Our ongoing national debate about poverty, work, and opportunity is in many respects an argument about supply versus demand. Is working poverty ultimately a problem of the skills workers supply or the number and quality of jobs employers create?
The supply-side camp, dominant for many years, argues that the solution to poverty amid prosperity is improving the skills of the disadvantaged. Underlying this formulation for both liberals and conservatives is the belief that our economy -- and our society broadly -- is more or less a meritocracy. The hard-right position is essentially that the market system ensures that the cream rises, regardless of whatever disadvantages prevail at the starting line. The liberal slant maintains that due to historical inequities, some groups are unable to tap into the meritocracy because they haven't been able to realize their potential. And the solution has variously been dubbed “manpower” development, job training, or, in today's language, workforce development and career advancement.
Then there are the demand-side advocates. In their view, the problem is not the skills of the disadvantaged; it's the number and quality of the jobs available. In the extreme case, demand-siders inveigh against supply-side solutions, arguing that all skill training does is leave its subjects “all dressed up with nowhere to go.”
OK, we're being a touch reductionist, but the tensions between these two camps lie behind most, if not all, of our national arguments about work and social policy. Well, now is the time to bury the hatchet and recognize that we need complementary agendas to address needs on both sides.
Let's start with the education and skills part of the story. Expanding education and skills among today's low-wage workers won't change the quality of jobs, nor will it increase the number of good jobs our economy provides. Yet most agree that it is fundamentally important to take on this challenge in order to fulfill broadly shared values about opportunity. Simply put, many low-wage workers need a second chance to gain the education and skills they didn't acquire from our “first-chance” system of public education.
That much is pretty uncontroversial. Unfortunately, federal job-training initiatives -- including today's Workforce Investment Act -- have been woefully underfunded. While declining resources are a continuing problem, the good news is that a new generation of programs have emerged that dramatically improve quality and reveal the components of an effective system. However, just as these positive developments were occurring during the 1990s, many who were responsible for workforce policy seized upon the weak results of prior education and training programs to argue that pre-employment training for less-skilled job seekers was unnecessary.
Their preferred approach -- widely known as “work first” -- sacrifices long-term job training in favor of immediate job placement, coaxing people to take any available job from which they will eventually advance. The mantra here is that any job is a good job, and that there are no “dead-end” jobs. This shortsighted strategy got a boost in the years after 1996, when Congress overhauled the nation's welfare system and required many single mothers on welfare to join the workforce. Well, you couldn't have chosen a better period for this policy thrust. Demand for low-wage labor soared, and the pull of various enhancements (e.g., an expanded Earned Income Tax Credit, a higher minimum wage, and improved -- though still inadequate -- access to supports like subsidized child care and health-care coverage for kids) combined with the push of the new welfare-to-work mandates to sharply lift the employment rates of poor mothers and other less-skilled workers. Their wages rose as, for the first time in decades, the tight labor market compelled low-wage employers to bid wages up to attract the workers they needed.
Sounds impressive, but in fact some people gained earnings and lost welfare benefits, while others lost benefits and didn't find work. During the late-'90s, low-wage women workers saw their hourly wages rise significantly; they also worked substantially more hours per year. Yet even with more hours at higher wages, by the end of the decade, those at the low end of the wage scale still only had annual earnings of about $9,500. Even after adding the value of the Earned Income Tax Credit, those earnings still didn't get a mom with two kids to the poverty line (more than $14,000 per year at the time) -- and no one believes the poverty threshold is a sufficient benchmark for the material needs of working families anyway. Even in the best of times, a work-first strategy did not and cannot alter the economic trajectory of the working poor enough to make a lasting difference in their lives.
What's more, the best of times are behind us, and the employment rates of single mothers fell significantly from 2000 to 2003. The harsh income arithmetic is reinforced by economist Harry Holzer's recent research on income mobility among the working poor. While some people do move up from low-wage jobs, significant upward mobility is not the norm. Holzer's study looked at workers who earned less than $12,000 a year from 1993–95. Following those workers over time revealed that only 27 percent were consistently earning more than $15,000 even six years later. Outcomes were still worse for those with less than a high-school diploma or in poor families.
In response to the evident limitations of work-first policies, there has been a growing emphasis on programs designed to help job seekers prepare for good jobs and advance to careers. This new generation of programs shares several key elements. First, they're grounded in extensive knowledge of the local labor market, focusing on occupations and industries that offer the best opportunities for advancement. Second, they help workers access education and training at community colleges, community-based training programs, and union-sponsored programs that work with employers to design curricula based on the skills that employers actually need. And third, they provide access to remedial services -- often referred to as “bridge” programs -- so that people who have weak basic skills can prepare for postsecondary-level programs.
One such model is sponsored by the California Community College (CCC) system for women receiving welfare. When California developed the Calworks program to implement the 1996 welfare law, state leaders wisely recognized the value of their community-college system in preparing Californians with limited skills for good jobs. They designed a program in which CCC campuses offer a one-stop shop for students receiving welfare -- helping them secure remedial services, child-care assistance, work-study opportunities, and good jobs when the program is completed.
Earnings gains for moms on welfare have been impressive. Prior to enrollment, students had median annual earnings of just $4,000 to $5,000. By the second year after completing the program, women who'd gotten a vocational certificate were typically earning more than $16,000; those who'd completed an associate's degree were making nearly $20,000. While such earnings are still too low by our standards, these gains are off the charts.
Another impressive model is Project QUEST (Quality Employment Through Skills Training) in San Antonio, Texas. Initiated by community organizations in the early '90s to address growing poverty and unemployment by helping low-income residents prepare for good jobs, Project QUEST pursues what has come to be known as a “sector” strategy -- targeting industries or occupations that offer good entry-level jobs and significant advancement opportunities. This initiative forged links between the Alamo Community College District and employers in the health-care and business-services sectors to implement rigorous skill-training programs. Remedial programs were developed for those with weak basic skills to provide a bridge to the community colleges' training programs. And, like many effective programs, QUEST helps participants access critical services like transportation, child care, and housing. The program affects the demand side, too, by working with employers to modify hiring requirements and improve the structure and wage rates for entry-level jobs.
Results have been quite strong, with average hourly wages topping $10 for graduates who have spent an average of 17 months in training activities and broad satisfaction from the local business community. And beyond the individual success stories, the effort has helped promote broader system reform, like improved remedial programs in the community-college system and better collaboration among community colleges and area employers in sectors beyond those targeted by Project QUEST.
A positive theme emerges from these initiatives: Career advancement needs a unified effort by community colleges, community-based organizations working with disadvantaged job seekers, and local unions and employers who can identify areas of future demand and ensure that education and training programs provide the right skills. This is a far more complex approach than work first, and it demands a bigger investment, but it's demonstrably more likely to bear fruit in the form of a significantly improved earnings trajectory. Moreover, these models demonstrate that programs designed to address skill needs can work on both sides of the labor market, to meet the needs of workers and employers and, most intriguingly, to have some impact on the quality of the jobs themselves.
Unfortunately, the work-first policies that have dominated both federal thinking and most state and local welfare programs since 1996 have frustrated this whole approach. Instead, we need federal welfare policies to encourage rather than discourage postsecondary education and training, plus expanded child care and student financial aid for adults returning to school. On the job-training side, we also need to move away from work-first thinking and more adequately fund government programs like the Workforce Investment Act.
Now let's talk a little bit about demand. we can't imagine that anyone would disagree with the contention that very tight labor markets are a necessary complement to the initiatives we've discussed so far. We both speak to policy-makers and audiences involved in these issues, and they fondly remember how much easier their jobs were just a few short years ago, how unemployment was headed to 4 percent and employers were importuning job trainers for their best students.
We know that the benefits of full employment accrue disproportionately to the least advantaged and to the lowest wage earners. Between 1995 and 2000, their employment rates grew the most, their wages sharply reversed course, and their incomes grew faster than they had since the last time we hit full employment, 30-plus years ago. Poverty rates for African American and Hispanic families fell more than five times faster than for white families; poverty for families headed by single moms fell six times faster than for married-couple families. For the first time in a generation, median family incomes of minority families grew faster than those of white families, and the gap between black and white incomes was the narrowest it's been since we began keeping track in 1947. The workers in these families didn't dramatically increase their skills during these years. It's just that full employment is strong medicine for what ails low-wage workers.
Yet while we know that full employment is the most critical component of a high-wage strategy, it's been the exception over the past 25 years, not the rule. When it comes to increasing skills, we may lack the political strength to move the right policies, but at least we know what we want to do. In a similar vein, we're clear that higher minimum wages and more union power complement effective training programs by improving the distribution of income and the quality of low-wage jobs. But as regards full employment, the dominant view is that it's like beautiful weather: We wish we had more of it, but it's beyond our control.
We don't subscribe to this view. There are policies that would help move us closer to full employment: a lower dollar, more attention to offshoring and job losses related to trade, and, most importantly, stimulative monetary policy from the Federal Reserve. We could exhort the Fed to hang a banner on Constitution Avenue reading “4 Percent Unemployment or Bust,” and to keep interest rates low until we return to truly full employment. But Alan Greenspan hasn't been returning our calls. What's worse, even though the unemployment rate is at the same level as when the recovery began two years ago (5.6 percent in June), the Fed has actually started to raise rates.
Consequently, we are far from full employment today. In the absence of very tight labor markets, the best job-training programs will simply displace other job seekers, substituting one poor group for another. And even an adequate minimum wage and stronger unions can't do enough in a slack market. What's an enlightened person who appreciates the importance of both supply and demand to do?
Well, here's an idea: when the jobs aren't there, let's create them. We envision a two-tiered system that uses the lessons cited above to develop career paths and expand opportunities for success, raises the wage floor, and levels the playing field for workers and their unions to bargain for better conditions. Second, when labor markets are slack, we create public-service jobs to keep people gainfully employed, drawing on the successful experience of transitional jobs programs that have sprung up around the country using public funds to create work for people struggling to get a foothold in the labor market. Such jobs could meet important community needs and let people use their newly minted skills. What's more, the message is clear and consistent with values we all agree with: Everyone who wants to work should have the chance to do so.
The beauty of this approach is that it takes on both deficits, skills and jobs. Reflecting on the critique from the left, this approach guarantees that recipients of job-training programs are “all dressed up with somewhere to go.”
We've yet to work out the mechanics and price of such a system, but it's none too soon to start doing so. In any new system, we need to avoid the errors of the past, chief among them the displacement of incumbent workers. One idea is that the jobs-creation component, likely the big-ticket spending part of the package, could switch on in local labor markets when the unemployment rate got too high -- and off when no longer needed. As with any other potentially expensive new social policy, it would make sense to test this idea with a few local demonstration projects.
So supply, meet demand. Our hope is that the two camps can come together and develop what seems to us to be an ambitious but commonsense approach to the stubborn problem of working poverty. Full employment is a great asset, but because we can't count on it, let's create it. Besides, ensuring that all who are willing can realize their intellectual and economic potential is good policy and the right thing to do. Together, they could be a highly potent combination.
Steve Savner is a senior attorney at the Center for Law and Social Policy, currently on leave and working for the Center for Community Change. Jared Bernstein is a senior economist at the Economic Policy Institute.
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