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Welfare-to-Work—Just the Facts

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from the magazine

Welfare-to-Work—Just the Facts

Spring 1994
The Social Order

Three weeks
after taking office, Mayor Rudolph Giuliani signed a contract with America
Works, a for-profit company that places welfare recipients in private-sector
jobs. In March, the New York Times published a critical front-page
article about America Works by reporter Esther Fein. How accurate are the
criticisms presented in her article?

Before we examine them, some background is in order. As Sol Stem and I
reported in the Summer 1993 City Journal, America Works has been
operating in New York City since 1988 under a contract with the state
Department of Social Services. The company has placed 1,122 New Yorkers in
jobs with major corporations, paying an average of $9.00 an hour plus full
medical benefits. The state contract calls for America Works to find jobs for
250 clients each year, but many more people are trying to get into America
Works than it can accommodate under its contract.

An America Works client attends a week-long pre-employment class, then
goes out on interviews and, if hired, works at a company for a four-month
probationary period. During that time, the employer pays the client’s
standard wage to America Works, which in turn pays the client at minimum wage
and provides counseling services. The client continues to receive welfare for
the four-month “supported work” period, though the size of the grant is
diminished. America Works is paid $995 when the employee is initially hired.
Only if the employee is permanently “rolled over” onto the employer’s payroll
at the end of the probationary period is America Works paid the bulk of its
fee ($3,855) by the state. Three months later, if the worker is still on the
job, America Works is paid a final $650.

America Works’ most important selling point is that unlike conventional
training and education programs, it is performance-based. Its fee structure
ensures that America Works has a very strong incentive to get its clients off
the welfare rolls permanently. Fein’s Times article questions whether America
Works lives up to this promise. Many of the criticisms she recounts, however,
are misleading:

* America Works gets paid for enrolling clients whether they get jobs
or not.
This claim was immediately refuted by officials in each state
where the company does business. It is true that America Works’ New York
contract allows the firm to be paid for “simply” enrolling people in their
pre-employment class. But America Works never actually bills the state unless
a client is placed in a job, according to both CEO Lee Bowes and state
welfare officials. John Haley, New York State’s contract manager for
employment programs, explains that the enrollment-fee provision is standard
in state employment contracts, because nonprofit providers said they could
not afford to commit resources to recruiting and preparing people for work
without “up front” money.

* America Works “creams,” selecting the most employable welfare
recipients who would have found jobs on their own.
This seems unlikely,
for three reasons. First, the average America Works client has been on
welfare and out of the labor force for nearly five years.

Second, if the clients were able to find work on their own, they would
have little reason to sit through a week-long pre-employment class, then work
for four months at minimum wage ($4.35 an hour) in hopes of being hired
permanently. As Sol Stern and I wrote, it is more likely that America Works
is successful with those welfare recipients who are willing to work but lack
the interpersonal skills, self-confidence, and personal contacts necessary to
find jobs.

Third, and perhaps most telling, nearly half of the firm’s New York
clients are referred after failing to find a job through HRA’s BEGIN (Begin
Employment Gain Independence Now) program.

* There has been no full-scale experimental study to prove the worth of
America Works’ program.
This is true, but several years ago America Works
owners Lee Bowes and Peter Cove urged Michael Dowling, the state’s
commissioner of social services, to undertake such a study—and even offered
to split the cost. But Dowling demurred because of the expense. (Dowling says
he is now convinced that the state should do comparative research on all of
its job training and placement contractors.)

In lieu of a controlled scientific study, America Works commissioned the
accounting firm Ernst & Young to examine its outcomes. That study,
completed in 1993, found 85 to 90 percent of workers still on the job a year
after placement. By comparison, two recent studies of the city’s job training
and placement contractors, one conducted by the state comptroller and one by
the Industrial Areas Foundation, concluded that these programs are so
disorganized that a clear evaluation isn’t even possible. New York City was
unable to provide detailed records of the clients served, the services
provided, and the actual outcomes of the programs—the bare essentials needed
to assess these programs.

* It costs too much to place a client through America Works.
Indeed, because the firm is paid from several different, unconnected
sources—tax credits, diverted welfare grants, corporate wages for those in
supported work, and the fee paid by the government entity with which it
contracts—it is difficult to tell precisely how much the service actually
costs. But any serious attempt to compare America Works with other training
and placement providers will have to examine both costs and outcomes. The
firm’s waiting lists and satisfied customers suggest it has passed the latter

Efforts like America Works are particularly vital in New York City. If
President Clinton makes good on his “two years and off” welfare reform
promise, cities and states will have to find ways of securing jobs for
hundreds of thousands of welfare recipients. Many cities are likely to
establish “workfare” programs in which clients do government work. But New
York does not really have that option. There are some 125,000 employable
adults on AFDC in New York City, according to Richard Nathan, an expert on
jobs and poverty at the Rockefeller Institute: “Finding that number of jobs
in the public sector would be equivalent to a one-third increase in the
city’s municipal work force.” Substantial numbers of unionized city workers
will likely be laid off in the current budget crunch, and any large-scale
effort to replace them with welfare recipients is sure to set off a political
firestorm. Thus, New York will have to rely largely on the private sector to
employ its welfare clients.

There are those in the welfare bureaucracy and the nonprofit sector who,
whether for reasons of ideology or self-interest, do not want to see welfare
rolls reduced. Few jurisdictions in the nation have been more resistant to
welfare reform than New York City. But Giuliani’s decision to contract with
America Works is a sign that the tide may be turning.

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