"The Labor Market Effects of Welfare Reform"

Darren Lubotsky

ABSTRACT

	The recent reform of the federal welfare system
was meant to encourage recipients to leave welfare and enter the
workforce.  If the reform is successful there are likely to be
effects felt throughout the low--skilled end of the labor market.
As former welfare recipients enter the labor market, they may
exert downward pressure on wages or displace employment of others
already in the labor market. Since there has been limited changes
in eligibility for federal welfare programs from which to draw
inferences, the magnitude of these labor market effects are
uncertain.

	This study analyses an earlier welfare reform, the elimination
of the General Assistance program in Michigan in October 1991,
that may provide useful evidence on the effect of the 1996 Federal
reform. General Assistance was a large--scale, state--administered
program that provided benefits to people who fell through the
cracks in federal anti--poverty programs. In all, about 82,000
able--bodied adults lost benefits. Comparisons with changes in
labor market outcomes in other states suggest that the
labor--market entry of former GA recipients in Michigan led to a
0.9 to 2.6 percentage point increase in employment among high
school drop--outs and a 1.2 to 2.7 percent decline in weekly
hours. There is little evidence of a systematic effect on hourly
earnings among men; however, earnings among women may have fallen
by as much as 5.8 percent.