Business Must Work at Welfare Reform

On Aug. 22, 1996, President Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act, better known as welfare reform. A key component of the act is the termination of welfare benefits after a maximum of 60 months. Supporters of the bill expect that when benefits end, former recipients will somehow have found work or will be engaged in approved community service.

Individual states, though, can set their own timetables. California, for example, proposes terminating welfare benefits after 24 months of assistance for current recipients. New applicants would be terminated after 18 months.

To achieve the objective of reducing the number of individuals dependent on welfare while simultaneously moving former recipients into the ranks of the employed, there must be a suitable number of available jobs. There must also be a willingness among employers to hire these new job seekers.

Will there be sufficient jobs? Not unless the private sector becomes more proactive in linking former recipients to work opportunities.

The California Budget Project estimates that under Gov. Pete Wilson’s plan, more than 389,000 California individuals and families will lose their benefits by 2000. That includes nearly 132,000 in Los Angeles County. The state Employment Development Department projects that net annual job growth from 1992 to 2005 will be nearly 263,000 statewide and roughly 66,000 in Los Angeles County. And it is estimated that more than 1 million people statewide will be unemployed each year during that same period.

In Los Angeles County, the number of unemployed will be about 354,000 a year during that period. These numbers suggest that within two years, the 1 million unemployed individuals in California will have their ranks swell by 389,000 former welfare recipients. They will all be competing for jobs, be they newly created jobs, community service jobs or jobs available through normal turnover. In Los Angeles County, the 132,000 former welfare recipients estimated to lose their benefits will be competing with 354,000 unemployed people for existing levels of vacant positions plus the 66,000 new jobs expected to be created.

Given these numbers, one wonders how these former welfare recipients can successfully gain employment, as the law requires.

Recognizing that special efforts may be needed to create jobs that former welfare recipients will have a reasonable chance of obtaining, the Legislature proposed the creation of a Job Investment Fund. The fund would provide a mechanism for counties to finance the development of new jobs to create work opportunities for former welfare clients.

It was expected that the private sector, stimulated by county-funded programs, would collaborate with nonprofit organizations to enhance existing services designed to prepare former welfare recipients for the workplace, expand employment opportunities with neighborhood development corporations, create micro-enterprises and small-business incubators, as well as transitional jobs and computerized job banks.

Wilson’s formula for job creation for former welfare recipients entailed a corporate tax cut, tort reform and deeming welfare recipients ineligible for unemployment insurance or workers’ compensation insurance.

Clearly, there is a philosophical difference between the two approaches. The Legislature believes government should be playing a more active role to assist individuals in the transition from welfare to work. The governor believes that fewer regulations and greater tax benefits will facilitate the ability of business to create new jobs.

The recently reached compromise tilts toward the governor’s approach, relying heavily on the private sector to create the needed jobs but recognizing that the government will have some responsibility.

Data compiled by the California Budget Project suggests that nearly half the forecasted job growth over the next eight years will be in occupations that require relatively low levels of education and training, which bodes well for former welfare recipients. But the report’s authors also point out that many welfare recipients will face significant barriers to employment. Tight labor markets and a surplus of job seekers will allow employers to impose tougher standards than jobs may actually require.

Furthermore, the report indicates that five out of every 15 of the fastest-growing jobs available to individuals leaving welfare will pay wages below the poverty level. Indeed, 10 of the 15 California occupations with the largest projected growth, according to the report, will pay the average full-time worker no more than $8 an hour. At these wages, the new workers would simply swell the ranks of the already large pool of working poor, individuals whose incomes barely cover the cost of their housing, food, clothing and other basic necessities, and certainly is not enough to cover the cost of health care, child care and/or transportation.

Will employers hire former welfare recipients? To date, there have been no major studies conducted to address this question. But according to E.Z. Burts, president of the Los Angeles Area Chamber of Commerce, the issue of job creation and the hiring of former welfare recipients is a high priority among key business leaders.

Business leaders realize that they played a significant role in promoting welfare reform in the first place, and if they do not play an active role in seeing that it works, they will are likely to get much of the blame if it fails. These leaders also understand that if welfare reform fails, government will be called upon once again to address the problem with tax support. Or worse, there might be a recurrence of the urban disturbances experienced during the 1960s or a repeat of the 1992 civil unrest in Los Angeles.

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While there may be a recognition among some business leaders that they need to play a proactive role in the success of welfare reform, few understand that the growing economy alone will not solve the problem. Topics still in the early stages of discussion include the appropriate outreach efforts businesses should support, how to capitalize on existing tax incentives, how to inform heads of human resource departments of the expectation to hire former welfare recipients, and how to link ongoing job training efforts to current and future labor force needs.

Clearly, this is an encouraging beginning. However, the business community must become much more proactive in addressing this issue if success is to be achieved. If welfare reform flops, this time it won’t be the government’s fault.