Upjohn Institute Working Paper No. 99-57

**Published Version**

Journal of Regional Science 42(4) (November 2002): 667-701 under title Spillover Effects of Welfare Reforms in State Labor Markets




Anti-poverty policy in the U.S. has emphasized labor supply policies, such as welfare reform or job training. Anti-poverty policy in the U.S. has not emphasized policies to increase labor demand for the poor, such as public employment or subsidizing private employers to hire the poor. What are the aggregate effects of such policies on wages and unemployment of different groups? This paper estimates and simulates a model with several types of labor, using data from the Current Population Survey on state labor markets. The simulations suggest that forcing more disadvantaged persons into the labor market can displace many other persons from employment in the short-run and medium-run, and increased public employment of the poor may be offset by reduced private employment of the poor in the long run. Wage subsidies to either the poor or the poor's employers have little effect on the poor's employment or market wages, although paying wage subsidies to the poor increases take-home pay. Finally education policies not only directly help those educated, but also increase average earnings of less-educated groups and reduce average earnings of more-educated groups.

Issue Date

July 1999


Financial support from the Upjohn Institute, the Russell Sage Foundation, and the Rockefeller Foundation

Subject Areas

ECONOMIC DEVELOPMENT; Local labor markets; Regional policy and planning; Demand side programs; UNEMPLOYMENT, DISABILITY, and INCOME SUPPORT PROGRAMS; Poverty and income support; Low wage labor markets; WORKFORCE DEVELOPMENT; Labor exchange




Bartik, Timothy J. 1999. "Aggregate Effects in Local Labor Markets of Supply and Demand Shocks." Upjohn Institute Working Paper No. 99-57. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.