David H. Autor MIT and NBER Susan N. Houseman Upjohn Institute for Employment Research

1. Do Temporary Help Jobs Improve Labor Market Outcomes for Low-Skilled Workers? Evidence from “Work First” David H. Autor MIT and NBER Susan N. Houseman Upjohn Institute for Employment Research Presentation prepared for World Congress on National Accounts and Economic Performance Measures for Nations May 14, 2008 – Session 3B

2. In United States: 2.5% to 3% of U.S. jobs. Grew at 11% rate 1972 to 2000. Accounted for 10% of net U.S. job creation 1990—2000. Accounted for 31% of net U.S. job destruction 2000—2002. In OECD Many countries deregulated Temp Help over last 15 years. Since 1992, Temp Help: Grew 5-fold in Denmark, Spain, Italy, Sweden. Grew 4-fold in Austria. Accounts for 4+% of daily employment in UK and Netherlands. Much discussion in OECD of: “Temporary agency work as a new source of labor market flexibility.” Temporary Help Agency Employment: Growing Rapidly Worldwide

3. High Incidence of Temporary Agency Employment among Low-Skilled Job Entrants • Disproportionate fraction of temporary agency jobs: • In low-skilled, entry-level occupations. • Held by minorities. • Held by those with no post-high-school education. • Strikingly high incidence among welfare population: • 21% of jobs obtained by Work First participants in our Michigan study sample in Temporary Help sector. • Data from Wisconsin, Missouri, Washington State, Georgia: 15% - 40% of employed welfare recipients are in temp help sector.

4. Does Temporary Agency Employment Help Low-Skilled Workers Advance in the Labor Market? • Augmenting job search: ‘Stepping stone’ • Intrinsically short-term jobs • Temporary help jobs connect low-skilled workers with potential employers, build skills, and gain work experience. • Prolonging instability: ‘Stumbling blocks’ • Offer few chances for advancement or skills development. • May crowd out productive job search, hamper long-term advancement. • Both views could be true. Relevant policy question is: • Which effect predominates in low-wage/low-skilled labor markets? • The difficulty of answering the causal question • Hard to distinguish consequences of taking a given job type from the factors that cause person to take that job initially, e.g., skills, motivation, life circumstances.

5. Does Temporary Agency Employment Help Low-Skilled Workers Advance in the Labor Market? • U.S. and European: • U.S: Waldfogel and Ferber, 1998; Lane et al., 2003; Heinrich, Mueser and Troske, 2005; Andersson, Holzer and Lane, 2005; Corcoran and Chen, 2005. • European studies (at least 10): Ichino et al. 2005 • Methods used in previous research: All non-experimental • Regression adjustment, Matching estimators, Parametric selection models, Fixed effects, Structural models, some Instrumental Variables models. • Results from prior research: Quite uniform • “Stepping stone” view of temp help jobs endorsed in essentially every case. • Two studies recommend use of temp help employment for welfare clients.

6. Outline • Our Study Design • Quasi-Experiment in Detroit’s Work First Program • Data • Estimation Framework • Main Results • Effects of Temp Help Placement on Subsequent Employment & Earnings • Effects of Temp Help Placement on Subsequent Employment & Earnings in Temp v. Direct-Hire Jobs • Effects of Job Placement on Job Stability • Effects on Working for Multiple Employers • Effects on Longest Job Spell and Longest Job • Effects on Continuous Employment • Bad Jobs or Bad Contractors? • Conclusions & Policy Implications

7. Study Design • Exploits natural variation among providers of job placement services for welfare and disadvantaged workers in propensity to place participants into temp agency jobs • Why does heterogeneity in job placement practices arise? • Uncertainty: • Heterogeneity among providers in beliefs about “what works” • Low-information environment: • Providers do not observe outcomes – subsequent earnings, recidivism

8. Our Quasi-Experiment with Detroit Welfare Recipients • ‘Work First’ approach—Emphasis on rapid placement into jobs • Unemployed welfare recipients must search for job full time • Few, if any, resources provided for training or counseling. • 1st week—Job search orientation. After that—job search full-time. • The policy quasi-experiment • Detroit’s Work First program divided into geographic districts (neighborhoods) – 12 districts served by 2 to 4 non-profit Work First contractors. • New participants assigned to contractors in each district on a rotating basis Functionally equivalent to random assignment. • Contractors provide similar (minimal) services using same program structures, ex ante identical clients. • Source of identifying variation • Large, persistent differences in types of jobs taken—temp help, direct-hire, and no job—by clients assigned to different contractors in same districts. • Random assignment manipulates the probability that ex ante comparable Work First clients take different job types. Intention to treat design.

10. The Data: Work-First Case Records Linked to State UI Records • The sample: • All participants entering Work First, 4th quarter 1999 through 1st quarter 2003: 25,802 unique Work First participants; 38,689 Work First spells. • Job placement outcomes during Work First spells: 52.8% No job; 37.6% Direct Hire placement; 9.6% Temp Help placement.

11. Estimation Framework • We estimate: • Where outcomes are: Employment or earnings in quarters 1- 8 following Work First Assignment (never use contemporaneous quarter of placement). • Di and Tirefer to job placement during the Work First spell. • Robust standard errors clustered on contractor assignment  year (83 clusters). • OLS Models: • have no causal interpretation.

12. Estimation Framework continued • Instrumental Variables Models: • We instrument with contractor by year dummies—instruments for job placements obtained during the Work First assignment. • (Almost) equivalent to instrumenting with observed placement rates: • IV model can be rewritten as: where are contractor random effects, is participant residual.

13. Outline • Our Study Design • Quasi-Experiment in Detroit’s Work First Program • Data • Estimation Framework • Main Results • Effects of Temp Help Placement on Subsequent Employment & Earnings • Effects of Temp Help Placement on Subsequent Employment & Earnings in Temp v. Direct-Hire Jobs • Effects of Job Placement on Job Stability • Effects on Working for Multiple Employers • Effects on Longest Job Spell and Longest Job • Effects on Continuous Employment • Bad Jobs or Bad Contractors? • Conclusions & Policy Implications

17. Outline • Our Study Design • Quasi-Experiment in Detroit’s Work First Program • Data • Estimation Framework • Main Results • Effects of Temp Help Placement on Subsequent Employment & Earnings • Effects of Temp Help Placement on Subsequent Employment & Earnings in Temp v. Direct-Hire Jobs • Effects of Job Placement on Job Stability • Effects on Working for Multiple Employers • Effects on Longest Job Spell and Longest Job • Effects on Continuous Employment • Bad Jobs or Bad Contractors? • Conclusions & Policy Implications

21. Outline • Our Study Design • Quasi-Experiment in Detroit’s Work First Program • Data • Estimation Framework • Main Results • Effects of Temp Help Placement on Subsequent Employment & Earnings • Effects of Temp Help Placement on Subsequent Employment & Earnings in Temp v. Direct-Hire Jobs • Effects of Job Placement on Job Stability • Effects on Working for Multiple Employers • Effects on Longest Job Spell and Longest Job • Effects on Continuous Employment • Bad Jobs or Bad Contractors? • Conclusions & Policy Implications

22. Bad Jobs or Bad Contractors? • IV model attributes differences in participant outcomes to differences in contractor placement rates. • Key assumption: • Temp and direct-hire placement rates not systematically correlated with other contractor quality differences that affect outcomes: • Alternative scenario—A threat to validity • Temporary help jobs have same causal effect on earnings as direct-hire jobs. • But ‘low quality’ contractors—those who generally provide poor services—place a disproportionate share of participants in temporary help jobs. • If so, our 2SLS estimates will misattribute the effect of receiving a bad contractor assignment to the effect of obtaining a temporary help job.

23. Specification Test • Plausibility: • All other key services—e.g. transportation, child care, follow-up—standardized across contractors or provided outside Work First program • Contractors do little other than job placement • Formal test: Recall reduced form of main estimating equation: • Specification test that placement rates a ‘sufficient statistic’ for entire effect of contractors on participant outcomes. • Estimate model with and save residuals • Re-estimate model, replacing w/contractor-by-year dummies. • F-test for added explanatory power of these 59 dummies • Accept null hypothesis at 42 percent level for cumulative 8 quarter earnings, 15 percent level for 8 quarter employment

24. Conclusions • Direct-hire job placements improve subsequent employment outcomes over 1 to 2 years • ↑ earnings $2K to $4K • Raise subsequent job stability: raise probability of single employer, earnings & quarters worked in longest job, continuous employment over 8 quarters • Temp agency job placements have no lasting positive effect on employment outcomes • Only increase earnings in temp jobs in short-term—crowd out direct-hire employment • May reduce subsequent job stability: increase probability job switching, reduce earnings longest job • Policy implications • “Work First” approach justified by large-scale random assignment experiments showing job placement services as effective at improving subsequent outcomes as more costly strategies • Type of job placement matters—benefits derive entirely from direct-hire placements

25. Conclusions • Reconciling our findings with those of previous studies • Our results pertain to “marginal placements” – most relevant for policy • Treatment effects of our study might differ from causal parameters identified in other studies • Or prior studies unable to control for selection biases.