The Impact of Welfare Reform on Labor Markets in Impoverished Rural Areas

By Mushinski, David W.; Pickering, Kathleen | Journal of Economic Issues, June 2005 | Go to article overview

The Impact of Welfare Reform on Labor Markets in Impoverished Rural Areas


Mushinski, David W., Pickering, Kathleen, Journal of Economic Issues


Labor markets became important to a discussion of welfare policy after the Personal Responsibility and Work Opportunity Act of 1996 (PRWORA) changed the focus of federal welfare law to integration of welfare participants into the workforce. Economic analyses of labor markets suggest that the nature of job placement in labor markets should be important to the efficacy of welfare reform. Weak labor demand in impoverished rural areas makes job-placement-related issues especially important for welfare reform. The emphasis of PRWORA on employment would also be expected to alter the relationship between welfare participants, social services offices, and employers.

Using interviews of current and former participants under PRWORA, this paper analyzes the nature of job placement for those participants on the Rosebud ("Rosebud") and Pine Ridge ("Pine Ridge") Indian reservations in South Dakota (the "reservations") and the changes in labor market relationships wrought by PRWORA. The interviews suggest that "old boys" networks have historically worked to exclude welfare participants from labor markets on the reservations. The local social services office in Rosebud was able to reduce these barriers by changing its perceived role to that of job placement office. The result was that some participants who formerly had no expectation of employment obtained permanent jobs through greater ties to labor markets. Several participants viewed the social services offices as effective job banks. Because the social services offices in Pine Ridge were not as engaged in labor markets, they facilitated few transitions from welfare to work for their clients. The increased access to labor markets afforded by PRWORA may be explained by institutional and conventional economic theories.

Welfare Reform and Labor Markets

Integration of welfare participants into the workforce was a major component of PRWORA. Section 103 of Public Law 104-193 provides that one of the purposes of block grants to states for Temporary Assistance for Needy Families (TANF) was to "end the dependence of needy parents on government benefits by promoting job preparation [and] work." During the Senate debate on PRWORA, conservative and liberal Senators observed that social services offices would have to become employment offices.

Academic discussion of labor-market-related issues pertaining to welfare reform has generally focused on labor supply. For example, Peterson 2002 discusses the importance of education and training to effective incorporation of welfare participants into the workforce. Rebecca Blank's 2002 review of the welfare reform literature discusses labor-supply-related programs. Peterson 2000 is an exception to this focus on labor supply in that Janice Peterson mentioned the importance of "employment creation" policies.

Economic analyses of labor markets suggest that the social institutions, or "old boys" networks, in labor markets should be important to implementation of welfare reform. Institutionalists have long argued that historical and evolutionary processes, deriving from underlying social, cultural, and power relationships, circumscribe the job opportunities available to an individual (Woodbury 1987; Hillard and McIntyre 1994). Labor market segmentation and exclusion of groups from certain labor markets have been cited as products of these processes (see, e.g., Gimble 1991). TANF participants are generally members of the types of marginalized groups which are excluded from labor markets or, at best, peripheral to the functioning of labor markets.

Over the last two decades, conventional labor economists have recognized the importance of institutions embodied in old boys networks to the functioning of labor markets. They explain the presence of such institutions through, among others, recruiting and training costs, asymmetric information, and monitoring costs (e.g., Montgomery 1991; Saloner 1985; Finneran and Kelly 2003). …

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The Impact of Welfare Reform on Labor Markets in Impoverished Rural Areas
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