Revised August 18, 1999
For Hard-to-Employ Welfare Recipients
by Clifford M. Johnson
As time limits and other new welfare requirements take effect across the nation, increasing attention is being given to public job creation as a strategy to help hard-to-employ welfare recipients. States and cities are beginning to develop and implement programs that use public funds to create wage-paying jobs in public or non-profit agencies for welfare recipients who cannot otherwise find employment. Publicly-funded jobs can enable participants to gain skills, valuable work experience, and employer references that lead to unsubsidized jobs. Many jobs also are designed to undertake work that responds to pressing community needs.
The emergence of public job creation as a strategy to help hard-to-employ welfare recipients may seem surprising, given that unemployment rates in many areas are relatively low and many states have embraced a "work first" philosophy that emphasizes immediate job search and job placement to reduce welfare caseloads. Yet a growing number of policy makers and community leaders are turning to public job creation strategies in response to three major labor market challenges:
- Low levels of work readiness among hard-to-employ recipients. As welfare caseloads decline, welfare-to-work programs by necessity will reach recipients who have little or no prior work experience and need a chance to develop employability skills before moving into unsubsidized jobs. This challenge may be particularly great in areas with tight labor markets and low unemployment, because more employable recipients are moving quickly into unsubsidized jobs.
- Inner cities and rural areas with high rates of joblessness. Even in regions that are experiencing strong economic growth, inner cities and remote rural areas often have an inadequate supply of jobs. Transportation and family relocation strategies may succeed in expanding job options for some individuals but they do not solve the underlying problem of persistent job shortages in depressed areas.
- The possibility of future economic downturns. Because the current period of national economic growth already is relatively long by historical standards, it is quite possible that one or more regions of the country will experience a recession during the next several years. States and cities need to consider policies and program designs that will allow them to respond effectively to future increases in unemployment and a shrinking pool of unsubsidized jobs.
Public job creation strategies can respond to these challenges. Temporary, publicly-funded jobs can:
- provide a "stepping stone" into unsubsidized employment for hard-to-employ individuals;
- alleviate severe job shortages in depressed communities or during periods of widespread joblessness; and
- help states meet federally-mandated work participation rates under the Temporary Assistance to Needy Families (TANF) program.
In each instance, public job creation is consistent with the "work first" philosophy which now guides many welfare-to-work programs.
Key elements of public job creation
Publicly-funded jobs share a set of common elements. They pay wages to participants which are counted as taxable income that is, the wages are subject to FICA payroll taxes and enable participants to qualify for the federal Earned Income Tax Credit.(1) The jobs are developed in public or non-profit agencies that provide close supervision and opportunities to learn new skills while performing useful work. They also can enhance participants' skills by providing vocational training and education on the job or after work hours. Finally, the jobs typically include limits on the number of months an individual can spend in the job and efforts to promote transitions into unsubsidized employment.
The largest cost of operating a public job creation program is that of wages for participants. Additional costs include payroll taxes on participants' wages, child care and other supportive services, reimbursement of work-related expenses, training and/or education activities, case management, work site development, and payroll administration.
Most public job creation programs for welfare recipients use welfare funds previously spent on cash assistance to offset, at least partially, the costs of wages to participants. In states with relatively high benefit levels, the typical welfare grant is sufficient to cover most or all of these costs for part-time jobs that provide 20 or 25 hours of work per week. A variety of other funds including federal TANF funds, state "maintenance of effort" funds, and federal welfare-to-work grants also can be used to finance public job creation initiatives.(2) While the Job Training Partnership Act (JTPA) funds generally could not be used to pay wages, the new Workforce Investment Act (WIA) that is replacing JTPA will permit states and local communities to operate paid work experience programs that have the same characteristics as publicly-funded jobs.
Public job creation initiatives can be designed at almost any scale in response to local labor market conditions and budgetary constraints. An effort to serve all hard-to-employ welfare recipients within a state or city would require a very large investment of resources. More modest programs can be designed to target particular neighborhoods or communities or a narrower subgroup of the welfare population with multiple barriers to employment.
Non-profit agencies, churches, and community groups can play many different roles in a publicly-funded job creation initiative. While some programs are administered directly by state, county, or municipal agencies, many are operated under contract to non-profit agencies with established track records in implementing employment and training programs. Non-profit agencies as well as public agencies also can provide work sites and essential supportive services for participants in public job creation programs. Finally, a wide range of community groups can play crucial roles in advocating for public job creation initiatives, assisting in the design of programs, and monitoring their implementation and effectiveness over time.
Current state and city initiatives
Washington state: The Community Jobs Initiative (CJI) began operating in five areas of the state in June 1998 with the goal of placing 540 hard-to-employ welfare recipients in part-time jobs in public and non-profit agencies. The jobs last for up to nine months and pay the state minimum wage (currently $5.70 per hour). CJI is funded through the state's "WorkFirst" TANF program and administered at the state level by the Washington Department of Community, Trade, and Economic Development (CTED), which contracts with local agencies to operate the program in designated sites. These local contractors develop work sites, provide case management services, and seek to identify education and training activities for participants when appropriate.
The state recently redesigned the program to simplify its administration and increase financial incentives for participants. Under the new structure, CJI participants will be eligible for the same TANF earned income disregard that the state applies to earnings reported by other welfare recipients. This change means that the total income of CJI participants will increase substantially even after FICA payroll taxes and other work-related expenses are taken into account. As part of the program redesign, the state also is using surplus TANF funds to expand CJI. New contractors now being selected by CTED this summer will enable the program to operate in all regions of the state and serve more than 3,000 participants by June 2000.
Vermont: The state's Community Service Employment (CSE) program provides publicly-funded jobs for all welfare recipients who are not exempt from work requirements, who have received cash assistance for at least 30 months, and who are unable to find unsubsidized jobs. CSE positions in public and non-profit agencies can last for up to 10 months, with possible reassignment in cases where a subsequent job search is unsuccessful. Participants are paid the state's minimum wage ($5.25 per hour). The hours of work for participants are set so that their earnings equal their prior welfare grant, although the required work cannot exceed 20 hours per week for single parents with children under age 13 (or 40 hours per week for other participants).
A total of 215 CSE placements had been made statewide between November 1995, when the state began operating the program under a welfare reform waiver from the federal government, and December 1998. Based on its early experience with CSE, Vermont now is developing new CSE alternatives that will allow some recipients with multiple barriers to employment to work in more structured and supportive settings.
Baltimore: The city's Office of Employment Development (OED) launched WorkMatters, a new welfare-to-work initiative this spring that will place up to 1,100 hard-to-employ welfare recipients in publicly-funded jobs in public and non-profit agencies. These jobs will provide an average of 25 hours per week of work at $6.10 per hour for a maximum of six months. OED has selected four local agencies to administer the program, although it also plans to operate an initial pilot project serving several hundred participants directly in order to identify problems that its contractors are likely to encounter. Baltimore's initiative will use a combination of federal welfare-to-work funds and diverted TANF grants to pay wages and cover other costs of program administration.
Detroit: Using its federal welfare-to-work funds, Detroit will create as many as 2,400 jobs lasting six months for hard-to-employ welfare recipients. Its Private/Public Service Employment (PSE) program places participants with for-profit employers as well as non-profit and public agencies, and seeks commitments from these employers and agencies that participants will be retained in jobs paying livable wages (targeted at $11/hour) at the end of the six-month period of fully subsidized employment. Most PSE jobs begin at 25 hours per week and initially pay wages comparable to employees in similar jobs (typically ranging from $6 to $8 per hour). The PSE program is administered by the City of Detroit's Employment and Training Department through contracts with a wide range of local agencies. Approximately 1,300 participants were enrolled in the program by the spring of 1999.
Minneapolis: With funds from a competitive welfare-to-work grant from the U.S. Department of Labor as well as a grant from the Ford Foundation, the City of Minneapolis is launching a new program that uses publicly-funded jobs and a variety of other strategies to boost employment rates among and child support payments by low-income, non-custodial fathers. The FATHER program (Fostering Actions To Help Earning and Responsibility) will place up to 100 participants in full-time, minimum-wage jobs in non-profit agencies that agree to provide close supervision at the work site. These jobs will last no longer than six months, although in some instances they may be designed to provide as little as four weeks of paid work experience before participants move into unsubsidized employment. While paying the minimum wage, the program also will place $1.00 per hour in escrow as a cash bonus for participants who successfully complete their publicly-funded jobs and who remain in unsubsidized jobs for at least six months. The city is collaborating with state and county child support agencies and several non-profit organizations to implement the program.
Philadelphia: Under a new program called Philadelphia@Work, the city plans to place up to 3,000 welfare recipients in publicly-funded jobs over the next two years. These transitional jobs in public and non-profit agencies pay minimum wages, provide an average of 25 hours per week of work, and last no longer than six months. Participants spend an additional 10 hours per week in training, education, and job search activities. Specially-trained "job coaches" act as mentors, oversee participants' skill development, and assist them in finding unsubsidized jobs. Participants who find jobs and leave the program before the end of the six-month period will receive cash bonuses. A newly-established non-profit organization, the Transitional Work Corporation, is administering the program. By the end of February 1999, nearly 600 welfare recipients were participating in the Philadelphia@Work program. The City of Philadelphia is using a combination of TANF funds provided by the state, federal welfare-to-work grants, and private foundation funds to finance this effort.
San Francisco: As part of its efforts to implement the state's TANF program, CalWORKs, the San Francisco County Department of Social Services has launched a 200-person pilot program to test the feasibility and effectiveness of wage-based community service. State law requires that all welfare recipients who have received assistance for at least 18 months (or 24 months at county option) be engaged in some form of community service for a minimum of 26 hours per week. The Community Jobs program responds to this mandate by placing welfare recipients in jobs that pay the state minimum wage ($5.75 per hour) in public and non-profit agencies. The county welfare agency has contracted with three non-profit agencies to operate the program, and the San Francisco Private Industry Council is administering payroll and serving as the employer of record. Funding sources for the program include TANF funds, federal welfare-to-work grants, and general revenues from the City of San Francisco.
Seattle: The Seattle Jobs Initiative (SJI), one of six city-focused efforts launched by the Annie E. Casey Foundation, has developed a "Preparatory Employment" program that will place up to 50 hard-to-employ welfare recipients in closely-supervised jobs paying $8.00 per hour. The program emphasizes training both on-the-job and at training sites where the curriculum is closely linked to participants' roles and responsibilities at work. Work site supervisors receive initial training and ongoing support to help them develop clear goals for participants, including expected time frames for mastering predetermined employment competencies. TANF funds provided by the state welfare agency cover a portion of the cost of participants' wages, while the balance is paid by employers and SJI.
Wisconsin and Pennsylvania: New state budgets proposed by the governors of Wisconsin and Pennsylvania earlier this year include provisions for new publicly-funded jobs for welfare recipients.
The state of Wisconsin has been assigning welfare recipients to "community service jobs" for some time under its "Wisconsin Works" (or "W-2") program, but it has relied upon a "work-for-welfare" model rather than paying wages to participants. In his budget for the 1999-2001 biennium, Governor Tommy Thompson has proposed to begin to change that model by giving local W-2 agencies the authority to create up to 2,500 wage-paying jobs for W-2 participants.
In Pennsylvania, Governor Ridge's new budget calls for up to 16,000 wage-paying, transitional jobs throughout the state for welfare recipients who have been receiving aid for at least 24 months. State law in Pennsylvania requires such recipients to be engaged in some form of work or community service in order to retain their welfare benefits. Six-month positions in non-profit and public agencies will provide 20 hours of work per week at the minimum wage, and participants will be required to engage in an additional five hours per week of training activities.
Southeastern Ohio: With funds from a competitive welfare-to-work grant, the Corporation for Ohio Appalachian Development (COAD) is using paid work experience and family-focused case management to help long-term welfare recipients in 30 rural counties make the transition to unsubsidized employment. Seventeen COAD-member community action agencies (CAAs) are subcontractors under the grant and responsible for implementing the project in local communities. Participants are treated as employees of the local CAA but are placed in work experience positions with public or non-profit agencies as well as with for-profit employers. They are paid in accordance with established wage scales for comparable positions (often at or near the minimum wage but in some instances more than $7.00 per hour), and they work at least 20 hours per week for an average of nine months.
Steve Savner of the Center on Law and Social Policy (202-328-5140) and Maurice Emsellem of the National Employment Law Project (212-285-3025 x106) contributed to the development of this summary and are engaged, along with the Center on Budget and Policy Priorities, in activities designed to promote and strengthen public job creation programs across the nation.
1. The Earned Income Tax Credit (EITC) supplements the earnings of low-wage workers by giving them a refundable tax credit equal to 34 percent of their earnings for families with one children and 40 percent of wages for families with two or more children. The EITC can increase the total income of low-wage working families by as much as $3,756 annually.
2. Under final federal regulations, months employed in jobs subsidized with TANF or welfare-to-work funds do not count against participants' federal five-year time limit on cash assistance. States still may count months in subsidized jobs against their own state time limits if they choose to do so, but state rules can be modified to conform with the new federal regulations. The final regulations also may raise new concerns at the state level about work participation and child support requirements. A complete analysis of these issues is available from the Center upon request.