Surprise! Welfare Reform Is Working

Dec. 21, 2004
At least, once-leery companies find the new law helps them find workers. But will welfare-to-work success continue when the labor shortage ends?

When President Clinton signed the Personal Responsibility & Work Opportunity Reconciliation Act--a k a the welfare-reform bill--in a White House rose-garden ceremony in August 1996, it was a cause for celebration in political Washington. Enactment of the landmark law enabled the President to fulfill his ballyhooed campaign pledge to "end welfare as we know it." And it gave Republicans a substantive legislative achievement to tout in their bid to retain control of Congress in that fall's election. But in American industry, the reaction was considerably more restrained. It was a collective shudder. "Here the politicians go again," went the thinking of many executives. "They're winning political points for reforming welfare, but all they're doing is palming off the problem onto the shoulders of employers." Indeed, in its most notable feature, the new law for the first time clamped a work requirement upon welfare recipients. And where would the jobs come from? The private sector, of course. Clinton even admitted as much. "If welfare reform is going to work," he declared later, "it will have to have the leadership of the private sector in turning welfare checks into paychecks." Nineteen months after the rose-garden ceremony, however, it turns out the private sector is doing exactly that. Although liberal critics accurately point out that welfare reform hasn't yet produced jobs for most of the hardest-to-hire welfare recipients, results of the new law so far have been a pleasant, unexpected surprise. Some 1.6 million Americans have left the welfare rolls since enactment of the legislation, lowering the caseload to fewer than 10 million (two-thirds of whom are children), estimates the Welfare to Work Partnership, a business-sponsored Washington group organized by the White House last spring to help companies find jobs for people on public assistance. In some states, caseloads have dropped spectacularly. In Wisconsin, a state whose welfare-to-work initiative is considered a model, they're down 54%; in Wyoming, the decline is an eye-popping 68%. Altogether, 49 states are launching specific programs to make welfare-to-work a permanent reality. Little wonder that last summer Clinton was moved to proclaim that "the debate is over. We now know that welfare reform works." And, remarkably, the worst fears of employers have proved to be ill-founded. Unlike many products of Washington, the statute has no employer mandates,--something many executives had feared. Instead, it seems to be benefiting companies. Not only has the law "changed the outlook for the welfare population" by instilling in them an expectation of work, but it also "has been a boon for business," declares James D. VanErden, senior vice president for workforce development at the National Alliance of Business (NAB), a Washington-based group that coordinates private-sector efforts to improve workforce quality. "It provides a positive way for employers to expand their labor force in a tight labor market." One company testifying to that is Gateway 2000 Inc., the giant North Sioux City, S. Dak.-based computer manufacturer. In hiring employees for its Hampton, Va., desktop-computer plant that opened in June 1996, the firm recruited heavily among former welfare recipients and now is doing so again during a major expansion of the facility. The plant has hired between 400 and 500 workers formerly on welfare rolls--up to 40% of its workforce. (The number varies by seasonal employment.) Welfare reform, says human-resources manager Bill Shugrue, "has been very successful as a recruiting tool for us." In summing up the national success of the effort to move impoverished Americans off welfare, Welfare to Work Partnership President Eli J. Segal explains simply: "It's not rocket science. Companies need workers, and people on welfare need jobs." The partnership has signed up more than 3,000 corporate "partners" who have committed formally to hiring welfare recipients. NAB has identified 5,000 firms that are doing such hiring. And a survey by Coopers & Lybrand LLP shows that 26% of U.S. companies have joined the trend, with another 4% expecting to do so soon. These high numbers have raised eyebrows among welfare-policy observers. "People have been surprised by how many companies have come to the table," asserts LaDonna Pavetti, senior researcher at Mathematica Policy Research Inc., a Washington think tank, and formerly a welfare analyst at the Urban Institute. "Welfare reform has gone much better than anyone thought possible. But it isn't altruism on the companies' part to hire workers off welfare; it's in their self-interest. Employers are crying for workers, and the new law has opened up a new pool of potential employees for them. This is a perfect time for the nation to 'do' welfare reform--at a time when there's a worker shortage." Thus, it's fair to argue that encouraging early success of welfare reform hasn't resulted from the wisdom of Congress and the White House in enacting the 1996 legislation. Instead, the bulk of the credit may be a byproduct of the booming economy--which, after all, has created the worker shortage. And that raises an inevitable concern: What will happen when the economy turns down, as it surely will eventually? Good question. Although states now have the flexibility to set time limits, benefit levels, and other aspects of welfare previously directed out of Washington, the new law nevertheless stipulates that welfare benefits can't be paid to most recipients for more than five years; many beneficiaries are required to begin working within two years. If the economy sours, these deadlines obviously would pinch. Nor would Washington likely come to the rescue; federal funds now going to the states in the form of block grants probably wouldn't increase. Welfare experts acknowledge that when tougher times arrive, states may have to loosen their work requirements. Yet these experts are optimistic that the reforms underway now will considerably ease the welfare burden. "We recognize that companies adopt a 'last-hired, first-fired' philosophy in laying off workers during downturns," says Segal. "But if enough people move from welfare into the 'other' system [of work]--and learn skills and earn promotions--they'll be better positioned to survive." Further comfort is offered by NAB's VanErden, who points out that an aging workforce likely will keep the demand for workers at a high level as current workers retire. He also notes that victims of recent corporate downsizings largely have been among mid- and top-level managers--not in lower-level jobs that tend to be filled by former welfare recipients. "And," he adds, "by getting people work-ready now, even if a downturn comes and they're laid off, they'll be more likely to be hired in the next upswing." The experience so far of companies that have hired off the welfare rolls provides evidence that Segal and VanErden are correct in their optimism. In many, if not most, cases, former welfare recipients seem to be integrating surprisingly well into the firms' workforces. That's certainly the case at Gateway's Hampton facility. Although he won't reveal specific percentages, Shugrue indicates that, contrary to what might be expected, the plant's retention rate among employees previously on welfare is higher than the rate among other employees. "The promotion rate is better, too," he adds. Reporting a similar experience is Marriott International Inc. One of the first companies to launch a broad-scale welfare-to-work program, the Bethesda, Md.-based hotel firm has hired some 900 former welfare recipients during the last six years after putting them through a six-week prehire training course at 20 U.S. locations; 800 more are expected to be hired within the next 18 months in 12 additional cities. To date, says Marriott, more than 90% of these employees have stayed on the job for at least 90 days; 65% have stayed at least a year. Other companies have experienced like numbers, indicates Segal. Among those he cites with particularly outstanding retention records are Cessna Aircraft Co., Borg-Warner Security Corp., United Air Lines Inc. (a subsidiary of UAL Corp.), and Smith Barney Inc. To be sure, skeptics argue that these promising trends are possible only because companies have been recruiting selectively off the welfare rolls, skimming off only those welfare recipients most willing--and able--to work. These firms, most analysts admit, are focusing on the first of three "tiers" of the welfare population identified by Mathematica Research's Pavetti while at the Urban Institute. The first tier consists of individuals who have some work skills and have been in and out of the workforce; the second (and largest), those willing to work but in need of training or "intervention"; and the third, substance abusers, severely disabled, and others traditionally not considered employable. "Employers have pretty much exhausted the top tier," assesses NAB's VanErden. The challenge now, as he sees it, is to move more of the second and third tiers into the workforce. Aided by the booming economy, many companies are reaching into at least the second tier, he says. Some firms even are sticking their toes into the third tier. One, Cessna, is working with its headquarters city of Wichita and various community partners to provide a training course for hard-core unemployed individuals in the city's impoverished 21st St. Corridor. The firm guarantees jobs to successful graduates. John Moore, senior vice president of human resources, reports "a 60% to 70% success rate" in the program. Cessna has hired some 200 program graduates, he says, while about 50 others are working for other companies. Similarly, Walgreen Co., Deerfield, Ill., with the aid of a federal grant has trained 50 third-tier welfare recipients during the last two years. Twenty have been placed in jobs, of whom 12 are still working. "It takes a lot of work for a low placement/retention ratio," admits Jim Shultz, director of performance development. "But it's a start." Indeed, "There are long-term, hard-core welfare people going to work now," confirms Amy Brown, operations associate at the Manpower Demonstration Research Corp. (MDRC), a New York-based firm that designs and studies welfare-to-work programs. But, echoing Shultz, she acknowledges that "it takes a lot more effort to get these people into productive jobs." Fortunately, she says, many programs are underway in states and local governments aimed at that objective; most of them involve the private sector. For one, she cites Utah. The state exempts absolutely no welfare recipients from its work requirement; to reach out to these individuals, it has launched ambitious, state-sponsored drug-abuse services, counseling, and other programs. For another, she cites San Jose, whose private, nonprofit Center for Employment Training is aimed at the hard-core unemployed and features extensive employer participation. For a third, she points to Los Angeles County, which has redesigned its adult-education program to stress work-readiness. Welfare recipients used to go to the county's adult-education classes "to learn to read," she says. "Now they go to get a job." To employers, the phrase "work readiness" is critically important; it lies at the root of opposing philosophies on the best way to achieve the welfare-to-work transition. One philosophy, historically adopted by most states, holds that welfare recipients need to get education and skills as a prelude to finding a job. The other, referred to as the "work-first" approach, calls for individuals to get a job first--any kind of job--and then move up the ladder; they develop work habits and skills on the job rather than in the classroom. Which approach works better? "The jury is still out," answers Brown. "But in our [MDRC] research, we've come to conclude that the most successful approach is a 'mixed approach' that leans toward the work-first side. Instead of sending people to four years of college, for example, you give them instead perhaps six months of training that will help get them into the labor market as quickly as possible." Although companies would prefer the historical emphasis on basic education, they're nevertheless pleased that many of these state training programs are stressing so-called soft skills--for example, the importance of coming to work on time and how to interact with supervisors and co-workers. Increasingly, state and local programs also are attacking two of the biggest barriers that impede welfare recipients from getting jobs--child care and transportation. VanErden points out that Wisconsin, for example, recently enacted a huge appropriation for child-care services and that some other states are experimenting with child-care vouchers; Atlanta and Philadelphia have altered their city bus systems to accommodate late-shift workers at United Parcel Service sorting facilities in those cities; and Gary, Ind., has launched a van-pool service to transport inner-city residents to jobs in outlying areas not served by bus routes. Companies, often in cooperation with public and community partners, increasingly are undertaking such initiatives in-house. Cessna, for one, recently built a day-care center as part of its 21st St. Corridor project. Gateway 2000 has worked with the city to change bus routes to serve its plant in Hampton, Va., and now is preparing to launch a day-care program. And Marriott has focused its prehire training program on soft skills--even including instruction on personal finance. "A lot of these [welfare recipients] don't know how to open a checking account, how to budget, or how to figure the amount of money they'll need for transportation," says Janet Tully, Marriott's director of community development and training. The key thing to remember, she says, is that most welfare recipients are willing, even eager, to work. "They don't fit the stereotype that these are people who want to sit at home on the couch and collect welfare. . . . But they are afraid of coming out of a system that has nurtured and supported them." Gateway 2000's Shugrue agrees. "Companies have to get over the idea that welfare workers are lazy," he emphasizes. "They're not lazy. They have a very strong worth ethic. All they need is encouragement." By setting in motion a flurry of programs by state and local governments and by an increasing number of employers who recognize the benefits of hiring off the welfare rolls, the 1996 welfare-reform law is providing that encouragement.

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