Antediluvian Anxieties : Can Small Firms Handle Welfare Flood?

Three years ago, Mary Flowers hired welfare recipients to fill entry-level jobs and to get tax credits for her fledgling prefabricated construction company in Pomona.

Now, with sales expected to reach $2 million this year, Flowers says Sturdy Quick Building Systems is too successful to take on such help anymore.

“We’re growing and we have no time to train,” she said. Hiring people on welfare is “not as easy as it seems. Usually the skills are not in place.”

With President Clinton expected to sign sweeping reforms that may force as many as 14 million aid recipients onto the job market, many small companies such as Flowers’ could be expected to absorb most of the new workers. After all, major corporations are still downsizing and small businesses continue to create most of the country’s new jobs.

Indeed, fast-food, service and franchise industry executives say welfare recipients could help alleviate chronic labor shortages in these industries.

But the experiences of small-business owners such as Flowers, coupled with the doubts of some small-business activists, raise questions whether small businesses can be counted on to help the overhaul of welfare succeed.

Leaders of some business groups as well as individual business owners who have hired welfare recipients say many lack the skills and motivation to help small businesses stay in the black. Some even worry that welfare cutbacks will hurt businesses indirectly if homelessness, loitering and street crime increase.

“In every aspect of where these people are going to go, they’re going to affect small business,” said Scott Hague, a San Francisco-based lobbyist for the California Assn. of Small Business.

With the recently enacted federal minimum wage increase coming about the same time as the welfare changes, low-skilled and undereducated welfare recipients might also find themselves competing against better-trained and -educated housewives and students lured into the job market by higher wages, said Shirley Knight, assistant state director for the National Federation of Independent Business.

“The timing is kind of bad,” agreed Betty Jo Toccoli, president of the California Small Business Assn. For small businesses, the wage hike may eat up money that otherwise would have gone to hire new workers, she said.

“I’m not sure that both things can happen at the same time,” Toccoli said, adding that small businesses, more than large corporations, need every employee to pull their weight.

Flowers said small businesses like hers can now easily find experienced workers from among those being shed by corporations.

“We can get pretty good skilled people with the same effort that we get the unskilled,” she said.

For industries that provide thousands of low-skilled, entry-level jobs, the addition of thousands of welfare recipients to the job market may actually be a boon. Although they may be undereducated, untrained and lacking in work experience, those characteristics are not a barrier to many jobs paying minimum wage, some employers say.

“Our industry has always faced a labor shortage,” said Alberta Hultman of the California Restaurant Assn., adding that the number of restaurant jobs nationwide is predicted to grow 44% this year alone. “We think we have opportunities for those people.”

Franchise stores also typically suffer from labor shortages and are likely to hire welfare recipients, said Terry Hill, spokesman for the International Franchise Assn. An estimated 500,000 franchise stores nationwide operate with 8 million employees, half of them at entry-level, minimum-wage jobs, Hill said. The number of stores continues to grow and turnover remains high, he said.

Knight said California’s service-oriented businesses, including small retail stores and health-care companies, will probably be able to provide entry-level jobs to welfare recipients.

One Los Angeles company that has done so is California Breast Care Centers. Owner and Executive Director Gene Eason said he saved advertising and recruiting dollars by hiring directly from a placement agency that works with welfare recipients. The program also pays a part of each worker’s salary, saving his small business even more money, he said.

The welfare recipients compare favorably and blend into his work force of 28 employees, he said. But he added that the former welfare workers appear uninterested in moving up the ranks or getting more education to advance.

“There are many jobs in the company, but generally they have a tendency to stay right where they are,” he said.

Former welfare workers make up nearly a third of the more than 100 employees at Cross Country Wireless Inc., a Riverside cable TV company. Co-owner Gary Tapia uses the Riverside County Greater Avenues for Independence, or Gain, program, which was singled out by state officials as the county program that had the most success getting jobs for welfare recipients.

The Riverside Gain program placed 12,000 people in jobs last year, at least 75% of them in small businesses, said Marilyn Kuhlman, Riverside County’s Gain program director.

Tapia said he sees no difference between job candidates on welfare and other job-seekers and that he doesn’t treat them differently. But he said his jobs are mainly entry-level, slightly above minimum wage, with no supervisorial or managerial duties.

“If the jobs are available, I don’t see any problem,” he said of employing welfare recipients.

Although some local economists have speculated that California’s garment industry might be expected to hire aid recipients, such a scenario is far-fetched, according to Joe Rodriguez, a spokesman for the Garment Contractors Assn.

Labor shortages are largely nonexistent in the industry, except for the highest-paid and most skilled positions, Rodriguez said. Meanwhile, the largely Latino, Asian and immigrant work force readily fills entry-level jobs, making outreach to welfare recipients and other underemployed populations unlikely.

“It’s hard to see how those [welfare] people will be easily assimilated” into the garment industry, Rodriguez said.

The bottom line with workers who were on welfare is motivation, said Chevette Jones, owner of Jones Family Child Care in Carson. Jones, a former aid recipient herself, said she hires welfare recipients who work only part time to supplement their incomes but keep their state medical benefits.

“It’s hard to get them motivated,” she said. “I guess I understand, but for me, I wanted to make more money, so I quit [welfare], keep the neighborhood kids in my day-care center and make $50,000 a year.”

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Work’s Price Tag

Work programs mandated by welfare reform are expected to cost $40.2 billion over the next six years. Projected annual costs for work programs, in billions*:

(please see newspaper for full chart information)

2002: $10.6 (includes child-care costs)

Note: Because of the high costs of meeting work requirements of the welfare reform bill, analysts believe that some states would absorb monetary penalties rather than meet them.

Source: Congressional Budget Office

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Proposed Changes

Under the new federal regulations, welfare recipients would be required to look for work after two years.

They would receive benefits only for a lifetime maximum of five years.

Illegal immigrants would be ineligible for benefits.

Last week, the Legislature held hearings to determine how California’s program would be changed to meet federal regulations.