Sustained Employment and Earnings Growth

New Experimental Evidence on Financial Work Incentives and Pre-Employment Services

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 MDRC using a rigorous experimental research design that many people think gives the most reliable information about the effects of new policies. 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. 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.
Michalopoulos, Charles. 2001. “Sustained Employment and Earnings Growth.” New York: MDRC.