This paper appears in Low Wage Workers in the New Economy,which was edited by R. Cazis and M. S. Miller and published by the Urban Institute Press in 2001.

We know how to get low-income people to go to work:  build a strong and growing economy filled with jobs, make work pay through generous tax credits and welfare programs that allow working people to keep more of their benefits, and implement programs with employment and training services and time-limited welfare benefits to encourage people to work. However, we know little about the types of policies that will help people stay employed and increase their earnings over time. This paper seeks to partially fill the gap by pulling together recent evidence on how pre-employment services and financial work incentives can promote sustained employment and earnings growth.

The paper describes results from 13 programs begun since the early 1990s that share several important characteristics. First, each tested a policy designed to help or encourage single-parent welfare recipients to work. Second, each program now has enough information to assess whether the programs promoted sustained employment and promoted growth in hourly wages or quarterly earnings. Finally, each of the programs was studied by the Manpower Demonstration Research Corporation (MDRC) using a rigorous experimental research design that many people think gives the most reliable information about the effects of new policies. [1] In these studies, people were assigned at random to either a program group which was required to participate in an employment and training program or was offered a financial work incentive, or a control group which was not.

In other ways, the programs are quite diverse. They operated in a number of places: Atlanta, Georgia; Columbus, Ohio; Detroit, Michigan; Grand Rapids, Michigan; Portland, Oregon; Riverside, California; seven counties in Minnesota; and the Canadian provinces of British Columbia and New Brunswick. The programs vary in origin; most were part of state welfare-to-work programs funded under the Job Opportunities and Basic Skills Training (JOBS) program of the Family Support Act of 1988 (FSA), but one was a Canadian federal demonstration to test the effects of supplementing the earnings of long-term welfare recipients, and one was begun as a test of a change to the old AFDC program. Most important, the programs used different methods to help or encourage parents to find work. Two relied solely on financial work incentives that supplemented the earnings of people who went to work, ten used employment and training services such as job search assistance or adult basic education, and one combined financial work incentives with employment and training services.

The studies described in this paper provide useful information on policies that promote sustained employment, but they are not perfect. First, they included only welfare recipients and therefore cannot indicate how their strategies would affect a broader group of low-skill workers. Second, their primary objectives were to get people to go to work, and none of the programs used post-employment strategies to help people stay employed or advance. [2] Third, they did not collect information on the types of jobs people held, so they cannot directly tell us whether people who went to work because of these programs advanced in their jobs. In addition, only one of the studies has information on hourly wages over time, so that little can be said about these programs’ effects on growth in hourly wages. Finally, researchers studying the programs used a short-term measure of sustained employment, and it is impossible to know at this time whether the programs will help people to stay employed for long periods of time.

Despite these drawbacks, the studies can provide useful information on sustained employment and growth in earnings. Their key lessons include the following:

• Programs with financial work incentives can promote sustained employment. Three programs supplemented the income of people who went to work. All three programs increased the number of people who worked. In addition, all three programs encouraged most people who went to work to stay employed for a year or longer. This makes sense. By providing families with extra income, the programs provided a reason to keep working and provided financial resources to weather temporary crises such as child care or transportation problems.

• Programs that emphasize going to work immediately can promote sustained employment, but not all programs are equally effective. Four programs used pre-employment services such as job club to help people find jobs. Of these programs, two were more effective than the others at promoting sustained employment. The two less effective programs emphasized job search and work experience almost exclusively. The two more effective programs used a broader mix of job search and adult basic education. In addition, the most effective program operated in a strong economy, and its staff urged people to wait for “good” jobs that paid more than the minimum wage, were full-time, and offered opportunities for advancement.

• Programs that emphasize building skills through adult basic education can promote sustained employment, but most of the programs studied had small effects. Six programs required people to enroll in adult basic education or vocational training to increase their employability. The programs generally had modest effects on employment overall and on sustained employment. There is some evidence, however, that requiring all people to enroll in basic or vocational education is as effective at promoting sustained employment as requiring all people to look for work initially. In two sites, programs were run side-by-side, one requiring most people to look for work initially, and one enrolling most people initially in adult basic education or vocational training. In these sites, the two approaches increased the number of people who went work and stayed employed by about the same amount.

• Sustained full-time work may be the key to increasing hourly wages. One program supplemented the earnings of people who worked full-time (30 hours or more per week) but did not reward part-time work. People who went to work because of the incentive therefore worked full-time, and many of them were able to sustain their full-time employment. In this program, wages were more likely to increase for people who were offered the incentive than for people who were not offered the incentive.

• Pre-employment services focused on getting people to work can result in earnings gains over time, but growth in earnings may be more closely linked to sustained employment. Programs that used pre-employment services to encourage immediate work increased the number of people whose earnings increased over time. Programs that had the largest effects on sustained employment, however, were also the most likely to result in earnings that increased over time. 

The story is complex and somewhat speculative.  There is not just one way of increasing retention, earnings, or wages. Financial work incentives appear consistently effective, but employment and training services are also effective in some settings.  Details on these points are presented in the sections below.

I.  Description of Programs

The programs studied in this paper include ten programs that were evaluated as part of the National Evaluation of Welfare-to-Work Strategies  (NEWWS); two versions of the Minnesota Family Investment Program (MFIP); and Canada’s Self-Sufficiency Project (SSP). [3] Brief descriptions of the programs are provided below. An appendix provides more details on data sources and the way that sustained employment and earnings growth were defined.

• Labor Force Attachment (LFA) programs in Atlanta, Grand Rapids, and Riverside. [4] These programs required most participants to look immediately for work, usually through a job club that lasted from one to three weeks.  People who completed job search without finding a job were often then enrolled in adult basic education, vocational training, or work experience.

• Education-focused programs in Atlanta, Grand Rapids, Riverside, Columbus and Detroit. [5] Six programs studied under NEWWS emphasized education: “human capital development” (HCD) programs in Atlanta, Grand Rapids, and Riverside; two programs in Columbus that tested different forms of case management; and one program in Detroit. In each of these programs, most participants were initially placed into education and training programs, particularly adult basic education and vocational training

• Portland, Oregon JOBS Program. This was an employment-focused program that used job search for people who were considered ready to work but allowed people who were thought to need more skills to enroll initially in short-term adult basic education or vocational training before looking for work. As a result, only about one-third of participants in the program were required to look for work immediately, one-third were allowed to participate in education or training, and one-third were not assigned to any activity within three months of entering the program because they had already left welfare or begun working.  As in the three LFA programs, staff in Portland emphasized to clients that the goal of the program was to get a job. Unlike the LFA programs, however, the Portland program encouraged participants to wait until they found “good” jobs that paid more than the minimum wage, were full-time, and offered opportunities for advancement.

• Minnesota Family Investment Program (MFIP). [6] Begun in 1994 to test whether financial incentives would encourage welfare recipients to work, MFIP allowed working welfare recipients to keep more of their welfare benefit than they could under AFDC.  For example, a mother of two who worked 20 hours per week and earned $6 per hour received almost $250 per month more in income under MFIP than under AFDC. In addition, MFIP required people who received welfare for 24 or more months over a three-year period to participate in employment and training services. MFIP’s services required most people to look for work and encouraged them to take jobs quickly, especially in comparison with the employment services available to the control group through AFDC. To understand the effects of MFIP’s incentives alone, some individuals were assigned to a program (called MFIP Incentive Only) that offered them the financial incentive but did not require them to participate in employment and training services.

• Canada’s Self-Sufficiency Project (SSP). SSP offered a three-year earnings supplement to selected single-parent long-term welfare recipients in British Columbia and New Brunswick. The earnings supplement was a monthly cash payment available to single parents who had been on welfare for at least one year and who left welfare for full-time work (30 hours or more per week) within a year of entering the program. The supplement was paid on top of earnings for up to three continuous years, as long as the person continued to work full-time and remained off welfare. While collecting the supplement, an eligible single parent received an immediate payoff from work; in most cases, her total income before taxes was about twice her earnings.

            The period covered by these studies runs from the middle of 1991 until the end of 1998. People were first randomly assigned to program and control groups in Riverside in June 1991, and random assignment for the Riverside sample covered in this paper concluded in June 1993. Since results for Riverside include four years of information for each person, the period covered ends in the middle of 1997 for the last people randomly assigned. The most recent information comes from Portland, where random assignment took place between February 1993 and December 1994. Because of the four-year follow-up period in Portland, information for the last person randomly assigned in Portland comes from the end of 1998.

II. Evidence on Sustained Employment

Lesson 1:      Programs with financial work incentives can increase sustained employment.

            Two of the programs — SSP and MFIP Incentive Only — did nothing but try to make work pay by allowing welfare recipients to keep more of their welfare benefits when they went to work (MFIP) or by providing them with an earnings supplement if they went to work full-time (SSP). A third program — the full MFIP program — combined the program’s financial work incentives with mandatory employment-focused services. All three programs increased employment, and all three programs increased sustained employment.

            Evidence on the effects of financial incentives is presented in Table 1. As in all of the tables in this paper, results are based on experimental comparisons.  That is, average outcomes for the entire program group were compared with average outcomes for the entire control group. When the table refers to the proportion of people who did something, it consequently refers to the proportion of all people who were assigned to a program group or a control group; it does not refer merely to the people who ever worked.

The first three rows of Table 1 show the effects of SSP on full-time employment and on whether SSP increased sustained full-time employment. [7] The first row of the table indicates that 42.5 percent of the program group worked full time early enough in the follow-up period that we could determine whether they stayed employed for a year or longer.  During the same period, only 27.3 percent of the control group worked full time.  The difference in outcomes between the two research groups indicates the effect of the program.  In this case, it indicates that SSP increased the proportion of people who ever worked full time by 15.2 percentage points, an increase of 55.6 percent over what the control group did without the supplement offer.

Table 1: Effects of Programs with Financial Work Incentives on Sustained Employment

Source: Calculations from 18- and 36-month follow-up survey data in SSP and 36-month follow-up survey data in MFIP.

Notes:    Two-tailed t-tests were applied to differences between the outcomes for the program and control groups. Statistical significance level are indicated as: * = 10 percent; ** = 5 percent; *** = 1 percent.

         Impact may not appear to be the difference between the program group and control group outcomes due to rounding. 

People who ever worked full time can be divided into two groups:  those who stopped working full time quickly, and those who did not. The next two rows of the table report two composite outcomes: (1) the proportion of the program and control groups that found full-time jobs but stayed employed full time for less than a year, and (2) the proportion that found full-time jobs and stayed employed full time for a year or more. 

How should these measures be interpreted?  At one extreme, all people encouraged by SSP to work full time might have stopped working quickly (after less than a year).  In that case, the effect of the program on the proportion who worked full time for a year or more would be zero, and its effect on the proportion who worked full time for less than a year would be as large as its effect on full-time employment overall (15.2 percentage points). 

At the other extreme, all people encouraged by SSP to work full time might have done so for a year or more. In that case, the effect of the program on full-time employment that lasted a year or more would be the same as its effect on full-time employment (15.2 percentage points), and the effect on full-time employment that lasted less than a year would be zero.

The actual results show that neither of the extremes occurred.  Most, but not all, of the initial full-time employment generated in SSP did last at least a year. In particular, more than twice as many people in the program group as in the control group found full-time jobs and stayed employed full-time for a year or longer — 20.9 percent compared to 10.4 percent.  That is, SSP increased sustained full-time employment by 10.6 percentage points. 

The second panel of Table 1 shows similar results for people who were offered MFIP’s financial incentives but who were not required to participate in its employment services. [8] While 39.2 percent of the control group worked at some point, 44.4 percent of the program group did, for an increase of 5.2 percentage points. Like SSP, MFIP’s incentives primarily increased sustained employment: the incentives increased employment of a year or more by 6.5 percentage points, even more than it increased employment overall. 

The third panel of Table 1 shows similar results for people in MFIP who were not only offered the program’s financial incentives but also required to participate in its employment services. Combining incentives with mandatory employment services appears to be somewhat more effective than offering incentives alone.  The full MFIP program increased employment overall by more than 10 percentage points and increased sustained employment by nearly 10 percentage points.

The three programs that tried to make work pay produced consistent results.  All three increased employment, and all three increased sustained employment much more than they increased temporary employment. This makes sense.  Incentives in MFIP and SSP were available every month, giving people a reason to keep their jobs or to find new jobs when they lost work, and giving them financial resources to weather crises such as problems with child care or transportation.

Lesson 2:      Programs that emphasize going to work immediately can promote sustained employment, but not all programs are equally effective.

            Table 2 shows results on sustained employment for four JOBS programs that were focused on getting people to go to work — LFA programs in Atlanta, Grand Rapids, and Riverside, and the program in Portland. As described earlier, the LFA programs required almost all participants to initially enroll in job search, most commonly in job clubs lasting from one to three weeks. As a result, nearly 90 percent of participants in the Atlanta and Grand Rapids programs and about 70 percent of participants in the Riverside program initially looked for work. In Portland, in contrast, only people considered job-ready were required to look for work, while those considered most in need of basic skills were allowed to enroll in adult basic education or vocational training.

            According to the results in Table 2, the four employment-focused programs had quite varied results, both in terms of how much they encouraged people to find work, and how much they increased sustained employment. The most successful program at increasing employment overall was Riverside LFA, which increased employment by 10.6 percentage points. At the other extreme, Atlanta’s LFA program increased employment by only 3.5 percentage points.  In between were Grand Rapids LFA (5.5 percentage points) and Portland (7.0 percentage points). 

            The programs also differed substantially in whether they resulted in sustained employment.  In Portland and Atlanta LFA, the increase in sustained employment was as big as or bigger than the increase in employment overall.  For example, Portland increased employment overall by 7.0 percentage points and increased sustained employment by 6.7 percentage points.  Atlanta LFA increased sustained employment by 5.9 percentage points even though it increased employment overall by only 3.5 percentage points.  In contrast, Grand Rapids LFA and Riverside LFA increased primarily short-term employment.

Table 2:  Effects of Employment-Focused Welfare-to-Work Programs on Sustained Employment