is what will happen when bility for UI among former welfare recipi- appropriate safety the current national economic boom ends ents will be limited for a variety of reasons, nets for unemployed and the next recession begins. particularly insufficient prior experi- The importance of the strong national ence. At the same time, many of these indi- recipients. to the success of welfare reform viduals (and their families) will be ineligi- to date has been considerable. For one ble for Temporary Assistance for Needy thing, we have recently enjoyed the lowest Families (TANF) benefits if they have unemployment rates nationally in 30 years. exhausted their lifetime limits. Neither Virtually every recent analysis suggests program may be available to the (often that the strong economy of the 1990s has noncustodial) fathers in these families as contributed significantly to both the declin- well, whose contributions to their family’s ing caseload and the rise in employment financial well-being are increasingly cru- rates and earnings among single mothers cial (Sorensen 1999). (e.g., Council of Economic Advisers 1999; On the other hand, little is known cur- Meyer and Rosenbaum 2000). The continu- rently about how significant these prob- ation of extremely tight labor markets since lems are likely to be. Estimates in the federal reforms were implemented has cre- sources cited above are based almost ated an environment in which transitions exclusively on data from the 1980s and from welfare to work could proceed more early 1990s, during which time employ- easily than they otherwise would. A seri- ment among welfare recipients was much ous recession would eliminate these condi- lower than it is today. More recent data on tions and likely cause some reversal of the employment experiences of current these trends. Furthermore, we have moved and former welfare recipients are now from a social welfare system that was cen- available and might lead to new estimates tered around cash assistance to the nonem- of future UI eligibility. ployed to one that is based on assistance to This brief reviews evidence on these the “” (e.g., Ellwood 1999). In issues and considers their implications for ASSESSING THE NEW FEDERALISM An Urban Institute Program to Assess Changing Social Policies

policy. In particular, the following ques- considering current hiring patterns and tions are addressed: their relation to measures of labor tightness. For instance, data from employer 1. By how much is employment likely to surveys recently administered in several decline among welfare recipients and large metropolitan areas show that the job other vulnerable groups of workers vacancy rate would likely decline by two- during a recession? thirds or more during a severe recession 2. How many former welfare recipients and by somewhat less in a milder recession and other vulnerable workers will be (Holzer and Stoll 2000a, b). Accordingly, eligible for UI? the new hire and employment rates of wel- 3. If UI is not likely to serve a large frac- fare recipients could decline by large tion of this during a down- amounts as well.1 turn, what should state and federal pol- Of course, the impact of the next reces- icymakers do to address these issues? sion on the job status of welfare recipients remains uncertain, since many of its attrib- Only about 30 Employment Declines in utes—including its severity, duration, and distribution across states and/or economic percent of all the Next Recession sectors—are unknown. Despite this uncer- currently One way to estimate the extent to which tainty, however, nearly all of the above unemployed employment will decline among welfare estimates suggest that a recession will sig- recipients and other vulnerable groups nificantly limit the employment options of workers receive UI, during the next recession is to gauge recent welfare recipients and will require and only about 40 movements in employment and unem- appropriate safety nets for unemployed ployment over previous business cycles recipients. percent did so (figures 1 and 2). In general, the employ- during the most ment rates of women have been less sensi- Determining Eligibility for tive to the business cycle than those of recent economic men, even among the less educated. Unemployment Insurance downturn. Nonetheless, the data show that adult There are a number of reasons why wel- female high school dropouts, black fare recipients who lose their jobs might women, and teenage black women in par- not qualify for UI. Vroman (1998) identifies ticular experience large employment four: (1) insufficient prior work experience declines during . Indeed, and earnings, (2) use of base periods for employment rates for black female teens calculating prior earnings that, in turn, dis- during a recession can decline by as much qualify up to six months of an employee’s as one-third. most recent work (since the current and So which group is most comparable to previous quarter’s earnings are generally former welfare recipients who are now omitted), (3) reasons for job departure or working? In terms of education and basic loss (since spells of unemployment result- cognitive (i.e., reading, writing, and arith- ing from employee quits or discharges for metic) skills, adult female high school just cause are generally not covered by UI), dropouts may be the most relevant com- and (4) lack of availability for full-time parison group and, therefore, the employ- work due to family responsibilities or ment losses of welfare recipients in a other personal problems. Applying these downturn may be relatively modest. On reasons to work and turnover patterns the other hand, welfare recipients’ vulnera- observed among welfare recipients in the bility to a downturn might be more like National Longitudinal Survey of Youth in that of teens—both have substantially less the 1980s and 1990s has led several ana- labor market experience than most work- lysts to conclude that no more than 20 per- ing adults, and experience is a very strong cent of unemployed welfare recipients predictor of job loss during a recession. would be eligible for UI in a recession. Another way to determine the vulnera- There are a number of reasons, howev- bility of welfare recipients’ employment er, to question whether these inferences during an economic downturn involves from past data are accurate predictors of

2 An Urban Institute Program to Assess Changing Social Policies ASSESSING THE NEW FEDERALISM

FIGURE 1. Unemployment Changes over Previous Business Cycles (1979, 1982–1983, 1989, 1991–1992)

All Men (Age 16 and All Women (Age 16 Black Women (Age 20 Adult Female High Teenage Black Women Older) and Older) and Older) School Dropouts (Ages 16–19)

Source: Bureau of Labor Statistics. Note:Data on high school dropouts were not available for the earlier periods.

FIGURE 2. Employment Changes over Previous Business Cycles (1979, 1982–1983, 1989, 1991–1992)

All Men (Age 16 and All Women (Age 16 Black Women (Age 20 Adult Female High Teenage Black Women Older) and Older) and Older) School Dropouts (Ages 16–19)

Source: Bureau of Labor Statistics. Note: Data on high school dropouts were not available for the earlier periods.

3 ASSESSING THE NEW FEDERALISM An Urban Institute Program to Assess Changing Social Policies

UI eligibility during future downturns. average is roughly $2,000 of earnings over First, there are many more current and the previous four quarters, with most recent welfare recipients working now states falling in the range of $1,000 to than in the 1980s. Next, the longer the cur- $3,000.2 At 30 hours per week and roughly rent boom lasts, the more work experience $6.00 per hour (both of which are achieved recipients will have gained once the reces- by large majorities of these workers), recip- sion begins—and the less important the ients would need to work 5 to 17 weeks, or base period designation might be in deter- an average of 11 weeks, to meet base peri- mining their eligibility. Furthermore, many od earnings requirements. Even allowing more job losers in a recession will have for a base period that may exclude the been laid off from their jobs than is the most recent three to six months of earn- case currently, and thus fewer job ings, most of these workers would qualify leavers/losers will be disqualified from UI for UI if laid off so long as they would be eligibility due to reason for job departure. willing to work as many hours on their Recent estimates Finally, the growth of labor market activity subsequent jobs as they had worked on among single mothers in the 1980s and their most recent ones. suggest that the 1990s and the availability of child care sub- At the same time, there remain several welfare rolls will sidies for former welfare recipients may other groups of current or former welfare mean greater availability for full-time recipients who may be underrepresented rise by 5 to 7 employment among this population than in these data and who will likely not quali- percent for each observed in the past. fy for UI during a downturn. These groups Table 1 presents data on the welfare include those who work primarily in infor- percentage-point recipients hired most recently (primarily mal sectors and those who have worked lit- increase in the from 1997 to early 1999) in the survey of tle to date, either on the rolls or off. The national employers described above, including evidence suggests that both groups may not , hours worked, and durations of be small.3 unemployment employment. The findings show that: The latter group includes those unem- rate. ployed welfare recipients who will be new ■ The mean and median durations of entrants or reentrants to the labor force employment for recipients are roughly when the downturn occurs and, therefore, seven to eight months; will have little recent work experience and ■ Very few recipients were employed for eligibility for UI. In addition, at least some less than three months; former welfare recipients will have quit or ■ The median starting in these been discharged with cause and will not metro areas was $7.00 per hour; and gain new employment before the recession ■ Most recipients were working full- begins; these groups will remain ineligible time. for UI as well.4 Additionally, even among those who are eligible, take-up rates may How do these figures compare with be quite low.5 most states’ eligibility requirements? These Overall, only about 30 percent of all requirements vary from state to state; the currently unemployed workers receive UI,

TABLE 1. Job Characteristics of Welfare Recipients in Four Metropolitan Areas

Starting Wages Duration of Job ($) Weekly Hours (months) Mean 7.41 34.60 8.22 Median 7.00 40.00 7.00 25th Percentile 6.00 30.00 4.00 75th Percentile 8.30 40.00 12.00

Source: Author’s survey of employers in Chicago, Cleveland, Milwaukee, and Los Angeles.

4 An Urban Institute Program to Assess Changing Social Policies ASSESSING THE NEW FEDERALISM

and only about 40 percent did so during their eligibility for UI will be significantly the most recent economic downturn (Bassi greater than many had earlier thought. and McMurrer 1997). It seems quite unlike- Nevertheless, many female welfare recipi- ly that this percentage will be higher ents and their male counterparts are still among unemployed welfare recipients in gaining little employment experience and the next recession. will likely not qualify for either UI or Of course, many of those women who TANF, at least at some point during a fail to qualify for UI can return to the wel- downturn. Some planning for their fare rolls during a recession. In fact, recent needs during this time remains critically estimates suggest that the rolls will rise by important. 5 to 7 percent for each percentage-point increase in the national unemployment Potential Policy Responses rate (Council of Economic Advisers 1999). While welfare rolls have been declining in to the Downturn recent years, most states have been accu- Policy responses that could help to protect mulating TANF surpluses in expectation of these vulnerable workers during the next using these funds during a downturn if recession can be grouped into two broad needed. Under certain circumstances, the categories: $2B federal contingency fund can also be tapped by states that have exhausted their ■ Changes in UI that would improve the own TANF funds (see Levine 1999). eligibility of low-wage workers; On the other hand, federal- or state- and/or The ability of states imposed time limits on TANF benefits will ■ Changes in TANF or other programs to finance rising limit the eligibility of many unemployed that would make it easier for unem- recipients, particularly if the recession is a ployed workers to gain income during rolls out of their lengthy one, and since UI eligibility is itself a recession. current and limited in duration, some who initially qualify may exhaust their eligibility for Changes in UI that would raise eligi- accumulated this program as well. The ability of states bility among low-wage workers might TANF funds to finance rising rolls out of their current include (a) encouraging states to adopt remains and accumulated TANF funds remains alternative base periods for earnings calcula- questionable as well. And in many states, tions, so that the most recent quarter of questionable as many of the noncustodial fathers referred earnings might not be disqualified; (b) set- well. to earlier will not be eligible for these ting minimum levels of hours and/or earn- funds. ings for eligibility nationwide; and (c) Finally, it is important to note that the allowing part-time workers, or those who labor market experiences of noncustodial have quit for specified family difficulties, fathers and low-income males more to be eligible for UI. In fact, these propos- generally have improved much less dra- als have already been implemented in matically than those of single mothers in some states and are part of an ongoing dis- recent years (Lerman, Riegg, and Aron cussion of reforms to the UI system at the 2000). In fact, the labor force participation federal level.6 Alternatively, the govern- rates of young black men continued to fall ment might consider setting up a separate during the 1990s and their employment- system, funded by general federal rev- to-population ratios are no higher now enues, to provide for those than a decade ago, despite a much tighter who have worked but do not yet qualify labor market. Due to lengthy spells of non- for benefits under the regular program.7 employment and limited attachment to the Changes in TANF might include workforce, these men will continue to allowing temporary suspensions of federal experience very limited UI eligibility dur- time limits on recipients and crediting ing the next downturn as well. more educational and training activities to In summary, the employment experi- count toward work requirements. Also, ences of current and former welfare recipi- toward time limits could be sus- ents are improving rapidly enough that pended for individuals on welfare who are

5 ASSESSING THE NEW FEDERALISM An Urban Institute Program to Assess Changing Social Policies

working. More federal funding for TANF 2. Three states (Florida, Virginia, and Washington) or community service jobs might be trig- required more than $3,000 in previous earnings, while six required less than $1,000 as of 1997 gered by state unemployment rates, in the (Vroman 1998). same way that UI extended benefits are 3. Ludwig et al. (2000) note that, in Maryland, up triggered during a recession. These to a third of welfare recipients who are working changes could potentially be incorporated do not show up in UI wage records, suggesting into the TANF reauthorization expected in that many work informally or in uncovered sec- 2002. tors; many of them will be underrepresented in Finally, the federal government might this survey as well. Studies of recent welfare leavers also suggest that 20 to 30 percent of perma- provide additional assistance to states nent leavers do not work at all in the year follow- wishing to implement some type of work ing their exit (Loprest 1999). experience (or community service jobs) 4. In our employer survey data, the welfare recipi- Many female program, in the form of technical assis- ents hired most recently also have somewhat tance and/or additional funding. These greater problems with job performance than those welfare recipients programs might be a form of paid employ- hired earlier. Results from the overall sample might therefore understate the job market difficul- ment, or some type of “workfare” for those and their male ties of the current and future entrants. See Holzer who remain on the welfare rolls (perhaps and Stoll (2000a). counterparts are 8 beyond the original time limit). 5. Take-up may be reduced by perceptions of ineli- still gaining little Of course, many questions remain gibility and informational limitations, perhaps employment about all the approaches mentioned above. linked to administrative practices in various states These include: (1) Exactly who would be that limit outreach and deter applicants. experience and will eligible for additional forms of assistance 6. For instance, the state of Washington has imple- likely not qualify (such as an SUA or work experience pro- mented an alternative base period for the calcula- gram), among low-wage men as well as tion of UI eligibility that counts all earnings in the most recently completed quarter. for either UI or women? (2) Who would administer these 7. Such a program (called Supplemental TANF, at least at programs locally—TANF offices, “One- Unemployment Assistance, or SUA) was set up Stop” centers, or other agencies? Would during the 1974–75 recession to provide benefits some point during they have the necessary administrative for workers in uncovered sectors of the economy a downturn. capacity? (3) How can the federal govern- (Vroman 1999). TANF surpluses could also poten- ment provide assistance while still giving tially be used to fund these programs at the state level. states the incentive to use their own funds, including unspent TANF surpluses or UI 8. See Ellwood and Welty (2000) for evidence on the effectiveness of publicly funded jobs programs. trust funds? Given the many questions and time lags involved with the implementation of References any such approach, it is imperative that Bassi, Lauri, and Daniel McMurrer. 1997. discussions of their various advantages “Coverage and Recipiency.” In Unemployment and disadvantages begin as soon as possi- Insurance in the United States: Analysis of Policy ble. The well-being of several vulnerable Issues, edited by Christopher J. O’Leary and Stephen A. Wandner. Kalamazoo, Mich.: W. E. is at stake. Upjohn Institute for Employment Research. Council of Economic Advisers. 1999. Technical Endnotes Report: Economic Expansion, Welfare Reform, and the Decline of Welfare Caseloads: An Update. 1. The surveys were administered to roughly 3,000 Washington, D.C.: Executive Office of the employers in late 1998 and early 1999 in Chicago, President. Cleveland, Los Angeles, and Milwaukee. The pre- Ellwood, David. 1999. “The Impact of the Earned dictions are based on regressions of new hire rates Income Credit and Other for welfare recipients on establishment vacancy Changes on Work and Marriage in the United rates and a wide range of control variables, along States.” Unpublished manuscript, Harvard with estimates of how much those vacancy rates University. will change in the aggregate during a severe or mild recession. Predicted new hire rates decline by Ellwood, David, and Elisabeth Welty. 2000. as much as two-thirds during a severe recession, “ Employment and Mandatory though employment among those hired previously Work: A Policy Whose Time Has Come and Gone would presumably decline less. and Come Again?” In D. Card and R. Blank, eds.

6 An Urban Institute Program to Assess Changing Social Policies ASSESSING THE NEW FEDERALISM

Finding Jobs: Work and Welfare Reform. New York: Sorensen, Elaine. 1999. “Obligating Dads: Helping Russell Sage Foundation. Low-Income Noncustodial Fathers Do More For Gustafson, Cynthia, and Philip Levine. 1998. Their Children.” Washington, D.C.: The Urban “Less-Skilled Workers, Welfare Reform, and the Institute. Strengthening Families Policy Brief No. 2. Unemployment Insurance System.” National Vroman, Wayne. 1998. “Effects of Welfare Reform Bureau of Economic Research Working Paper on Unemployment Insurance.” Washington, D.C.: 6489. Cambridge, Mass.: National Bureau of The Urban Institute. Assessing the New Federalism Economic Research. Policy Brief No. A-22. Holzer, Harry, and Michael Stoll. 2000a. ———. 1999. “Welfare to Work: Income “Employer Demand for Welfare Recipients by Maintenance for Former Welfare Recipients in Race.” Discussion Paper 1213-00. Madison, Wis.: Recessionary Periods.” In Rethinking Income Institute for Research on . Support for the Working Poor. Washington, D.C.: ———. 2000b. Employers and Welfare Recipients: The National Governors’ Association. Effects of Welfare Reform in the Workplace. San Francisco: Institute of . Kaye, Kelleen. 1997. “Unemployment Insurance as a Potential Safety Net for Former Welfare Recipients.” Washington, D.C.: U.S. Department of Health and Human Services. Lerman, Robert, Stephanie Riegg, and Laudan Aron. 2000. Youth in 2020: Trends and Policy Implications. Washington, D.C.: The Urban About the Author Institute. Harry J. Holzeris a pro- Levine, Philip. 1999. “Cyclical Welfare Costs in the Post-Reform Era.” In Economic Conditions and fessor of public policy at Welfare Reform, edited by Sheldon Danziger. Georgetown University Kalamazoo, Mich.: W. E. Upjohn Institute. and a visiting fellow at Loprest, Pamela. 1999. Families Who Left Welfare: the Urban Institute. Dr. Who Are They and How Are They Doing? Holzer is a former chief Washington, D.C.: The Urban Institute. Assessing economist for the U.S. the New Federalism Discussion Paper 99-02. Department of Labor. His books include Ludwig, Jens, Greg Duncan, and Josh Pinkston. The Black Youth Employment Crisis 2000. “Neighborhood Effects on Economic Self- (coedited with Richard B. Freeman, Sufficiency: Evidence from a Randomized University of Chicago Press 1986); What -Mobility Experiment.” Unpublished paper, Georgetown University, Washington, D.C. Employers Want: Job Prospects for Less- Educated Workers (Russell Sage Meyer, Bruce, and Daniel Rosenbaum. 2000. “Making Single Mothers Work: Recent Tax and Foundation 1996); and Employers and Welfare Policy and Its Effects.” National Bureau of Welfare Recipients: The Effects of Welfare Economic Research Working Paper. Reform in the Workplace (Public Policy Institute of California 2000).

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For more information, call Public Affairs: This series is a product of Assessing the New Federalism, a multiyear project to moni- 202-261-5709 tor and assess the devolution of social programs from the federal to the state and local or visit our Web site, http://www.urban.org. levels. Alan Weil is the project director. The project analyzes changes in income support, To order additional copies , and health programs. In collaboration with Child Trends, the project stud- of this publication, call ies child and family well-being. 202-261-5687 or visit our online bookstore, The project has received funding from The Annie E. Casey Foundation, the W.K. Kellogg http://www.uipress.org. Foundation, The Robert Wood Johnson Foundation, The Henry J. Kaiser Family Foundation, The Ford Foundation, The David and Lucile Packard Foundation, The John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, The McKnight Foundation, The Commonwealth Fund, the Stuart Foundation, the Weingart Foundation, The Fund for New , The Lynde and Harry Bradley Foundation, the Joyce Foundation, and The Rockefeller Foundation. This series is dedicated to the memory of Steven D. Gold, who was codirector of Assessing the New Federalism until his death in August 1996.

The views expressed are those of the author and do not necessarily reflect those of the Urban Institute, its board, its sponsors, or other authors in the series.

THE URBAN INSTITUTE Permission is granted for reproduction of this document, with attribution to the Urban 2100 M Street, N.W. Institute. Washington, DC 20037 The author thanks Wayne Vroman for several helpful conversations, and Alan Weil and Copyright © 2000 Sheila Zedlewski for helpful comments on earlier drafts. Phone: 202-833-7200 Fax: 202-293-1918 E-mail: [email protected]