Are There Returns to Experience at Low-Skill Jobs? Evidence from Single Mothers in the United States Over the 1990s

A primary motivation for the sweeping changes to America’s social insurance system in the 1990s was encouraging work among low-income families. Beyond the direct effect of increased earned income, it was hoped that low income households would reap the rewards of work experience in the form of higher wages and enhanced employment opportunities. The magnitude of the returns to experience for this group is of central importance for assessing the long-term benefits of encouraging work among vulnerable populations. Our analysis will address this question by examining the abrupt increase in work experience accrued by certain single mothers in the 1990s and how that increase in experience affected their earnings. Our analysis will exploit a new source of variation in how welfare reform and related policies affected the employment rates of single mothers based on the ages of their children at the time of welfare reform. Using this variation in employment across single mothers based on the age of their youngest child, we will estimate the returns to work experience. Because welfare reform differentially impacted single mothers based on the age of their youngest child, single mothers with young children at the time of welfare reform increased their labor supply and subsequently gained more experience relative to single mothers with slightly older children. Accordingly, we will identify the returns to experience based on this discontinuous increase in experience among otherwise similar groups. Additionally, we will augment this analysis using comparisons between states with high and low rates of welfare use prior to welfare reform, and through comparisons between single and married mothers with similarly-aged children