For Welfare Reform to Work, 

Jobs Must be Available

By Heather Boushey and David Rosnick

April 1, 2004

As Congress debates significant changes to the Personal Responsibility and Work Reconciliation Act, commonly known as welfare reform, they should take into account the hardships that higher unemployment has caused for low-income women and their families. Wanting to be off welfare is not enough; the labor market must provide employment opportunities. Although the recession was relatively brief, from March to November 2001, the labor market continued to shed jobs until late summer 2003. Since then, job growth has been paltry at best and the unemployment rate of less educated women and single female heads of households remains high. 

Former welfare recipients found jobs in a small number of industries, many of which saw higher job gains and stronger wage growth than the economy overall in the late 1990s. However, during the economic recession of 2001 and the recent recovery, these same industries have not performed as well. Over the recovery, of the eight private-sector industries with a high proportion of former welfare recipients, three have seen greater job losses than the private sector overall. Wage growth has been slower than the average for the private sector overall for workers in retail trade, food services and drinking places, temporary help, nursing and residential care, and child day care services.

With jobs scare and wage growth slow to negative in the industries that former welfare recipients found employment in, increasing work hour requirements above the existing 30 hours would not create jobs, but make life harder for those already struggling to find a job. Mandating more work hours from the people hardest hit from the recession would not help to increase employment; rather, what welfare reform needs is robust job growth.

Where former welfare recipients found jobs

Most former welfare recipients found employment in a relatively small number of industries over the late 1990s (Table 1). Current Population Survey (CPS) data[1] shows that the largest proportions of former welfare recipients found jobs in either retail trade (one-sixth) or eating and drinking establishments (one-sixth). Nine industries, mostly in the service sector, account for the employment of nearly two-thirds of all former welfare recipients. Overall, these are relatively low-wage industries: in the fourth quarter of 2003, retail had an average hourly wage of $11.90 while food establishments averaged $7.77 per hour (not including tips), both of which were much lower than the $15.47 average for the private sector as a whole.

Over the late 1990s, when welfare reform was first passed, these nine industries performed quite well, adding a total of 3.5 million jobs between 1996 and 2001. Six of the top nine industries hiring former welfare recipients—food service, temporary help, home health care, nursing and residential care, local government teaching, and child day care—grew faster than total employment between the beginning of the previous recession in July, 1990 and the beginning of the recession in March, 2001 (Table 2).[2]  All but one of these nine industries— manufacturing—saw total employment increase at an annual rate of at least 1.4 percent between 1990 and 2001. 

 Employment gains over the late 1990s were coupled with strong wage growth. Six of the eight industries for which data are available show higher-than-average wage growth from 1996 to 2000 (Table 3).[3] Only manufacturing and home health care services showed slower than average wage growth in the four years prior to the recession.

Rising unemployment has undone many of these employment gains. 

Unemployment peaked at 6.3 percent in June 2003, however it has only fallen down to 5.6 percent by February 2004. Many of the industries in which former welfare recipients found jobs were hit harder than the average industry, both during the actual recession and during the economic recovery. If job growth had remained steady at its 1.9 percent pace over the last business cycle (measured from the June 1990 peak to March 2001 peak), rather than falling to –0.9 percent from March 2001 through February 2004, then the economy would have had an additional nine million private sector jobs over the current 109 million. These nine million “missing” jobs are a result of the negative growth in private-sector employment growth over the past three years. 

For former welfare recipients, the missing jobs story is even grimmer. The industries in which most former welfare recipients found employment are missing more jobs than other industries. Of the total number of private sector jobs held in March 2001, 43.9 percent were in the industries with high proportions of former welfare recipients.[4] However, of the total number of missing jobs, 51.6 percent are in these eight industries.

As of February 2004, the economy has 7.9 percent fewer jobs because of the recession and the negative to minimal employment growth since March 2001 (Table 4). Compared to the employment levels that would have resulted from the late nineties rate of job growth, employment is down in manufacturing by 14.5 percent, temporary help by 22.3 percent, accommodations by 11.3 percent, child day care by 7.3 percent, and home health care service by 5.3 percent.

While employment has fallen, wages have either grown slowly or actually fallen during the recovery. Between the fourth quarter of 2001 and the fourth quarter of 2003, inflation-adjusted wages have grown less than one percent for six of the eight private-sector industries with a high proportion of former welfare recipients. They have fallen for four: temporary help by 6.4 percent, child day care workers by 1.7 percent and retail trade by 0.4 percent and food services by 0.3 percent.

The experience of former welfare recipients within these sectors is likely to be even worse than that of the average worker. Former welfare recipients are likely to be among the first laid-off, as many have shorter employment histories than other workers. And when they do lose their jobs, these workers will certainly have a more difficult time finding employment than they did when the economy was booming in the late 1990s.