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Can Spending Money on Welfare Actually Save Jobs?

With the recent fights in Congress over whether to extend unemployment benefits or supply emergency funds to keep state workers from receiving pink slips, the job picture in the United States looks bleak.

Not only is the ratio of job seekers to available positions nearly five to one, but the Recovery Act has been underwhelming in creating new opportunities for the jobless. Meanwhile, unemployed workers continue to witness budget hawks in Washington argue against additional aid they sorely need.

Amid the storm, one program has been an unequivocal success, demonstrating that while some jobs programs are bigger than others, the smaller ones can sometimes be more effective.

Tucked within the Recovery Act is a $5 billion fund for the popular Temporary Assistance for Needy Family (TANF) block grant program, called Emergency Contingency Fund (ECF). Originally designated as additional padding for TANF’s assistance programs, ECF quickly took off as a subsidized jobs program instead. Since its inception last spring, TANF ECF has employed 247,000 people on just over $4.1 billion. The federal government pays employers 80 percent of a subsidized worker’s wages, and the remaining 20 percent comes from a non-federal source — usually from payroll taxes paid by the employer.

The program’s success can be measured by how many individuals flocked to work, and how many employers received them. In Illinois, 60,000 individuals signed up for 20,000 openings. In Los Angeles County, roughly 12,000 jobs were created on a budget of $160 million.

Yet despite its popularity and remarkable efficiency, TANF ECF is due to expire Sept. 30. An extension for the subsidized workers program was included in the House version of the unemployment benefits bill, but didn’t make it past the Senate — even though the House version would only cost $2.5 billion for the 2011 fiscal year. And with Congress in summer recess, there isn’t much time to pass a bill before the September deadline.

But advocates for TANF ECF are still fighting. “We’re not giving up. We still have September,” says Elizabeth Lower-Basch, a Senior Policy Analyst at the Center for Law and Social Policy (CLASP).

Dustin Stevenson is one person who has had a hand in making TANF ECF a success. As Business Development Coordinator for the South Bay Workforce Investment Board (SBWIB), he’s connected eager employers and needy candidates through Los Angeles County’s implementation of TANF ECF, called Transitional Subsidized Employment (TSE).

SBWIB has a history of running a subsidized jobs program, placing 800-1000 candidates a year through the Clinton-era Workforce Investment Act. When the 2009 Recovery Act instructed localities to use federal dollars to find meaningful work for dislocated workers, Los Angeles County needed an experienced organization to manage its TSE funds. SBWIB was selected by the county to help employers find qualified candidates through job fairs and Los Angeles County’s network of job training and outreach programs.

“[L.A. County] had a few choices,” Stevenson says. “They could reinvent the wheel … or they could do what they did and come to us, and we have this history of putting people to work.” The program was up and running by April 2009.

Because the subsidized workers program is funded through TANF, not all dislocated workers qualify. The participants must have a child, and the household income cannot exceed 200 percent of the poverty line. Without the program, however, many would-be subsidized workers would sit on some sort of government assistance program.

“With ECF, we’re paying them to work. We’re paying them wages to do valuable work to help companies grow, to help non-profits develop, and they’re gaining skills and experience,” Stevenson says.

According to Lower-Basch of CLASP, most participants employed through TANF ECF earn around $10 an hour, and work between 30 and 40 hours a week. In Los Angeles, the hourly wage is $10 and nearly all subsidized employees work full time. While some critics claim that is too low a wage, Stevenson tells me one work source center that partnered with SBWIB brought on personal finance managers to help the participants sort through their new relative wealth.

For employers, the program has also been crucial. Rosie Abramyan hired three people through the subsidized workers program to help with marketing and communications at her sustainable construction firm Modaa Inc., a small business based in the San Fernando Valley region of Los Angeles County. “Just getting one employee that’s motivated enough, considerate enough, and wants the best for their future, has helped me reach levels that I couldn’t do on my own,” she says.

Supporting employers like Abramyan is important. Small businesses employ the majority of America’s workers, and have hired nearly two-thirds of all new workers in the last 15 years.

Abramyan learned of TSE through her local congressman’s office, where she was referred to a SBWIB information session. Her business needed help keeping up with orders and winning more lucrative contracts, but her company couldn’t afford new employees.

“They were very helpful in basically holding my hand, walking me through the whole process. Telling me exactly what I need to be qualified for this program,” she says.

Other than meeting basic Department of Labor standards, like workers’ compensation and general liability insurance for TSE participants, any employer could qualify for the program, provided the employer can cover the remaining twenty percent of a subsidized worker’s wage. These include the public sector and non-profits.

Initially, Abramyan had her doubts. The stigma of the unemployed worker may not be fair, but employers, like the job market, are unkind to people who have been out of work for an extended period of time: “My concern was these candidates weren’t going to be motivated. They are used to being paid and not working, and so what is going to drive them to work?”

Now, however, Abramyan wants to promote one TSE participant she hired to a managerial role, and jokes she has over-praised her star employee to the point where she might be snagged by a much larger firm. “I was taken by a great surprise because there is motivation, you just need to be someone who goes out of their traditional way of looking at things,” Abramyan says.

For Stevenson, not extending TANF ECF funds out of budget deficit concern is specious reasoning: “As we all know, the labor market and the economy have not turned around, like the administration expected it to, so what’s going to happen is a lot of these people will go back on welfare, on public assistance, they will be collecting food stamps, again. And so the federal government and state government will be paying for these people one way or another.”

And while it is much cheaper to dole out public assistance funds to needy families, such programs aren’t as effective in the long run. More generous states, like California, offer a family of four $800 per month in public assistance; a single parent can earn that much in two weeks through TANF ECF. And localities that administer the subsidized workers program aren’t merely satisfied with employees earning an income only if government largesse makes it possible. Los Angeles County expects to see 50 percent of TSE participants find permanent jobs. SBWIB had a 70 percent success rate in the years it helmed the smaller subsidized workers program. 

There is tremendous broad-based and bipartisan support on the local level for extending TANF ECF. The Republican Governors of South Dakota and Mississippi want to see Congress extend the fund, as do the National Governors Association, the National Conference of State Legislatures, and the National Association of Counties. Some members of Congress have opposed TANF ECF, however, maligning the program as yet another welfare initiative.

Congress nonetheless has several opportunities to extend TANF ECF. “There’s still going to be a tax extenders bill, and that’s a possible vehicle,” explains Lower-Basch. Also, TANF itself will need to be reauthorized, and the ECF can latch on as a rider that way.

But employers who have grown dependent on their subsidized employees will be in a bind to continue business as usual when they’re suddenly responsible for paying the full wages of these workers. “If I had to borrow money to keep my employees until Congress extends it, if it’s a matter of a month, maybe I can try to fill in that month myself. It will be a major hit, and I’m not set up for it by any means,” says Abramyan.

And states are in such poor fiscal health they cannot cover the cost of the program either. As Lower-Basch puts it, “very few states have cash reserves left. A good number of states came into the recession with a rainy day fund, but the rain has had.”

For now, supporters of TANF ECF have to hope Congress can allocate more money before Sept. 30, or if necessary, before Congress closes for the winter. However parlous an uncertain future may be for employers, the subsidized workers have more to fear: Once TANF ECF expires they are not eligible for unemployment checks, even though taxes were taken out of their incomes just as they would be for permanent wage earners.

Already H.R. 5893, the Investing In American Jobs and Closing Tax Loopholes Act of 2010 is waiting on the Senate for approval and the push to get senators on board has begun. “It’s an issue of helping a couple of senators see what a huge success this program has been,” Stevenson says.

For Abramyan, the need for TANF ECF comes down to the health of the national labor market. “We need the program. We’re a small business, and if we don’t survive, I truly wonder how employment will get better.”

It is difficult to imagine a good reason why TANF ECF should not be reauthorized. From an economic perspective, critics may contend subsidized work programs are a supply-side solution when the real crisis is a lack of demand. But given the success of TANF ECF, that sort of armchair analysis seems spurious. It is one thing for the government to tell the unemployed there are few jobs available; it is a wholly different matter to take away the jobs they already have.

Mikhail Zinshteyn is a staff writer for Campus Progress. You can e-mail him at mzinshteyn@googlemail.com.

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