The Hamilton Project

Building America’s Job Skills with Effective Workforce Programs: A Training Strategy to Raise Wages and Increase Work Opportunities

INTRODUCTION

For most of American history, opportunities in the job market have enabled each generation to achieve a higher standard of living for themselves and their families than their parents enjoyed. Innovation and an entrepreneurial spirit fueled robust employment growth, a solid educational system readied workers to take advantage of employment opportunities, and a broad array of safety-net programs helped those who stumbled along the way get back on their feet.

More recently, rapid technological changes and increasing global competition have continued to deliver great economic benefits to Americans, through lower prices for consumer goods or advances in health care that prolong our lives or improvements in the quality and capabilities of everyday products. But this recent wave of change has also left some workers behind, particularly less-skilled workers, by making it more difficult for them to find good job opportunities and by eroding their wages on the job. For instance, recent research by The Hamilton Project shows that over the past four decades the annual earnings of the median man with only a high school diploma have declined by 46 percent. Not since this country has maintained records has such a large group of Americans experienced a similar prolonged period of declining real earnings.

The Great Recession of 2007–2009 exacerbated many of these long-term trends. Although the recession affected all Americans, disadvantaged workers with less education and fewer job-related skills experienced particularly high rates of job loss during this period, and many remain unemployed today. For instance, in 2010 the unemployment rate for people over the age of twenty-five without a high school diploma was 14.9 percent.

Among those who lost jobs in the recession are seven million workers who were displaced from long-term jobs. On average, these displaced workers will be reemployed at lower wages than at their previous jobs; the average such worker can expect to lose roughly $112,000 in earnings over the remainder of her career.

The Hamilton Project believes that long-term prosperity is achieved not just through economic growth, but also through broad participation in that growth. In today’s economy, access to educational and skill-development opportunities is a crucial component of efforts to facilitate that broad participation. Improving traditional education is an obvious first step in preparing workers for well-paid jobs, and The Hamilton Project has examined proposals aimed at raising educational attainment and improving the quality of primary, secondary, and postsecondary education.

However, other forms of workforce development must also play an important role. This paper presents our findings on the importance of developing workers’ skills through training and workforce development programs, and examines newly available evidence on policies that boost job opportunities and wages. In a dynamic economy, it is impractical to stand still and wait for old opportunities to reemerge. Rather, workers can take action and gain new and practical skills to improve their reemployment opportunities and find jobs more quickly, or to improve the quality of their jobs and the level of pay they receive. Training programs offer a unique opportunity to improve the well-being of less-skilled and displaced workers.

As the United States continues its economic recovery, there is tremendous urgency to find model training programs that work and can be leveraged more broadly to put Americans back to work. There is also mounting pressure to find long-term solutions to the nation’s growing economic inequality, and to create opportunities for more Americans to participate in the country’s future economic growth. For these reasons, a renewed focus on training is particularly relevant today.

To be sure, worker training is a broad category, encompassing short-term vocational classes run by training providers, certification and technical classes at community colleges, career-oriented classes in secondary schools, apprenticeship programs, and a variety of other programs and institutions that provide workers with job-specific skills.

In the United States, the private sector plays a large role in training, but targets many of these efforts toward workers who already have better skills and better jobs. The federal government plays a major role in training the disadvantaged and displaced, funding many major programs through the Department of Labor (DOL) and the Department of Education (ED); it also funds the complementary and valuable task of providing reemployment services.

Training in and of itself is not a panacea for all that ails the labor market. There is no “one-size-fits-all” approach to training: each worker has different strengths and local employers have different needs. Therefore, training programs must be tailored to fit the specific needs of a community based on available jobs. Moreover, training may not be appropriate in every circumstance and might be only one component of a broader effort to address the skill deficits that some workers face. For these reasons, many observers have become frustrated that some existing training programs are unable to successfully address the significant issues these workers face and have failed to adapt effectively to the changing economy.

At a time when the need for skill development is great, there are important lessons to be learned from a new and promising body of research that has emerged in only the past five to ten years that has identified successful programs that match workers to jobs and that raise their earnings.

Findings from recent experimental evaluations of programs operated by states and nonprofit organizations, and careful studies of community colleges suggest that employment-focused programs, often developed in cooperation and collaboration with employer or industry partners, have been tremendously successful, producing returns for workers that far exceed the social cost of the programs.

After exploring the evidence on effective training programs, The Hamilton Project proposes two general principles that can guide policy-makers in improving training programs to aid American workers.

1. Training funds should be directed to evidence-backed programs and to workers who can benefit from those programs. Recent research has identified some training programs as particularly effective at getting Americans to work, or back to work at higher wages. The available evidence suggests that the most effective programs closely match the type and intensity of training to the needs and circumstances of the workers. The lessons learned from these successful programs can help inform future choices on how to allocate training funding.

2. Training programs should directly engage employer and industry partners, or actively guide students to career specific training. Successful training programs often rely on input from or partnerships with employers and industry partners in order to direct trainees to invest in courses and fields of study relevant to available jobs. Without this type of collaboration, newly trained or retrained workers may find themselves without the skills needed by industry, skills that are required for long-lasting labor market success.

Two new Hamilton Project discussion papers present policy proposals that reflect these principles, and that are tailored to the needs of disadvantaged and displaced workers. Each proposal addresses the specific needs of its target population and builds on the evidence and experiences from existing effective programs.

In his 2011 Hamilton Project Policy Innovation Prize–winning paper, “Raising Job Quality and Skills for American Workers: Creating More-Effective Education and Workforce Development Systems in the States,” Harry J. Holzer of Georgetown University proposes developing sectoral training programs for disadvantaged workers that provide participants with the skills that employers demand by directly linking their education and training with the needs of the labor market.

In their 2011 Hamilton Project discussion paper, “Policies to Reduce High-Tenured Displaced Workers’ Earnings Losses Through Retraining,” Louis S. Jacobson of New Horizons Economic Research, Robert J. LaLonde of the University of Chicago, and Daniel G. Sullivan of the Federal Reserve Bank of Chicago focus on the problem of retraining displaced workers who have experienced significant earnings losses. Their paper lays out a comprehensive set of reforms that starts with the establishment of a Displaced Worker Training program that provides grants for longer-term training and includes guidance, structures, and incentives to direct trainees and educators to the most relevant and timely instruction to meet labor-market needs.