Do temporary help jobs improve labor market outcomes for low-skilled workers? : evidence from "work first"

'

\\K\\

DEWEY

i! 1 '

O

-> 1 M!T LIBRARIES DUPL

ho

,

DS-XG

3

9080 03317

5891

Massachusetts

Institute

of

Technology

Department

of

Economics

Working

Paper

Series

Do

Temporary

Help

Jobs

Improve

Labor

Market

Outcomes

for

Low

Skilled

Workers?

Evidence from

Random

Assignments

David

Alitor

Susan

N.

Houseman

Working

Paper

05-26

October

27,

2005

Revised:

March

17,2010

Room

E52-251

50

Memorial

Drive

Cambridge,

MA

021

42

Thispapercanbe downloaded withoutchargefrom the SocialScience

Forthcoming:

American

Economic

Journal:

Applied

Economics

Do

Temporary-Help

Jobs

Improve

Labor

Market

Outcomes

for Low-Skilled

Workers?

Evidence

from

'Work

First'

Upjohn

Institute

Working

Paper

05-124

David Autor

MITandNBER

'

e-mail:

dautor@mit.edu

Susan N.

Houseman

W.E.

Upjohn

Institutefor

Employment

Research

e-mail: housemanfSupiohninstitute.org

December

2008

Revised

August

2009

Abstract

Temporary-help

jobsofferrapid entry into paid

employment,

but theyare typicallybrief

and

it is

unknown

whetherthey foster longer-term

employment.

We

utilizethe uniquestructureof

Detroit's

we

1fare-to-

work

program

to identifythe effectof temporary-help jobs

on

labor

market

advancement. Exploiting therotationalassignmentofwelfareclientsto

numerous

nonprofit contractorswith differingjob placementrates,

we

find thattemporary-help job placements

do

not

improve

and

may

diminish subsequentearnings and

employment

outcomes

among

participants.

In contrast,job placements withdirect-hire employers substantially raiseearnings and

employment

overaseven quarterfollow-up period.

JEL:J24, J48, J62

Digitized

by

the

Internet

Archive

in

2011

with

funding

from

Boston

Library

Consortium

Member

Libraries

Temporary-help

firms

employ

a disproportionate shareoflow-skilled and minorityU.S. workers(U.S.

Department

ofLabor,

Bureau

of

Labor

Statistics2005). Within the

low-wage

population,

employment

intemporary help isespeciallyprevalent

among

participants inpublic

employment

andtraining programs.

Although

thetemporary-help industryaccounts for lessthan

3 percentof averagedaily

employment

inthe UnitedStates, stateadministrative data

show

that

15 to

40

percent of formerwelfarerecipients

who

obtained

employment

intheyearsfollowing

the 1996U.S. welfarereform took jobs inthe temporary-helpsector.

1

Comparing

theindustry

distributionof

employment

ofparticipants inwelfare,jobtraining, and laborexchange

programs

in Missouribefore and immediatelyfollowing

program

participation, Heinrich, Mueser,and Troske (2007) find that participation in

government programs

isassociatedwith a 50to 100

percent increase in

employment

intemporary-helpfirms andthat

no

other industry displayssuch

a spike in

employment.

The

concentration oflow-skilled workersinthetemporary-help sectorand thehigh incidence

of temporary-help

employment

among

participants in

government

employment programs have

catalyzed adebate as towhether temporary-helpjobs facilitateor hinder labor market

advancement.

Lack

of

employment

stabilityisthe principalobstacleto

economic

self-sufficiency

among

the low-skilled population,andthus a

main

goal of welfare-to-workandother

employment programs

targeting low-skilledworkers istohelp participants find stable

employment (Bloom

etal. 2005).

Temporary-help

jobsare typicallyless stablethan regular

('direct-hire')jobs (King

and

Mueser

2005). Nevertheless,

by

providingan opportunityto

developcontactswith potentialemployersand acquire othertypesof

human

capital,

temporary-helpjobs

may

allowworkerstotransition to

more

stable

employment

than theyotherwise

would

have

attained. Moreover, because temporary-help firms facerelatively

low

screening and

terminationcosts,

numerous

researchershave positedthatthese firms

may

hire individuals

who

otherwise

would

have difficultyfindingany

employment,

and thatthis

may

lead directly or

indirectly to

employment

indirect-hire positions

(Abraham

1988; Katzand

Krueger

1999;

Autor

2001

and

2003;

Houseman

2001;

Autor

and

Houseman

2002;

Houseman,

Kalleberg, and Erickcek 2003; Kalleberg, Reynolds, and

Marsden

2003).

See Autor andHouseman(2002) on Georgia andWashingtonstate;Cancianetal.(1999) on Wisconsin;Heinrich,Mueser,and Troske (2005) on NorthCarolinaandMissouri;and Pawasarat (1997) on Wisconsin.

Some

scholars and practitioners

have

countered thattemporary-help firmsprimarily offer unstable and low-skilledjobs,

which

providelittle opportunity forworkersto investin

human

capitalorengage inproductivejobsearch (Parker 1994;Pawasarat 1997; Jorgensonand

Riemer

2000; Benner, Leete

and

Pastor, 2007). This argument,however, only impliesthat

temporary-helpjobsinhibit labormarket

advancement

ifthesejobs displace

more

productive

employment

activities; temporary-helpjobs

may

nevertheless increase

employment

and earnings ifthey

substitute for spellsof

unemployment.

Thus, acentralquestion forevaluation iswhether

temporary-helppositions

on

average

augment

ordisplace otherjob searchand

human

capital

acquisition activities.

Because

itis inherentlydifficultto differentiatethe effects of holding given jobtypes

from

theskillsand motivationsthatcause workerstoholdthesejobs initially, distinguishing

among

these

competing

hypotheses isan empirical challenge.This study exploits aunique aspect

of

the

city ofDetroit'swelfare-to-work

program

(Work

First)to identifythe causaleffects of

temporary-helpand direct -hirejobs

on

thesubsequent labormarket

advancement of

low-skilled workers. WelfareparticipantsinDetroit areassigned

on

arotating basis toone of

two

orthree

not-for-profit

program

providers

—

termedcontractors

—

operating inthe district

where

they

reside. Contractors operating inagiven district havesubstantially different placementrates into

temporary-help and direct-hirejobsbutofferotherwise standardized services. Contractor assignments,

which

arefunctionally equivalentto

random

assignments, are uncorrected with

participant characteristics but,

due

todifferences incontractorplacementpractices, arecorrelated

withthe probabilitythatparticipants areplaced intoadirect-hirejob, atemporary-helpjob, or

no

job duringtheir

Work

Firstspells.

These program

features enableustouse contractor

assignmentsas instrumental variables forjob-taking.

Our

analysis

draws on

administrative records fromthe Detroit

Work

First

program

linked

with

Unemployment

Insurance (UI)

wage

records fortheentire State of

Michigan

forover 37,000

Work

First spells

commencing

between

1999and 2003.

The

administrativedataprovide

person-level

demographic

information

on

Work

Firstparticipantsand thejobs they obtainduring

their

Work

First spells.

The

UI

wage

recordstrack participants' quarterlyearnings in eachjob

heldfor

two

yearsbefore and afterentering theprogram. Consistentwith welfare populations studied inother states,the incidenceof temporary-help

employment

in Detroit ishigh: one in

ample

variation to simultaneouslyanalyzethecausal effectsofdirect-hire and temporary-help jobson subsequent labormarket outcomes.

The

analysisyields

two

main

insights. Placementsinto direct-hire jobssignificantly

improve

subsequentearnings and

employment

outcomes.

Over

aseven-quarterfollow-up period, direct-hireplacements induced

by

contractorassignmentsraiseparticipants' payroll earningsby

$493

per quarter

—

approximatelya 50percent increaseover baselineforthis low-skillpopulation

—

and increasetheprobability of

employment

per quarterby 15 percentage points

—

abouta33

percent increaseover baseline.

These

effectsare highly statistically significantand are

economically large.

Temporary-help

placements,

by

contrast, do not improve, and

may

even

harm, subsequent

employment

and earnings outcomes.

The

precisionof ourestimatesrules out

any moderately positive effectsof temporary-helpplacements. Thus, although

we

find that

job

placements, overall, significantly

improve

affectedworkers' long-term

employment

and earnings

outcomes—

consistentwith resultsoflarge-scale

random

assignmentstudies (see

Bloom

etal.

1997

and

Bloom

and Michalopoulos

2001

for summaries)

—

the benefitsof job placement

services derive entirely

from

placementsinto direct-hirejobs. This findingplaces an important

qualification

on

theconventional

wisdom

thatplacement into any job isbetterthan

no

job.

We

providea varietyoftests ofthe plausibilityand robustness oftheseresults.

The

use

of

contractorassignmentsas instrumental variables forjob placementtypes requiresthat either

contractors onlyaffectparticipant

outcomes

through theirinfluence on the typesofjobsthatthey

takeor,alternatively,thatany othereffects thatcontractors

may

have on participant

outcomes

is

orthogonaltotheeffectoperatingthrough job placement.

We

arguethat,

by

design, contractors

have

little scope foraffectingparticipant

outcomes

otherthanthroughjob placementsand, for

the limitedsetofother servicesprovided, there is little variation

among

contractors. Consistent

withthisview,

we

demonstratethattheeffectofcontractorassignments

on

participant

outcomes

is fullycaptured

by

contractors' placementrates intotemporary-helpanddirect-hirejobs.

We

alsodemonstratethatour findingsare robustto alternative specificationsofthe instrumental

variables, that ourresults

do

notsuffer

from

weak

instrumentsbiases, and thatourfindings

cannot be ascribedto differences intheoccupational distributionof temporary-help and direct-hire jobs.

Complementary

analyses provide insights into

why

direct-hire placements arefoundto

employer-level datainthe

UI wage

records,

we

find that thekey observabledifference

between

thesejob placements istheireffecton job stability.

Over

the seven-quarterfollow-upperiod, the

bulk oftheearnings gain enjoyed

by

participantsplaced into direct-hirejobsderives

from

a

single, continuousjobspell. Direct-hire placementsgenerate durable earningseffectsinpart

becausetheplacement jobs themselveslast and inpartbecausetheplacement jobsserve as stepping stones into stablejobs. In contrast, placement jobsinthetemporary-helpsectorreduce job stability

by

all

measures

we

areabletoexamine.

Temporary-help

placementsincrease

multiplejob holdingand reducetenurein longest-heldjob, both indicators of jobchurn. Rather

than helping participants transition to direct-hirejobs, temporary-helpplacementsinitially leadto

more

employment

inthetemporary-help sector,

which

servesto

crowd

outdirect-hire

employment.

We

emphasizethatourfindingspertain to the marginaltemporary-help job placements induced

by

therandomization of

Work

Firstclientsacross contractors, and therefore

do

not

precludethe possibility thatinfra-marginal temporary-helpplacements generatesignificant

benefits.

However,

our findings address the

most

pertinent policyissue:

whether

increased (or

decreased) useof temporary-helpfirms injob placementoflow-skilledworkerswill

improve

participantoutcomes.

Our

study isthefirsttoexploita plausibly

exogenous

sourceofvariation in

temporary-helpjob takingto

examine

the effects

of

temporary-help

employment on

long-term labor

market

outcomes

among

low-wage

workers. Notably,ourconclusionsareat

odds

with those ofseveral

recentU.S.and

European

studies that find thattemporary-help

employment

provides a stepping stone into stable

employment.

2

We

pointoutthatour

OLS

estimatesare closely

comparable

to

thoseintheliterature, implying any unique featureofour Detroit sample cannotexplain our

discrepant findings. Substantial differences

between

themarginaltreatmenteffects of

temporary-help placements recovered

by

our instrumental variables estimatesandthe averagetreatment

effectsrecovered

by

estimatorsin other studiescould accountforthese disparatefindings.

-U.S. studies includeFerberand Waldfogel(1998), Laneetal.(2003),Corcoran andChen(2004),Andersson,

HolzerandLane(2005, 2009), Heinrich,Mueser, and Troske(2005, 2007),and Benner, Leete andPastor (2007).

Studieson temporaryhelpemploymentinEuropeincludeBooth,Francesconi,and Frank(2002),Garcia-Perezand

Munoz-Bullon(2002),AnderssonandWadensjo(2004),Zijl,van denBerg, and

Hemya

(forthcoming), Ichino, Mealliand Nannicini(2005, 2008),Amuedo-Dorantes,Malo, andMunoz-Bullon(2008),BoheimandCardoso

(2009),Kvasnicka(2009).Withtheexceptionof Benner, Leete andPastor (2007), these U.S.and Europeanstudies

uniformlyconcludethattemporary-help jobsbenefitworkers,eitherbyfacilitatinglonger-term labormarket

Alternatively, thestatistical techniquesused in previous studies

may

be unableto fully

differentiatethecausal effectsofholding givenjobtypesfrom the

unmeasured

skillsand

motivationsthatcause self-selection intothesejobs.

1

Context:

Work

First

Contractor

Assignments

in

Detroit

Our

study exploits theunique structureofDetroit'swelfare-to-work

program

to identifythe

long-term consequences of temporary-help and direct-hire

employment

on labormarket

outcomes

oflow-skilledworkers.

Most

recipientsof

TANF

benefits

(Temporary

Assistance for

Needy

Families)

must

fulfill

mandatory

minimum

work

requirements.

TANF

applicants in

Michigan

who

do

not already

meet

these

work

requirements areassignedto

Work

First

programs,

which

serveto place

them

in

employment.

Foradministrative purposes, Detroit's welfare and

Work

First

programs

are divided into fourteen geographicdistricts.

TANF

participants are assignedtodistrictsaccordingto zipcode ofresidence.

The

city ofDetroit

administers the

Work

Firstprogram, buttheprovisionofservices iscontracted outto non-profit or public organizations.

One

to three

Work

First contractors serviceeachdistrict,and

when

multiple contractorsprovide

Work

First serviceswithin adistrict, thecity's

Work

Firstoffice

rotates theassignment ofparticipants to contractors.

The

contractorto

which

aparticipant is

assigned thus

depends

on

thedatethat heor she applies for

TANF.

The

Work

First

program

is designedtoprovideshort-term, intensivejobplacement services.

All contractors operating in Detroitoffera fairlystandardized

one-week

orientation,

which

includes life-skillstraining. Following orientation,

few

resources are spenton anything butjob development, and, asthe

program

name

implies,the emphasisis

on

rapidplacement intojobs.

Participants areexpectedtosearch for

work

on

a full-time basis. Besidesmonitoring

participants'job searchefforts, contractors play adirect roleinjob placementby referring

participants toemployersor

by

hostingevents at

which

employersrecruit participantsatthe

Work

First

program

site.

Although

participants

may

findjobson their

own, most

contractors in

ourstudy reportedthatthey are directly involvedinhalf or

more

oftheirjob placements.

Among

those

who

are successfully placedinto ajob, three-fourthsareplaced within six

weeks of

program

entry. Virtually all participants areplaced into ajob orareterminated from the

program

without aplacementwithin six

months

ofentry.3 Supportservices intended to aidjobretention,

3

such as childcareand transportation, areequally availabletoparticipants inall contractors

and

are providedoutside the

program

(Autorand

Houseman

2006). Participants

who

do

notfindjobs

duringtheir

Work

Firstassignments face possible sanctions. Consequently, unsuccessful

participantscontinuetohavestrong incentivesto

work

afterleaving

Work

First.

Figure 1 providesaschematic diagram ofDetroit's

Work

First

program

andthe rotational

assignmentofparticipants to contractors.

Upon

entry,participants,

who

vary interms oftheir

personalcharacteristics and

work

histories, areassigned toacontractoroperating intheir

district.

4

Contractors playanintegral roleinhelpingto placeparticipants intojobs, but

systematicallyvary in theirpropensitiesto placeparticipants into direct-hire,temporary-help,or,

indeed, any jobat all.

It is logical toask

why

contractors' placementpractices vary.

The

most

plausible

answer

is

thatcontractors areuncertainabout

which

type of job placement is

most

effectiveand hence pursue different policies. Contractors

do

nothaveaccess to

UI

wage

recordsdata(used inthis

studyto assessparticipants' labormarket outcomes), andtheycollect follow-updataonlyfora

shorttimeperiod andonly forindividuals placed injobs.Therefore, theycannotrigorously

assess whether job placements

improve

participant

outcomes

orwhetherspecificjob placement

typesmatter.

During

in-personand

phone

interviewsconducted forthisstudy,contractors

expressedconsiderable uncertainty,and differingopinions, aboutthe long-term consequences

of

temporary job placements (Autor and

Houseman

2006).

2.

THE

RESEARCH

DESIGN

Centraltoourresearch design are

two

features oftheDetroit

Work

Firstenvironment: (1)

contractors operating inagiven districthave substantially differentplacementrates into

temporary-help

and

direct-hirejobsbut offerotherwise standardizedservices;

and

(2)the

rotational assignmentofparticipants to contractors isfunctionallyequivalentto

random

assignments

—

as

we

show

immediately

below

—

sothatcontractorassignments areuncorrelated

with participant characteristics.

Under

the plausibleassumption (explored indetail below) that

contractors only systematicallyaffectparticipant

outcomes

inthepost-program periodthrough

theireffect on jobplacements,

we

canuse contractorassignmentsas instrumental variablesto

Participantsreentering thesystemforadditionalWorkFirstspellsfollow thesameassignment procedureandthusmaybe

studythecausal effectsof temporary-help anddirect-hireplacements

on

employment

and

earnings of Welfarerecipients.

Our

analysis

draws

on aunique database containing administrative records

on

thejobs

obtainedby participantswhile inthe

Work

First

program

linkedto theirquarterly earnings

from

the State of Michigan's

unemployment

insurance

wage

records database.

These

administrative

data

document

alljobsobtained

by

participants whileinthe

program

forall

Work

First spells

initiated

from

the fourth quarterof1999 throughthe firstquarter of

2003

inDetroit.

Work

First

job placements are classified as either direct-hireortemporary-help using acarefully

compiled

listofall temporary-helpagenciesinthemetropolitanarea.5

The

Work

Firstdataare

matched

to

statewide

Unemployment

Insurance datathatrecord totalearnings and industryof

employment

by

participant foreach

employer

foreachcalendarquarter.

The UI

dataallowusto construct

pre-and post-

Work

First

UI

earnings foreach participant for the eight quartersbefore andafterthe quarterof

program

entry.

6

By

the secondquarter following

Work

Firstentry, virtuallyall

participants have been eitherplaced intoajoborterminated from theprogram.

Thus

we

treat

employment

and earnings intheseseven quarters aspost-program outcomes, and

we

do

not includethefirstpost-entry quarter inour

outcome

data. Includingthisquarter haslittle

substantiveeffect

on

ourresults, however, as

shown

inanearlier

working

paperversionofthis

study.7

Inthetime period studied, fourteendistricts in Detroit

were

served

by

two

or

more

Work

Firstcontractors, thus

making

thesedistrictspotentiallyusable forouranalysis. In

two

districts

with large ethnic populations,theassignment ofparticipants to contractors

was

not

done on

a

rotatingbasisbutrather

was

based on languageneeds.

We

drop these

two

districts from our

sample.

We

further limit the sampleto spells initiated

when

participants

were between

theages of16 and 65 and dropspells

where

reported pre- orpost-assignmentquarterly

UI

earnings

5

Particularly helpfulwasacomprehensivelistof temporaryagencies operatinginourmetropolitan areaasof 2000, developed by

DavidFasenfestandHeidi Gottfried. Inasmallnumberofcaseswherethe appropriatecoding ofanemployerwasunclear,we

collected additional informationonthenatureofthe businessthrough aninternetsearch ortelephonecontact.

6

The UI wagerecordsexcludeearningsoffederalandstateemployees and oftheself-employed.

7

This paperisavailable http://web.mit.edu/dautor/www/ah-detroit-ianuary-2008.pdf.Amongthoseplacedintoajob99.6 percent

have beenplacedbythesecondquarter followingentry,andamongthoseterminatedwithoutaplacement97.6 percenthave been

officiallyterminatedbythesecondquarter,accordingtoWorkFirstadministrative records.Becausea highfractionof

participantswhounsuccessfullyexittheprograminquartertwoorsubsequentlyactuallyhaveUIearningsin firstquarter,it is

likely thatdefactotimeto exitamongparticipantsnotplacedintojobsisactuallyshorterthan indicatedintheadministrative

data.Participantswhoareplacedintojobsofficiallyremainintheprogramforuptothreemonths,andtheiremployersare

exceed $15,000 inasinglecalendarquarter.

These

restrictionsreducethe sample

by

lessthan 1

percent. Finally,

we

drop all spells initiated ina calendar quarter in anydistrict

where

one or

more

participating contractors received

no

clientsduring the quarter, asoccasionallyoccurred

when

contractors

were

terminatedandreplaced.

Table 1

summarizes

the

means

ofvariables

on

demographics,

work

history, and earnings

following

program

entry forall

Work

First participants inourprimarysampleaswell as

by

placement

outcome

duringthe

Work

First spell: direct-hireplacement,temporary-help

placement, or

no

job placement.

The

sample ispredominantly female (94 percent) and black (97

percent). Slightlyunderhalf (48 percent) of

Work

Firstspells resulted injobplacements.

Among

spells resulting injobs, 20 percenthave at leastone job with atemporary agency.Interestingly,

average

weekly

earningsare

somewhat

higherintemporaryhelpjobsthan indirect-hirejobs

obtainedin

Work

First.

The

bottom

panel of Table 1 reports averagequarterlyearningsand

employment

probability

inquarters

two

througheight followingthequarter of

Work

First entry. Participants are

coded

as

employed

inaparticularquarteriftheyhaveany

UI

earnings during thatquarter.

Average

employment

probabilityis definedas theaverage ofthose

employment

dummy

variables over

the follow-upperiod.

The

averagequarterlyearnings and

employment

probabilitiesoverquarters

two

toeight following

program

entryarecomparable forthose obtainingtemporary

agency

and

direct-hireplacementjobs, whileearnings and theprobabilityof

employment

forthose

who

do

not obtain

employment

during the

Work

Firstspell are

40

to 50 percent lower.

The

averagecharacteristics ofparticipants varyconsiderably accordingtojob placement outcome.

Compared

tothose

who

foundjobswhile in

Work

First,those

who

do

notfindjobs are

more

likely tohave dropped out of high school andto have

worked

fewerquartersand had lower

earnings before entering theprogram.

Among

thoseplaced injobs, thosetakingtemporary-help jobs actually

have

slightlyhigheraveragepriorearnings and

employment

than those taking

direct-hire jobs.

Not

surprisingly, those

who

take temporary-help jobs while inthe

Work

First

program

havehigherpriorearnings and

more

quarters

worked

inthetemporary-helpsectorthan

those

who

take direct-hire jobs.9

Thisfurtherreducedthe finalsample by3,091 spells,or 7.4 percent.

We

haveestimatedthemainmodelsincluding these observations with near-identicalresults.

9

Ina small percentageofcases,employers' industrycodesaremissingintheUI wagerecords. Forthisreason, earningsand

Beforeturningto detailed testsoftheresearch design,

we

depict the

main

resultsofanalysis

in asetofscatter plots

comparing

average

UI

employment

andearnings

outcomes

for

Work

First

participants

by

contractor

by

yearof assignmentagainstcontractor-year placementrates into

temporary-help and direct-hire jobs.

As

noted above, randomization of

Work

Firstparticipants to

contractors occurs within districtswithin aspecific

program

year.

To

purgedistrict-yeareffects

from

these plots,

we

first estimate person-level

OLS

regressionsof job placementtype obtained

during

Work

First (direct-hire,temporary-help, or

no

job) and post-programquarterly

UI

employment

and earnings

on

acomplete setofdistrict

by

year

of

assignment

dummy

variables.

We

calculatethecontractor-yearspecific

component

of eachvariable(temporary-help

placement,direct-hire placement,

UI

earnings,

UI employment)

asthe

mean

residual foreach

regression

by

contractorand yearofassignment.

By

purgingyearand districteffects, this

procedure isolatesthe variation

on

which

ourresearch design relies:variation

among

contractors operatingin

same

district atthe

same

time.

Figure 2aplotsparticipants' post-program quarterly

employment

probabilities

—

defined as

the fraction ofquarters

two

through eightfollowing contractorassignmentin

which

they

have

positive earnings

—

againsttheircontractors' direct-hireplacement and temporary-help placement

rates.10This figurerevealsthatparticipantsassignedto contractors withhigh direct-hire

placementrateshavesubstantiallyhigher average

employment

ratesinthepost-program period.

There

isno similar relationship,however,

between

contractors' temporary-help replacementrates

and post-program

employment

probabilities oftheparticipants assignedtothem.

An

analogous

scatterplot forpost-programearnings over post-assignmentquarters

two

through eight (Figure

2b) tellsasimilar story: participantsassignedto contractors with high direct-hire placementrates

have

substantially higher averagequarterly earningsin quarters

two

through eightfollowing

program

assignment, whilethe locusrelatingtemporary-helpplacement ratesand post-program

earnings is essentially flat.

Our

subsequentanalysisteststhe validity ofthisresearch design andapplies it-

—

with

many

refinements

—

to produceestimatesofthecausal effectsof job placements

on

earningsand

employment

andto explorethe channelsthough

which

these causal effects arise.

The

bottom line

of ouranalysis, however, is alreadyvisible inFigure 2.

'_{Inessence,Figure2}

2.1

Testing

the

research

d.esign

Our

research design requiresthatthe rotational assignmentofparticipants tocontractors

effectivelyrandomizesparticipants tocontractors operatingwithin each district in a given

program

year.

We

testwhetherthedata areconsistentwith

random

assignment

by

statistically

comparing

the followingeight characteristicsofparticipants assignedtocontractors within each

districtand year: sex, whiterace,other (non-white)race, age and itssquare, average

employment

probability inthe eight quartersbefore

program

entry,average

employment

probabilitywith a

temporary

agency

intheseprioreightquarters,averagequarterly earnings in theseprioreight

quarters,and averagequarterly earnings

from

temporaryagencies intheprioreightquarters.11

In testingthe comparabilityofparticipants acrosseight characteristics,

we

are likely toobtain

many

false rejections ofthenull, andthis isexacerbated

by

the fact that participant

characteristicsare notfullyindependent(e.g., participantswith highprior

employment

rates are

also likely to

have

high priorearnings).

To

accountfortheseconfounding factors,

we

estimate a

Seemingly

Unrelated Regression (SUR),

which

addresses both the multiplecomparisons

problem

andthe correlations

among

demographic

characteristicsacross participantsateach

contractor.' Thi's procedurecan bereadilydescribedwith a singleequation regression model:

XL=<*

+

r<+q>t

+0

lt

+*

t,+iDlat, (1)

where

X

lcdlk is

one

oftheeightmeasures used forthe

comparison

(e.g., prior

employment,

gender, etc., all indexed

by

k) forparticipant i assignedtocontractor c serving assignment

district

d

inyear t.

The

vectors yand cp contain acomplete setof

dummies

indicating

randomization districtsand year-by-quarterofcontractorassignment, respectively,whilethe vector 6contains all

two-way

interactions

between

districtandyear.13

Of

central interestin this equationisX, avectorofcontractor-by-yearof assignment

dummies,

with one contractor-by-year

dummy

dropped foreachdistrict-yearpair.

The

p-value

forthe hypothesisthattheelementsof

X

are jointlyequal tozero provides an

omnibus

testfor

Because ofthe largenumberof missingvaluesfortheeducationmeasures,and becausesomecontractorswereapparentlymore

diligentthan othersaboutrecording participant education,weexcludeeducation variablesfromboth therandomizationtestand subsequentstatisticalanalysis.Regressionresultsthatinclude these variables(includingan "educationmissing"variable)are

nearlyidentical toourmainresults.

12

Thismethodfor testingrandomizationacrossmultipleoutcomesisproposed by Klingetal.(2004) and Kling,Liebman, and

Katz(2007).

Toconservedegreesof freedom,wedonot includedistrictbyyearbycalendar quarterinteractions. Modelsthatinclude these additionaldummyvariablesproducenear-identicalresultsandareavailablefromtheauthors.

the null hypothesisthatparticipantcovariatesdo notdiffersignificantly

among

participants

assignedto different contractorswithin adistrict-yearpair.

A

high p-value correspondsto

an

acceptance ofthis null.

We

use

SUR

toestimatethis

model

simultaneouslyforall eight covariatesin

X

toaccountforthe correlations

among

these variables. If

we

instead estimated

this system equation-by-equation using

OLS,

we

would

obtain identical pointestimates but the standarderrors

would

be incorrect forthehypotheses ofinterest.

The

resultsofthetests of randomizationare highly consistentwith a chancedistribution

of

covariates.

The

top panel of

Appendix

Table 1 provides p-values forestimatesof Equation (1)

appliedtothefull sample and fit separatelytoeach ofthe 41 district-by-yearcells.

The

overall

p-valueforthe full sample pooled across districtsand yearsis 0.44.

Among

41 separate

district-by-yearcomparisons, 39 accept the nullhypothesisat the 10percentlevel orhigher, and only

one

comparisonrejectsthe null atconventional levelsofsignificance.

The

final

row

and

column of

the table provide p-valuesforthe

comparison

test foreach year, poolingacrossdistricts,

and

for

each district, poolingacross years. All butone ofthese sixteentestsreadily acceptsthe null at

conventionallevels ofsignificance.

These

results strongly support thehypothesisthat the

rotationalassignment ofparticipantsacross contractors generatesvariation thatcan betreatedas

random.

The

research design alsorequires that

random

assignmenttocontractors significantly affects

participantjob placements.

To

confirmthis,

we

estimated asetof

SUR

models

akinto equation

(1)

where

thedependent variablesare participant

Work

Firstjob

outcomes

(direct-hire,

temporary-help, non-employment). Here,ourexpectation isthatjob placement

outcomes

should

differsignificantly across contractors withina districtandyear. Testsofthishypothesisin the

panel

B

of

Appendix

Table 1 provide strong support fortheefficacy oftheresearch design: the

omnibus

testforcross-contractor, within district-yeardifferences injobplacement

outcomes

rejects the nullat

below

the 1 percent level forthefull sample, as

do

16 of17tests for significant

differences inplacementratesacross all districtswithin a year or within adistrictacross all

14

years.

We

alsocalculatepartialR-squaredvaluesfromasetofregressionsofjob placementtype (anyjob placement,direct-hirejob placement,temporary-help job placement) ondummyvariables indicatingcontractor-by-yearofassignmentafterfirst

orthogonalizing thesejob placementtypeswithrespecttodemographic,earningshistory,and timevariables;conversely,we

computepartialR-squaredvaluesfromregressionsofjob placementtypeson demographic,earningshistory,and timevariables

afterfirstorthogonalizingthedependentvariablewithrespecttocontractorassignment.

We

find thatcontractorassignment

explains 85to 130percentasmuchvariationinjobplacementtypeasdo demographic,earningshistory,and timevariables

3

Main

results:

The

effects

of

job

placements

on

earnings

and employment

We

usethe linked quarterly earnings records fromthestate of Michigan's

unemployment

insurancesystem to assess

how Work

Firstjob placementsaffect participants'earnings and

employment

overquarters

two

through eightfollowingthecalendar quarterof

random

assignmentto contractor.

Our

primaryempirical

model

is:

Y

icdl

=a

+

PA

+

p

2T,

+

X\k

+

yd+<p,+

6

dl

+

eicdl (2)

where

thedependentvariableis average realquarterlyearnings or quarterly

employment

(from

UI

records) definedoverthe follow-up period.Notationfordistrict,time, and district-by-year

vectors isthe

same

as in equation (1), withsubscripts i, c, d, and t referring,respectively,to

participants,contractors, placement districts, andyear

by

quarterofparticipantassignment.

The

binary variables £> and

T

:

indicatewhetherparticipant /obtained either a direct-hireor

temporary-helpjobplacementduring her

Work

First spell (with both equaltozero if

no

placement

was

obtained).

To

accountforthegrouping ofparticipantswithin contractors,

we

use Huber-

White

robust standarderrors clustered

by

contractor (33 clusters).15

Itbearsemphasisthatthere isnot amechanical linkage

between

job placements occurring

during the

Work

First spell and earningsand

employment outcomes

observed inthe

UI

datain

the follow-up period.

The

job placementvariables

on

theright-hand sideofequation (2),

D

and

T, refer tojobs obtained during the

Work

Firstspell andare

coded

usingwelfare case records

from

the cityofDetroit.

The

dependent variable,

by

contrast, isobtained fromstate of

Michigan

unemployment

insurance recordsand measures labormarket

outcomes

inthe specified quarters

followinfi

Work

Firstassignment.

We

examine outcomes

beginning inthe second quarter

following

Work

Firstassignmentbecause, asnoted above, virtuallyallparticipants haveeither

beenplaced intoajob or exited the

program by

thattime. It istherefore possible

—

in fact,

commonplace

—

foraparticipant

who

obtains ajob placement during

Work

Firsttohave

no

earnings inthe secondand subsequent quartersfollowing

program

entry and, conversely, fora

participant

who

receives

no

placementto havepositive earnings inthe secondand subsequent

post-assignmentquarters.

' _All

modelsalsoincludethevectorofeightpre-determinedcovariatesusedintherandomizationtest:sex,race (white, black,or

other),age andage-squared,andmeasures ofquartersofUIemploymentandrealUIearningsin direct-hireandin

temporary-helpemploymentinthe8quarters priortocontractor assignment.

We

suppress thesetermsheretosimplifytheexpositionofthe

In general,

we

would

notexpectequation (2)to recoverunbiased estimatesoftheeffects

of

job placements onparticipant

outcomes

when

estimated usingOrdinary LeastSquares.

Only

abouthalfof

Work

Firstparticipants inoursampleobtain

employment

duringtheir

Work

First

spell (Table 1),and this setofparticipants is likely tobe

more

skilledand motivated to

work

than

average participants. Unlesstheseattributesare fullycaptured

by

the covariatesinX,estimates

of_P\ and/?2 are likely to bebiased.

We

addressthisbias

by

instrumenting

D

and

T

inequation(2) with

contractor-by-year-of-assignment

dummy

variables asoutlined in Section2.

Our

useofcontractor-by-year

dummy

variablesas instruments isequivalenttousing contractor-by-year placementratesas instruments.

To

facilitateexposition,

we

can therefore rewriteequation (2) as,

Y

icdl =

a

+

x

l

D

cl+

nj

c,

+y

_d+(p,+9dl

+

va

+

hcdl, (3 )

where

D

cl isthe observeddirect-hire placementrateofcontractor c inyear t,

T

cl isthe

correspondingplacementrate intemporary-help

employment,

and

we

omitthe

X

vectorfor simplicity.

1

This equation underscoresthatour instruments enable the identification

of

the causal effectsof placements intodirect-hireand temporary-helpjobsthroughvariation injob placementrates

among

contractors thathavestatistically identical populations. Ingeneral, these

models

will yield estimatesofthe causaleffectsoftemporaryand direct-hirejob placementsfor

the"marginal"placements

—

i.e.those

whose

job placementtype

was

altered

by

contractor assignment. 7

The

errorterm in equation(3) ispartitioned into

two

additivecomponents, v

cl

and

iicdl, to

underscorethe

two

keyconditionsthatouridentification strategyrequiresfor valid inference.

The

first is thatunobservedparticipant-specific attributes that affectearnings (i

idct)

must

be

Ifthevectorofparticipantcharacteristicswerealsoincluded,equation(3)woulddiffer slightlyfrom2SLSto thedegreethat

thereissamplecorrelationbetweencontractordummiesandparticipantcharacteristics(though inpractice, thiscorrelationis

insignificant, asshowninAppendixTable 1).Kling (2005) implementsan instrumental variables strategyanalogoustoequation

(3), inwhich meansoftheassignmentvariableareusedasinstruments rather than fixedeffects.

Inanextendedworking paperversionofthispaper(seelink infootnote7),weprovide a formal analysisofthe conditions

underwhichthecoefficientsfrom ourIVmodelsyieldcausaleffectsestimatesforindividualswhosejob placementwasaffected

bycontractor assignment.Iftheeffectof temporary anddirect-hireplacementsisconstantamongthesemarginalplacements

—

whatwetermlocallyconstanttreatmenteffects

—

ourIVmodelsyieldcausaleffectsestimatesfortheseindividuals.

We

notethat

anassumption oflocallyconstanttreatmenteffectsislessrestrictivethan thecommonassumptionofconstanttreatmenteffects fortheentiresamplepopulation. Alternatively,ifassignmenttoagiven contractoraffectstheprobabilitythatworkerstake

temporary-helpordirect-hirejobs(butnotboth),ourIVestimatesmaybe interpreted within theLocalAverageTreatment

EffectsframeworkofImbensandAngrist (1994).Intheextendedworkingpaper,weprovide empiricalevidencethatourIV

uncorrelatedwith

D

c!

and

T

cl.

The

evidence

above

suggests thatthis condition is

met by

the

rotationalassignmentdesign.

The

second conditionisthatifthere is

any

unobserved

contractor-by-yearheterogeneitythat affects participant

outcomes

butdoes not operatethrough job placementrates( vcl), it

must

be

mean

independentofcontractor placementrates, i.e.,

E(v

_a

D

cl)

= E(v

cl

T

cl)

-0.

This lattercondition highlightsthattheresearch designdoesnot require

thatcontractors only affectparticipant

outcomes

throughjobplacements.

However,

it does

requirethatany non-placementeffectsare uncorrelated with contractorjobplacementrates,

sincethis correlation

would

cause

2SLS

estimatesto misattributetheeffects of unobserved

contractorpractices tojob placementrates.

As

outlined inthe Introduction, almostall

Work

First

resourcesare devotedtojobplacement, and

few

othersupport servicesareprovidedto

participants

beyond

the setofstandardized services offered

by

the cityofDetroittoall

participants.Exploiting the factthat

we

have

more

instrumentsthan

endogenous

right-hand side

variables,

we

report

below

theresultsofoveridentificationtests,

which

provide strongstatistical

evidenceofthevalidity ofthisassumption.

One

otherelementofthisspecification deserves note.

Our

useofcontractor-by-yearof assignment

dummy

variables as instrumentsfortemporary-helpand direct-hirejob placements

—

ratherthan simply contractorof assignment

dummies

—

allowsforan interaction

between

contractorplacement

and

time period. This is usefulbecause even ifcontractors operating ina

district

have

stable (but different) placementpolicies,thedifferences in temporary-help

and

direct-hireplacements

among

contractors

may

varyover time in response tochanges inthe local

economy

or changes intheaveragecharacteristicsofparticipants entering the program.18 In

Section (4),

we

show

that estimatesofthe effectsof placementtype on earnings

and

employment

outcomes

using contractor of assignmentas instruments are similar tothose obtainedusing

contractor-by-yearof assignmentas instruments.

18

For example,whentemporaryhelp positionsarescarce,observed percentagepointdifferencesamongcontractorsin

temporary-helpplacementratesarelikelytocontract.Surveyresults inAutorandHouseman(2006)also indicatethatsome

contractorshaveamendedtheirplacementpolicesinrecent years,withasignificantfractionreportinghaving reducedtheiruseof temporary-helpplacements.

3.1

Ordinary

least

squares

estimates

To

facilitatecomparison with prior studiesofthe impactof temporary-help anddirect-hire

jobtaking

on

labor market

advancement

ofwelfare participantsand otherlow-earnings

workers

(e.g.,Heinrich,

Mueser

and Troske 2005, 2007; Andersson, Holzer, and

Lane

2005,2007),

we

begin ouranalysiswith ordinary leastsquares

(OLS)

estimates ofequation(2). Table2presents

OLS

estimates foraveragereal quarterlyearnings and quarterly

employment

for

Work

First

participants in quarters

two

through eight followingtheirassignmentto

Work

First contractors

usingall 37,161 spells inourdata.Forease ofinterpretation,

we

re-centerall control variables

by

subtracting the

mean

forparticipants

who

did notobtain ajob duringtheir

Work

Firstspell.

Thus,

by

construction,the interceptin equation (2) equalsthe

mean

ofthe

outcome

variable for

Work

First participantsnot placed into jobs.

The

first

column

ofTable 2

shows

that, conditionalon detailedcontrols for race,age

and

prior

employment

and earnings,earnings inpost-assignmentquarters

two

through four

among

participants

who

obtained any

employment

duringtheir

Work

First spell

were on

average

$573

more

per quarter than earnings for clients

who

did not obtain

employment

during their

Work

Firstspell.

Over

that

same

horizon,theprobability of

employment

was

17 percentage points

higher per quarter

among

those placed intoajob during their

Work

Firstspell

compared

tothose

who

were

not.

As

indicated

by

the interceptsofthese equations,averagequarterly earnings

were

$817

andtheaverageprobability of

employment

was

only40 percent

among

participants

who

did not obtain

employment

duringtheir

Work

Firstspell.

Column

(2) distinguishes

outcomes

for those takingtemporary-help

from

those taking direct-hirejobs during their

Work

First spells. Inquarters

two

through fourfollowing

Work

First

assignmentparticipants

who

obtained atemporary-help positionduringtheir

Work

First spell

were

slightly less likely to be

employed

and averaged $101 lessper quarterthanparticipants

who

obtained adirect-hire placement,though neitherdifference isstatisticallysignificant. Subsequent

columns

ofTable 2

summarize outcomes

overlonger time horizons following

Work

First

assignment. Participants

who

obtained ajob placement during

Work

First earnedan average of 53 percent

more

per quarter($493) and on average

were

34 percent

more

likely to be

employed

(14percentage points) overthe entireseven-quarterfollow-up period

compared

to participants

temporary-help

and

direct-hirejobs during

Work

Firstcumulates slightlyoverthis longertime

frame,but issmall relative to the substantial gapin

employment

and

earnings

between

those

who

tookjobs during

Work

Firstand those

who

did not.

Over

the seven quarterperiod, earnings

of

thoseplaced intotemporary-helpjobs

were

93 percentofearnings ofthoseplaced into direct-hire

jobs, andthe earnings difference

between

thosewithatemporary-help versus adirect-hire

placement

was

just

26

percentofthe earnings gap

between

those with atemporary-help versus

no

job placement.

These

OLS

estimates are consistentwithotherpublished findings,

most

notablywith

Heinrich,

Mueser

and Troske (2005 and 2007).

They

find thatMissouri and North Carolina

welfarerecipients

who

obtainedtemporary-help jobsin 1993 and 1997 earned almostas

much

over thesubsequent

two

years as those

who

obtaineddirect-hire

employment

—

and earned

much

more

than did

non

job-takers.Like Heinrich etal., ourprimaryempirical

models

forearnings

and

employment

areestimatedforarelatively

homogeneous

andgeographically concentrated populationand include detailedcontrols forobservableparticipant

demographic

characteristics

and prior earnings. Similartoourestimates, Heinrichetal.reportthatwelfareparticipants taking

temporary-help jobs earned atleast 85 percentofthat of workerstakingnon-temporary-help jobs overthesubsequent

two

years andthatthedollardecrement overthis periodto havingstarted in

atemporaryhelp versus adirect-hirejob

was

lessthan onethird the positiveeffect ofa

temporary job relative to

no

job.

19

Though

less directly comparable, ourfindingsalsoechothose

of Andersson, Holzer and

Lane

(2005, 2007)

who

report that low-skilledand low-earnings workers

who

obtaintemporary-help jobstypically fare relatively well inthe labormarket over

the subsequentthreeyears, despite startingwithlower earnings.

These

observationsprovideassurancethatoursample

from

the city ofDetroit is

comparable

to those usedinotherstudiesofjob-taking

among

welfarerecipients andother low-skilled workers.Moreover, the similarity

between

our

OLS

estimates andthoseof Heinrich et al. forthe relationship

between

temporary-helpjob-taking and subsequentearnings suggeststhatthe

differences in causal estimatesthat

we

report

below

from instrumental variable

models

are

due

to

substantive differences inresearch designrather thantodifferences in sample frame. °

19

Henrich,Mueser and Troske (2005)pp. 165-166.

20

Tocontrolforpossible selection biasinthedecisiontotakeatemporaryagencyjob,Heinrichetal.estimate a selectionmodel

thatisidentifiedthroughtheexclusionofvarious county-specificmeasuresfromthemodelsforearnings but notfromthosefor

3.2

Instrumental

variables estimates

Table 3 reports instrumental variables estimatesofequation (2) forthe impactof

Work

First

job placements

on

subsequent

employment

and earnings,

where

employment

placements during

the

Work

First spell are instrumented

by

contractor-by-yearassignments.

The

estimate in

column

(1)confirms an economicallylarge and statisticallysignificant effectof

Work

Firstjob placements

on

earningsand

employment

in quarters

two

to fourfollowing

Work

First

assignment.Obtaining any job placement is estimatedto raisethe average

employment

probability inpost-assignmentquarters

two

tofour

by

13 percentagepointsand increaseaverage

quarterlyearnings

by

$301.

These

effectsarehighly significant and are

more

than half the

corresponding

OLS

estimates (Table2).

Column

2 distinguishes

between

the causaleffectsof temporary-help placements andthe

effectsofdirect-hirejob placements.

These

estimates revealthatthe entirety ofthepositive

effectof

Work

Firstjob placementsderives

from

placements intodirect-hirejobs. Direct-hire

placements induced

by

contractorassignmentraiseaverage quarterlyearnings

by

$577 and

increasetheaveragequarterly

employment

probability

by 20

percentagepoints in

post-assignmentquarters2through4. In

marked

contrast, thepoint estimateofthe effectof temporary-help placements on

employment

probability iscloseto zeroand insignificant, while

theestimatedeffecton earnings isnegative (-$246 perquarter) and

weakly

significant.

Subsequent

columns

of Table3

show

that the

employment

andearnings effects ofdirect-hire

placementspersist into thesecond year following

Work

Firstassignment. In quarters5 through

8, direct-hire placements induced

by

contractorassignmentsraise averagequarterly earnings

by

$430 and

the

employment

probability

by

11 percentagepoints.

Over

the seven follow-up

quarters, direct-hireplacements induced

by

contractorassignmentraisecumulative earnings

by

anestimated $3,451, aneffectthatishighlysignificant and economicallylarge.

Conversely,the estimatedimpact ofatemporary-help placementon

employment

inquarters

two

througheight is insignificantlydifferentfromzero, and the effecton quarterly earnings is earningsonlythroughtheirimpact onemploymentand jobtype,anassumptiontheyacknowledgeislikelyviolated. This

correctionhaslittleeffectontheirregression estimates,suggestingeither thatthe selectionproblemisunimportantorthat their

instrumentsdonot effectively controlforselectionon unobservablevariables.

ThestandarderrorsinTable3donotaccountforpotential serialcorrelationinoutcomesamongparticipantswith multiple

spells.The37,161 WorkFirstspells inourdatacorrespondto24,903 uniqueparticipants,67percentofwhomhave onespell,22

percentofwhomhave2spells,and11percentofwhomhave3ormorespells.Toassess theimportanceofthisissue,we

re-estimatedmodelsfor totalearningsandquartersworkedovereightquartersusing onlythefirstWorkFirstspellper participant

observedinourdata.Thesefirst-spellestimates,availablefromthe authors,arecloselycomparabletoourmainestimatesfor

weakly

negative.

The

95 percentconfidence intervalofthe estimatesexcludesearnings gains

largerthan $5 per quarterand increases intheprobability of

employment

ofgreaterthan 2

percentagepoints. Inall cases,

we

reject the hypothesisthattheimpacts of temporary-help

and

direct-hireplacementseither on earnings oron

employment

are comparable.

Figure3 providesfurther detail on theseresults

by

plotting pointestimatesand 95 confidence

intervals foranalogous

2SLS

estimatesofthe effectofdirect-hire and temporary-help job

placements

on

earnings

and

employment

probability in each oftheseven quartersin our

follow-up period.

The

figure

shows

thatdirect-hire placementssignificantly raiseboth earnings

and

the

probabilityof

employment

inthefirstsixquartersand five quarters, respectively, ofthe

follow-up

period.

These

impacts begin todiminishafterthefifth quarter, consistentwith

some

fade-out

ofbenefits.22

By

contrast, estimatedimpacts of temporary-help placements

on

employment

and

earnings generallyarenotsignificantly different

from

zero.

While

this figure

makes

clearthat

direct-hirejob placements induced

by

Work

Firstcontractorassignments substantiallyincrease

earningsand

employment

of

Work

First clientsover thesubsequent

two

years,

we

find

no

evidence, in contrast to prior research, that

comparable

benefitsaccrue

from

temporary-help

placements.

One

noteworthypattern in theseresults isthatthedifference

between

theestimatedeffectsof

direct-hire and temporary-help placementson

employment

and earnings are largerin

IV

than in

OLS

models (compare

Tables2 and 3).

Under

theassumptionthatthe effects of job placement

typeare

homogenous

acrossparticipants,this pattern

would

suggestthatthose taking

temporary-help positionsare

more

positivelyselectedthan those takingdirect-hirejobs,

which

is

counterintuitive and appears inconsistentwith the patternsfound in our

OLS

models

reported in

Table 2. 23

Tempering

this interpretation isthe fact thatthe

IV models

identifythe effectof job

placementson marginal workers, i.e., those

whose

job placementsarecausally affected

by

Theevidencesuggestingthatthebenefitsofjob placementsfade withtimeechoesthat inCard and Hyslop (2005)whofind, in

thecontextofaCanadianwelfareprogram,thatinitialjobaccessionsinducedbya time-limited earnings subsidy tendtopeak

afterapproximately 15monthsand,inthelimit,donotproducepermanentearningsgains.Nevertheless,fromapolicy perspective, ajob placementthatraisesearningsandemploymentfortwofullyearsmaystillbe viewedassuccessful.

23

TheOLSestimatesinTable2comparemeanearningsandemploymentofparticipantswhofounddirect-hireor

temporary-help jobs during theWorkFirstspellrelative toparticipantswhofound noemploymentduring thespell.Workersself-selecting

into direct-hirejobs obtain significantly higherpost-programearningsandemploymentthanworkersself-selecting into

temporary-helpjobs,and bothobtainhigher earningsandemploymentthan thosewithnoWorkFirstjob.This patternaccords

with the standardintuition thatworkers foundintemporary-help jobsare lesspositivelyselectedthanworkersfoundin direct-hirejobs.

contractorassignments. Ifthe effects of job placementtype are heterogeneous

between

marginal and inframarginalworkers,

IV models

arenot necessarily informativeaboutthe direction

of

bias

in

OLS

estimates.24 It isplausiblethatthesemarginalworkers,

on

average, differfrom those

whose

placement job is unaffected by contractorassignment and experiencedifferenttreatment

effects.

Why

might marginal direct-hireplacements

have

such great benefit, whiletemporary-help

placementshave so little?

Work

First participants differinthe degreeto

which

theyrely

on

employer

contactsprovided

by

the contractorto findjobs.

Many

participants findjobson their

own,

drawing

upon employer

contactsfrom prior

work

experience orfrom family and friends.

Those

who

are

most

reliant on contractor input, however, are likely to haverelatively

few

personal contactsand less wherewithalto find

good

jobs ontheir

own.

The

job placements

obtained

by

theseworkers are

most

likely to becausally affected

by

theircontractorassignments. Arguably, theseare alsothe workers

who

standtobenefit

most from

obtainingplacement intoa

stablejob.Thus, themarginalbenefit ofadirect-hireplacement

may

berelatively highandthe

marginal benefit

of

atemporary-helpplacement

may

berelatively

low

fortheseparticipants.

Indeed,the resultsinTable 3 implythat direct-hirejobs are scarce; marginal participantsplaced

in direct-hirejobs

on

average

would

not

have

obtainedjobsthat

were

equallydurable or

remunerative hadthey not received these placements. Conversely,the

IV

results suggestthat

marginal workers placed intemporary-help positions

would on

average havefared equally well, or

somewhat

better, withoutsuch placements. Consistentwiththisinterpretation,

we

show

in

Section 5 thatmarginal temporary-help placements raiseearnings in temporaryhelp positions but

crowd

out earnings in direct-hire positionsat agreaterthan one-to-onerate,thus lowering

earnings in net.

24

Toseethis,consider a casewhereself-selection intobothtemporary-helpanddirect-hireemploymentisfunctionally equivalenttorandom assignment, soOLSestimates recover themeancausaleffects forbothtypesof job placementsforthose

whogainemployment. Thismeaneffectmayincludeamixtureofpositive,negativeandzeroeffects,thoughtheweighted averageoftheseeffectsisassumedtobepositive.Eveninthisscenario,thecausaleffectof temporary-helpemploymentforthe

marginal temporary-help jobtakermaybenegative.Thiswouldbe the caseifthecompilerstotheassignmentmechanism

4

Testing the

identification

framework

This section explores

two

central aspectsofthe identification framework.

We

firstconsider

the validityofusing contractor

random

assignmentsasinstrumental variables for

Work

First

participants' placementintotemporary-helpand direct-hirejobs.

Next

we

testthe robustness

of

the instrumental variablesresults to plausiblealternative specificationsoftheinstruments.25

4.1

Validity

of

the

instruments

Our

identification strategy rests

on

theassumptionthatcontractorassignments arevalid

instrumental variables for

Work

First participants'

employment

intemporary-help anddirect-hire

jobs. Validity requires

two

conditions: (1) contractorscausallyaffectthe probabilitythat

Work

Firstparticipantsobtain direct-hireand temporary-helpjobs, acondition directlyverified in

Section 2.1; and (2)contractorsonly systematically affect

Work

Firstparticipants'

employment

outcomes

in quarters

two

througheight following

Work

Firstassignment through placements

intodirect-hire and temporary-help jobs during the

Work

Firstspell. If this latter (exclusion)

condition

were

violated

—

thatis, contractors affected participant

outcomes

through channels

otherthantemporary-help ordirect-hirejob placements

—

and theseother contractor impacts

were

correlatedwith job placementrates

—

ourinstrumental variables

would

becorrelatedwith

' _{the error}termsof our

2SLS

models

and _theestimates

would

be_biased.

While

the restriction thatcontractors only systematicallyaffectparticipant

outcomes

through

job placementsis fundamentallyuntestable,

we

can directly evaluate theimportanceof

heterogeneity in contractoreffects

on

participant

outcomes by

takingadvantageofthe factthat

we

have 59 instruments (contractor-by-year

dummy

variables)and only

two endogenous

variables (temporary-help anddirect-hire placements).26This permits ustouse an

overidentificationtestto assesswhether asaturated

model

using59 contractor-by-year

dummies

25

In onlineAppendixTable A,wealsoexaminewhetherthelargedifferencesin theconsequences of temporary-helpand direct-hirejob placementsare attributable todifferences thetypesofpositionsobtainedintemporary-helpversusdirect-hire

employmentratherthantodifferencesintheemploymentarrangementsperse. Productionjobsareheavilyoverrepresentedin

temporary-helpplacements. Using ourIV frameworktoestimate fourendogenousvariables(temporary-help placementsin

production and nonproductionjobsanddirect-hireplacementsinproductionand nonproductionjobs)weshowthatourresultsare

notattributable tooccupational differencesintemporary-helpanddirect-hirejobs. Direct-hireplacementsintobothproduction and nonproductionjobs significantlyimprove subsequentemploymentandearnings,whiletemporary-helpplacementsintoboth productionandnonproduction jobs donotimproveand,inthecaseof productionjobs,mayharmsubsequentearningsand

employmentoutcomes.

26

Thereare 100contractor-by-yearcellsand40district-by-yeardummyvariables plusanintercept.Thisleaves59

as distinct instrumental variablesforparticipant

outcomes

is statistically equivalentto afar

more

restrictive parameterization in

which

contractoreffectson participant

outcomes

operate

exclusivelythrough direct-hireand temporary-helpplacements.

The

overidentificationtest revealsacompellingresult:

we

detectno statisticallysignificant

effect

of

contractorassignmenton participant

outcomes

that isnotcaptured

by

temporary-help

and direct-hireplacements. In otherwords, the dataacceptthe null hypothesisthatthe59

contractor-by-year

dummy

variables

have

no

significant explanatory

power

for participant

outcomes

beyond

theireffects

on

temporary-helpand direct-hirejobplacements.This result

holds forthe fullseven quarter

outcome

period and forboth sub-periods, as isvisible inthe

bottom

row

of each panel of Table 3. Forearnings outcomes,the p-valuesofthe

overidentification testsrange from 0.36to 0.42. Forquarterly

employment

outcomes,the p-values range

from

0.09 to0.21 (seethebottom

row

of eachpanel of Table3).

It iswidely recognized thatoveridentification tests

may

have

low

power

against thenull (cf.

Angristand Pischke, section4.2.2). Thatisnot the casehere, however. If

we

instead

compare

the

unrestricted

model

2SLS

model

(i.e., with 59

dummies)

against a parameterizationthatcollapses

temporary-help and direct-hireplacements into asingle

employment

category(thus reducing 59 parameterstoone ratherthan two), the overidentificationtestrejectsthe null atthe2 percent

level forsevenquarter

employment

and acceptsitatthe

20

percent level forseven quarter

earnings

(down from

36 percent). Thus, a parameterizationthatdistinguishes

between

thecausal

effects

of

temporary-help

and

direct-hireplacements isboth necessary and sufficient to

statistically capture thefull effectofcontractorassignments

on

participantoutcomes.

These

resultsdemonstratethatany setofcontractorpractices thatsystematically affect

participant

outcomes

butdoes notoperatethrough job placements

would

haveto be collinear

with

—

and hence statisticallyindistinguishable

from

—

contractorjobplacements.

We

view

this

possibility as unlikely.

Based

on adetailed surveyof

Work

Firstcontractors in theDetroit area

analyzed bythis study(Autorand

Houseman

2006),

we

document

that

program

funding istight

and

few

resourcesare spent

on

anything butjob placement.

A

standardized

program

ofgeneral or

life skillstraining isprovided in thefirst

week

ofthe

program

by all contractors. Afterthefirst

week,

all contractors focus

on

job placement. Supportservices intended toaidjob retention, such

aschildcare andtransportation, areequally availabletoparticipants from all contractors

and

are

affectparticipant

outcomes

other'thanthrough jobplacements, and

what

other services

do

exist are fairlyuniformacrosscontractors;thustheirprovision shouldbe uncorrelatedwith contractor

job placements.

Adding

tothis

body

ofevidence,

we

findinthe Detroitdatathatdirect-hireand

temporary-helpjob placementratesarepositively andsignificantly correlatedacross contractors, implying

thatcontractors withdirect-hireplacementratestendto

have

hightemporary-help placement

rates. This factreducesthe plausibilityofascenario in

which

anothersetofcontractorpractices,

collinearwithjobplacements, accountsforour

IV

estimates

showing

divergenteffectsof

direct-hireand temporary-help job placement.27

4.2

Robustness

and power

of

the

instruments

The

2SLS

models

inTable 3 use contractor-by-yearof assignment

dummy

variables as

instrumentsfortemporary-help

and

direct-hirejobplacements.

These

instrumentsallow for

differences in placementrates

among

contractors operating in aparticulardistrictto

change

over time due to,forexample, changes inthe local

economy,

changes in averageparticipant

characteristics, orchanges inplacementpolicies

by

individual contractors.

Although

allowing

for

some

interaction

between

contractor

dummy

variables and timeisefficient, asarobustness

check

on

our parameterizationofthe instrumental variables,

we

reportin Table 4 estimatesfor the

main

empirical

model

in

which

we

use as instruments contractorassignmentsratherthan contractor-by-yearassignments.

We

alsorepeat the baseline

models

in

column

(1) forreference.

Point estimates

from

thesecontractor-only

2SLS

models

found in

column

₍₃₎ prove quite

comparable

tothebaselineestimates.

Although

standard errorsare slightly larger, asexpected,

these

models

clearly affirm thepriorconclusions: direct-hireplacements significantly raise

employment

andearnings; direct-hire effectsare significantly largerthan thecorresponding

effects fortemporary-help placements;theeffectsof temporary-help placements

on

employment

27

In theonlineworking paperversionofthisarticle,weshowinAppendixTable3thatifseparate2SLSmodelsfor thecausal

effectsof temporary-help anddirect-hirejob placementsareestimatedusing thefullsetofcontractor-by-year instrumentsineach model,theresultingpointestimatescontinuetoindicatethatdirect-hireplacements havelargepositiveimpactsonearningsand

employment(comparabletothemainmodelsinTable3)whiletemporary-helpplacementshavesmallandinsignificanteffects

onthesemargins.Giventhe significant positivecorrelationbetween temporary-help anddirect-hireplacementrates,theseresults

suggestthat'bad contractors' cannotberesponsibleforthelackofbeneficialimpactsof temporary-helpjob placementson

participantoutcomes;ifbadcontractorswereresponsible,theseadverseeffectsshouldloadontobothdirect-hireand

temporary-help point estimatesintheseby-placement-typemodelsgiven the positive correlationbetweendirect-hireand temporary-help placementrates.