Federal Work-Study Program

The Federal Work-Study Program is a form of financial aid to university students. It is funded by the US government and has the following features:

• Qualifying students are allowed to earn up to a specified amount (called an "earnings ceiling") by working in jobs at universities or other public service employers.
• The US government reimburses employers for about 70% of each work-study student's wages (the precise fraction depends on the employer).
• Employers are responsible for paying the usual payroll taxes they would pay on wages earned by other employees. For work-study students, this amounts to 9.5%.
• A student who receives $W in wages thus costs her employer $0.395*W and costs the federal government $0.70*W.

How does this program affect local labor markets? How does it affect employers? How does it compare to a hypothetical grant program that distributes the same amount of federal money?

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