Welfare Reform and the Labor Market: Earnings Potential and Welfare Benefits in California, 1972–1994

Abstract

Promotion of work is prominent in the rhetoric of current welfare reform efforts. The success of welfare-to-work policies is in part dependent on earnings available in employment. In this paper we use Current Population Survey data for the years 1972–1994 to develop measures of potential earnings from full-time work for low-skilled men and women in California and to compare the trend in earnings capacity for such people to welfare benefits. We find that while benefits have declined, earnings capacity has fallen faster, and the downward trend is particularly pronounced for men. Both the downward trends in benefits and potential earnings appear to have accelerated in recent years. State attempts to address the problem of low wages by expanding the opportunity for combining welfare with work may conflict with federal efforts to require that assistance be transitory.