There is a widespread sense, not just in the United States but in European countries like Denmark, that government assistance for low-income households should be linked to participation in the labor force. So what do employment patterns look like for low-income American–that is, those who are also eligible for various means-tested government assistance programs? Lisa Barrow, Diane Whitmore Schanzenbach, and Bea Rivera lay out some basic data patterns in “Work, Poverty, and Social Benefits Over the Past Three Decades” (Federal Reserve Bank of Cleveland, Working Paper No. 24-22, October 2024).
The next two figures show employment rate over time, first for women and then for men. The employment rates are then divided up by whether the household is low-income, and whether the household includes children.
For women, the solid lines show the the employment rate for women with no children (green line) and the employment rate for women with children (orange line). You can see that back in the early 1990s, the employment rate for women without children was substantially higher, but gap shrinks, and since about 2010 the employment rates are about equal.
The dashed lines focus on those with low incomes (defined here as less than 200% of the federal poverty line). Employment rates for those with low incomes are below the rates for the entire population. Back in the early 199s, low-income women without children had higher employment rates. But after the passage of the welfare reform act back in 1996 under the Clinton administration–a law that emphasized work requirements for welfare recipients–low-income children with women consistently have higher employment rates than low-income women without children.
The next figure shows the patterns for men. The solid lines show overall employment rates for men without children (green line) and for men with children (orange line). Unlike the situation for women, where these two lines were much the same, men without children have much lower employment rates, and the gap is growing. The dashed lines focus on low-income men. Low-income men with children have much higher employment rate than low-income men without children–and the gap for men is much larger than the gap for women shown above.
One other pattern is worth noting here. Many of these lines show a relatively large decline in employment rates from the late 1990s up to about 2010–but since about 2010 (the tail end of the Great Recession), the employment rates for both the entire population and the low-income population are either flat or even up a little bit.
So what explains these patterns? In particular, what might explain the In the working paper, Whitmore, Schanzenbach, and Rivera consider a bunch of factors, including demographic factors like family composition, education, and race/ethnicity, and public policy factors like a shift away from cash welfare payments for the poor and toward payments that are delivered through tax credits and thus linked to work, like the Earned Income Tax Credit and the Child Tax Credit. They write:
We find that the characteristics of low-income adults have changed over time. They have become more highly educated, less likely to be married, and the share that is Hispanic has increased. We investigate to what extent these shifts in characteristics can help explain changes in employment and find that little employment change can be explained by these factors. …
Our results contribute to a growing literature documenting the shift in the structure of social benefits for non-elderly adults, especially those with children, to reward and encourage work. Low-income families with children and substantial earnings have received more income—both in levels and as a share of their total incomes—from social benefits in the last decade than they did 30 years ago. On the other hand, social benefits programs are little changed for low-income families without children.
Of course, any working paper is far from the final word on a big subject. But the patterns are consistent with a belief that the shift in social safety net programs toward adults that work, in households with children, is encouraging work effort for that group.
