Revisiting Work Opportunity: From Tax Credits to Subsidized Jobs

1. Elizabeth Lower-Basch Senior Policy Analyst Revisiting Work Opportunity: From Tax Credits to Subsidized Jobs Big Ideas for Job Creation in a Jobless Recovery June 16, 2011

2. The TANF Emergency Fund • American Recovery and Reinvestment Act • States could receive 80 percent of increases in spending in one or more of three areas: • Assistance • Non-recurrent, short-term benefits • Subsidized employment • Each state could receive up to 50% of block grant over two years • Total pool of $5 billion.

3. States Drew Down $1.3 Billion for Subsidized Jobs

4. Over 260,000 Subsidized Jobs

5. Program Design Varied by State • WPA, CETA • Large scale • Broad eligibility • Mostly public sector • Homemaker-Home Health Aide Demonstration, TJ • Small scale • Mostly private sector • Targeted to welfare recipients, ex-offenders

6. Variation in… • Scale • Target population • TANF recipients • Youth • Ex-offenders • UI, SNAP recipients • Broader low-income populations • Administration (direct hire, intermediaries) • Subsidy structure

7. Examples of Subsidy Structures • Illinois: $10 per hour, 30-40 hours per week, pay all payroll costs except UI • Florida: 100 percent of wages and payroll costs up to 40 hours at prevailing wage up to a maximum of $19.51 • South Carolina: minimum wage for 20 hours per week plus payroll costs for 6 months • Oklahoma: 100% of wages up to $12 in month 1; 50% in months 2-4; bonus in month 10 if still employed equal to 50% of wages in months 2-4

8. Examples of Maximum Subsidy Costs • Illinois: $11,551 • Florida: $23,849 • South Carolina: $4,432 • Oklahoma: $8,313 with incentive; $5,196 without incentive (Assume 6 month placement if not specified )

9. Funding Ended 9/30/2010

10. Work Opportunity Tax Credit • Created in 1997 as one year credit, extended since then (with lapses, replaced retroactively) • 9 target groups specified in law: welfare and SNAP recipients, youth in disadvantaged communities, ex-offenders, veterans, individuals with disabilities. • For most groups, maximum credit is $2,400 • Larger credit for disabled veterans, long-term welfare recipients • Smaller credit for summer jobs for youth

11. Work Opportunity Tax Credit • Credit is 40% of first $6000 of wages if worker is employed for 400 hours • Drops to 25% if worker is employed 120-399 hours • No credit if employed less than 120 hours

12. Impacts of WOTC Employers do not report taking it into consideration in hiring Most certifications processed by contractors Mostly claimed by large employers in high turnover industries with many low-skilled workers – retail, restaurants, temp agencies, Study suggests modest short-run impacts on employment, earnings (~10 percent), no long-term impacts

13. In 2010 WOTC Cost Over $1 billion

14. Why Are Costs Rising? Expansion of “food stamp youth” group from youth ages 18-24 in families receiving SNAP to cover individuals aged 18-39 in such families. Temporary ARRA coverage for unemployed veterans, disconnected youth. Increased participation??

15. Recommendation Redirect WOTC costs to subsidized employment programs Operate through WIA agencies, with state option to use TANF or SNAP E&T instead State control over program design, within general targeting at low-income populations At mid-range estimated cost of $12,500 per participant, $1.1 billion would allow states to serve 88,000 workers

16. Why replace WOTC?

17. Thank You For more information: Elizabeth Lower-Basch elowerbasch@clasp.org 202 906-8013