President Obama's FY2015 budget proposes to add to the Temporary Assistance for Needy Families (TANF) block grant a $602 million per year "Pathways to Jobs" fund. The fund would exclusively finance subsidized employment programs. The proposal outlined in budget documents would make grants to states to subsidize jobs for low-income parents, including noncustodial parents; guardians of children; and youth. Eligible persons would either have to be eligible for TANF cash assistance or have incomes below 200% of the poverty line. Under the proposal, the program would subsidize up to 100% of employment costs (wages, workplace benefits, training, and administrative costs) for the first 90 days of employment. Partial subsidies would be payable thereafter. To offset the cost of the "Pathways to Jobs" fund, the budget proposes to end the current law TANF "contingency fund. " The Administration's "Pathways to Jobs" proposal comes as interest in subsidized employment for the economically disadvantaged has been rekindled by a brief experience of TANF-funded jobs during the recent recession. To help assess the proposal, this report provides background on government-funded subsidized employment programs; discusses the history of subsidized employment within the TANF block grant; and examines some of the policy considerations raised by the proposal. Subsidized employment programs use government funds to pay all or part of the wages of those working in jobs. The job may be in either the public or the private sector. The employment subsidies are payments to employers that reduce the cost of hiring and employing a program participant. These jobs pay wages, unlike unpaid activities that are performed in exchange for receiving a cash assistance benefit (often referred to as "workfare"). Subsidized employment programs are also distinct from "on-the-job training," because there is no explicit requirement that employees be given training opportunities. Historically, subsidized employment programs usually provided public service jobs. They began as measures to provide work and income during the mass unemployment of the Great Depression, as the federal government employed persons in the Works Progress Administration (WPA) and Civilian Conversation Corps (CCC). Beginning in the 1970s, public service jobs were also used to address unemployment during recessions. Under the Comprehensive Employment and Training Act (CETA), public service jobs were used both to address cyclical unemployment as well as provide employment to the economically disadvantaged. These were jobs in state or local governments. CETA's public service employment program ended in 1981. From that time until the 2007-2009 recession, subsidized employment was provided primarily in summer youth employment, and in transitional jobs demonstrations targeting very "hard-to-serve" adults. Transitional jobs are usually in either state or local governments or in the nonprofit sector. There has been limited funding for transitional jobs. In FY2011, an appropriation of $40 million was provided for the Department of Labor's (DOL's) enhanced transitional jobs demonstration program. Though subsidized employment, by paying part or all of the wages to employers, has been a small part of recent policies for the economically disadvantaged, wage subsidies in general have been an important part of public policy for low-income families with children since the 1990s. The largest wage subsidies go directly to low-income workers (rather than employers) through the Earned Income Tax Credit (EITC) and child tax credit. These two refundable tax credits are conditioned on having earnings, and are policies designed to "make work pay" more than public assistance and induce parents who would earn low wages into the labor force. Less attention has been focused on reducing the costs to employers of hiring people in low-income families. Much of the experience of subsidizing private sector employment is from tax credits to employers for hiring recipients of public assistance or disadvantaged persons (for example, the Work Opportunity Tax Credit (WOTC) and the Welfare-to-Work Tax Credit). Though there is limited recent experience with subsidized employment programs from which to determine whether they can achieve their policy goals, this might soon change. The Department of Health and Human Services (HHS) is currently fielding an experiment evaluating subsidized jobs programs, though findings from this study are yet to be published. The Department of Labor is currently fielding and evaluating "enhanced" transitional jobs programs. Additionally, the recent "Farm Bill" permitted states to operate pilot work programs in the Supplemental Nutrition Assistance Program (SNAP), which could include subsidized employment. The TANF block grant is best known for helping states finance cash assistance ("welfare") for needy families with children. In addition to cash assistance, TANF finances a wide range of benefits and services aimed at ameliorating the effects of, and addressing the root causes of, child poverty. Since the enactment of the 1996 welfare reform law, which established TANF, states have had the authority to use TANF funds for subsidizing the employment for certain populations. States can subsidize employment for recipients of cash assistance, or operate programs for broader populations as long as it is consistent with TANF goals. The populations states can use TANF to assist include parents, including noncustodial parents, and youths. States have broad latitude in designing their TANF programs, including subsidized employment. However, states must have procedures in place to address potential "displacement" of regular workers by TANF assistance recipients involved in work activities, including subsidized employment. States are prohibited from employing a TANF assistance recipient in a position when another individual is on layoff from the same or a substantially equivalent job, and they cannot place an individual in a job from which another person has been fired for the purpose of replacement with a TANF assistance recipient in an activity. States must create a procedure to hear complaints of violations of the "nondisplacement" rules. Though subsidized employment has been a part of TANF from its inception, up until FY2010 it was little used. Figure 1 shows federal and state TANF expenditures on wage subsidies for FY2000 through FY2012. As shown, expenditures tended to be low before FY2010, but then spiked to over $1 billion in FY2010. The spike occurred at the level of peak unemployment caused by the 2007-2009 recession. It was also in response to extra TANF funding provided, in part, to finance subsidized employment programs. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) included a provision to create a special temporary "Emergency Contingency Fund" (ECF) within TANF. The ECF was created, in part, because of projections that the "regular" TANF contingency fund created in the 1996 welfare reform law would be exhausted. Unlike other TANF grants to states, the ECF financed three categories of spending only, rather than any allowable TANF activity. The three categories were (1) basic assistance, (2) non-recurrent short-term aid, and (3) subsidized employment. Of the $5 billion in extra funds provided to states and tribes under the ECF, $1.3 billion financed extra spending for subsidized employment. Most of the subsidized employment expenditures financed by the ECF were made in one year, FY2010. The ECF financed an estimated 280,000 subsidized job slots, making it the largest subsidized employment program of its kind since the 1970s. About half of these slots were for needy parents; the other half were used to expand youth employment programs. The ECF was created as an emergency measure in response to steep employment declines during the 2007-2009 recession, and did not include provisions to evaluate the efficacy of its spending. However, a retrospective study of ECF-funded subsidized employment found the following: States were able to implement subsidized employment programs rapidly in response to ECF funding. Some states expanded existing programs; others created entirely new programs. Unlike previous subsidized employment programs, the ECF often financed jobs in the private sector. While some programs provided public sector employment as well, the ECF did not rely solely on public service employment to provide jobs. Many of those served by ECF subsidized jobs were not on the TANF cash assistance rolls. Some individuals might have been eligible for TANF assistance and were in subsidized jobs in lieu of receiving cash assistance. However, the ECF also served a broader population than those eligible for TANF cash. To make subsidized employment programs attractive for private sector employers, states tended to select "work-ready" individuals for subsidized jobs. Under TANF, st ates must meet numerical work participation standards, which specify that a percentage of each state's cash assistance caseload must be engaged in certain activities. There are 12 enumerated activities that states may count toward meeting their standards, including subsidized public sector and subsidized private sector employment. Figure 2 shows the percentage of TANF cash assistance adults who were engaged in public or private sector subsidized employment for FY2000 through FY2011. As shown, this percentage has been relatively low throughout the period. There was an increase in the share engaged in subsidized employment beginning in FY2008, and this percentage spiked in FY2010. However, even in FY2010, the share of TANF adults engaged in subsidized employment reached only 1.6%—which translates into a monthly average of about 19,000 recipients. This reinforces the finding from the study on ECF-funded subsidized employment that many of these jobs went to people who were not on the cash assistance rolls. ECF-subsidized employment benefitted a broader population of disadvantaged adults and youth. The Administration's proposal to create a TANF fund to exclusively finance subsidized employment and end the current law contingency fund raises two sets of policy considerations. The first is whether subsidized employment programs can achieve certain policy goals.