Work and Opportunity in Detroit: The Case for a Bold Subsidized Employment Initiative

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Dec. 20, 2019

By Patrick Cooney, Poverty Solutions at the University of Michigan

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For the past decade, Detroit has had the highest poverty rate of any big city in the country. While the city’s poverty rate had declined from nearly 40% in 2015 to just over 33% in 2018, it
remains a full six percentage points higher than that of Memphis, the peer city with the second highest poverty rate (US Bureau of the Census 2018).

A potential driver of the city’s high poverty rate is its low rate of labor force participation. Thirty-five percent of Detroiters between the ages of 18 and 64 are not in the labor force, meaning
they are neither employed nor actively looking for a job. Detroit is exceptional in this regard, with the highest rate of labor force non-participation of any major city in the country, and significantly above peer cities like Philadelphia (29%), Milwaukee (25%), Baltimore (25%), and St. Louis (21%). For Detroit, this high rate of labor force non-participation translates to tens of thousands of working-age Detroiters wholly disconnected from the formal economy.

Two recent papers from Poverty Solutions at the University of Michigan diagnose the problem of labor force non-participation in Detroit and offer a potential remedy. The Detroit Labor
Market: Recent Trends, Current Realities, written by economist Harry Holzer of Georgetown University and Joshua Rivera of Poverty Solutions, offers the most comprehensive picture to
date of the characteristics of Detroiters not participating in the labor market. They estimate that nearly 140,000 working-age Detroit residents are not in the labor force, and many face multiple barriers to employment, including low educational attainment, disability, and lack of transportation. The social consequences associated with this scale of joblessness are staggering and warrant appropriately scaled interventions.

The second paper, Toward a Comprehensive, Inclusive, and Equitable Subsidized Employment Initiative in Detroit, written by Chris Warland and Melissa Young from the Heartland Alliance, an anti-poverty organization based in Chicago, proposes a solution appropriate to the scale of the problem. Warland and Young envision a subsidized transitional employment program in Detroit that intentionally seeks to reengage those Detroiters who are disconnected from the labor market due to barriers to employment. Cities across the country operate subsidized employment programs, connecting struggling residents directly to employment and wages. Indeed, research suggests these programs provide the greatest benefit to the most disadvantaged, making subsidized transitional employment an essential tool for ensuring equitable employment outcomes as Detroit sees an economic resurgence.

Key findings

  • There are nearly 140,000 working-age Detroiters who are not participating in the labor force, meaning they are unemployed and are not looking for work.
  • 60% of working-age Detroiters with no college experience face at least one major barrier to work, dramatically reducing their odds of being in the labor force.
  • Subsidized transitional employment programs are an effective way of rapidly connecting disadvantaged workers to work and wages.

Subsidized employment: a response to labor force disengagement

Warland and Young note that the scale of labor market disengagement in Detroit makes the city uniquely positioned to implement a subsidized employment program. A broad base of evidence suggests subsidized employment is an effective way to connect disadvantaged workers to employment and income, reduce recidivism, reduce spending on social programs, and boost local economies. In addition, as Detroit experiences an economic resurgence, a subsidized transitional employment program can help to ensure all Detroiters capture some benefits of this economic growth.

Results from a recent federally-funded subsidized employment program in seven cities underscore the notion that subsidized employment programs are an effective way to rapidly increase
employment and earnings amongst labor force non-participants. In an evaluation of the Enhanced Transitional Jobs Demonstration (ETJD) project, disadvantaged workers were randomly assigned to a treatment group, which entered into a subsidized employment program, or a control group, which received general employment services. Three months after assignment, those receiving subsidized employment had employment rates of over 70%, versus 40% for the control group (Barden et al. 2018).

As Warland and Young note, a consistent finding from the literature on subsidized employment programs is that labor market non-participants are “willing and able to work if barriers to
employment are removed.” The literature also finds subsidized employment programs provide the largest benefit to the most disadvantaged workers, suggesting that these programs are a necessary component of any comprehensive workforce development system.

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