Effects of Welfare Reform on Rural Counties and Labor Markets

Stephan J. Goetz, David Freshwater

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16 Scopus citations

Abstract

Our own analysis and brief review of other work suggests that the impact of the WRA in rural areas will in many respects be as large as, or even larger than, in urban areas. In terms of the three questions posed earlier, we conclude that certain rural areas will be disproportionately affected by the reform, that smaller rural counties with high rates of unemployment will have difficulty absorbing new workers, and that nonmetropolitan counties that are adjacent to metropolitan areas are more sensitive to the business cycle than are nonadjacent counties in terms of unemployment rate changes. Wage earnings already tend to be lower in rural than in urban areas, whereas excess labor levels are higher in rural areas, as revealed both by reported unemployment rates and by estimates of disguised unemployment. Consequently, the work requirements of the WRA will likely exert considerable downward pressure on rural wages as effective labor supplies increase, thus impacting those already working at wages near the legal minimum. The "working poor" will thus bear a disproportionate share of the adjustment cost of welfare reform. Furthermore, the impact of cutbacks in different welfare programs will vary significantly across the states, and many California counties will be affected by the abolition of AFDC; many Kentucky counties will be affected by the tightening of SSI eligibility rules; and both Kentucky and Texas counties will be affected by changes in FSP regulations. States that have succeeded the most to date in moving former welfare recipients into the workforce will almost certainly face greater problems in the future in continuing to meet the requirements of the WRA (see also Zedlewski and Giannarelli). The reason for this is, given a distribution of employable skills, (dis-) utility of working, and lengths of prior unemployment spells that affect work qualifications, these states will increasingly be dealing with the more difficult-to-employ welfare recipients. This is important in part because state authorities face strict time lines for moving specific percentages of their welfare populations into the workforce. In addition, federal funding for the transition program will become a smaller share of the total budget, just as training costs increase. Although the average share of personal income comprised of all welfare payments combined is relatively small, the share averages close to 6% in the decile of top transfers-dependent counties. Clearly, some counties will be affected considerably more than others by reductions in welfare payments, and many of these are in rural areas. In particular, the 25% of nonmetropolitan counties with high rates of unemployment, dependency on transfer payments, and unskilled workers are affected the most. Historically, outmigration to urban areas has been the only long-term option for residents of rural areas with persistently high unemployment. With recent changes in the economy, questions must be raised as to whether the migrants have the skills needed to obtain work in urban areas and whether urban labor markets can absorb a large number of rural workers. This in turn raises the possibility that history, in the form of a new "war on poverty," may soon repeat itself.

Original languageEnglish (US)
Pages (from-to)1608-1613
Number of pages6
JournalAmerican Journal of Agricultural Economics
Volume79
Issue number5
DOIs
StatePublished - Jan 1 1997

All Science Journal Classification (ASJC) codes

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

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