Darren Lubotsky
lubotsky@uiuc.edu
University of Illinois at Urbana-Champaign
March 2003
Abstract
A major goal of the 1996 federal welfare reform was to increase the labor market participation
of welfare recipients. If the reform is successful, this increase in labor supply may exert downward pressure on wages and reduce the
employment rate of other low--skilled workers in the labor market. The magnitude of these labor market effects is uncertain because there
have not been large changes in eligibility for federal welfare programs
from which to draw inferences.
This study analyses the 1991 elimination of the General Assistance program in Michigan, which may provide useful evidence on the effect
of the 1996 federal reform. In all, about 82,000 able--bodied adults lost benefits. Comparisons with other states indicate that employment
in Michigan increased by two to four percentage points among high school dropouts, which corresponds to 25 to 50 percent of the original
GA caseload. There is little evidence of wage or employment declines.
Forthcoming in the Industrial and Labor Relations Review.