Can workforce development help us reach full employment?

The hope that job training—or workforce development, which also includes services like job search assistance and counseling—can help the U.S. achieve full employment has been pervasive for decades. But how good is the track record of our various workforce development efforts in the U.S. in terms of raising employment (as well as earnings) cost-effectively? Do these efforts hold much promise for reducing unemployment or raising labor force participation—especially since the latter has stagnated or declined for prime-age workers in the U.S.?

U.S. Workforce Development

Table 1 lists the many different versions of workforce development services that one finds in the U.S., along with the service providers. Funding sources for these services (besides just the students/workers themselves or their employers) appear as well.

The categories of workforce development in the U.S. include:

Various programs in higher education—which can be for academic credit or not for credit, and shorter-term or longer-term in length;
Other kinds of pre-employment training and workforce services (including career guidance and job search assistance) that are funded through the Workforce Innovation and Opportunity Act (WIOA) and other federal sources;
Career and technical education, beginning in high school and connected to higher education certificate or degree programs (through a range of state-level “career pathways”); and
Work-based learning (including apprenticeships and internships) and other forms of incumbent worker training.

Workforce development in the U.S. is quite fragmented. The providers of such services include a range of accredited higher education institutions (public or private, for-profit or not-for-profit), public agencies (like local American Job Centers, formerly known as One-Stops), secondary schools (public or private), community-based organizations, industry-related organizations and employers (public or private). Funding comes from a range of public sources—federal, state or local—and also from employers and the students/trainees themselves who are investing in their “human capital.” The implementation and regulation of public programs and funding at all levels of government is handled by Departments of Education, Labor, Commerce, Health and Human Services and others—and also different divisions within these departments.

Public funding for workforce development is very asymmetric across these services and institutions. Specifically, federal and state/local funding for higher education institutions—including the programs of these institutions that we call “workforce development”—is dramatically higher than public funding for workforce development. For instance, federal funding through the Higher Education Act for Pell grants and federal loans costs hundreds of billions of dollars each year, and state subsidies for their public higher education institutions are also costly. On the other hand, not-for-credit or short-term programs in community colleges are not eligible for Pell grants. And federal funding of workforce services through the WIOA and other sources of funding amount to about $14B today, or less than .1% of GDP.

Most categories of credentials earned in the public community colleges, on average, have net positive labor market value—defined as providing a premium in earnings relative to having just a high school diploma, net of the costs of earning the credential. Associate degrees in non-liberal arts fields (like business or the health services) generate larger returns than terminal degrees in the liberal arts, which have little labor market value; certificates usually generate lower but still positive net returns, especially in technical fields. The variance across fields of study in these estimated returns is very large.

But both public and private two-year programs are hampered by low completion rates and notably high default rates on loans. It is widely believed that these weak outcomes in the public colleges, at least to some extent, reflect the very limited public funding that they receive. A range of support programs, especially for disadvantaged students, are clearly cost-effective at improving student outcomes but require more funding to expand.

Estimated returns to training funded by WIOA (and its predecessors like the Workforce Investment Act, or WIA) are varied, though mostly positive. The estimated returns to core and intensive services provided by job centers are also positive. But very few workers are trained with WIOA funds (which are provided to workers through vouchers called Individual Training Accounts), and very few dollars go to such training: Only about 200,000 workers per year receive training with $.5B of funding.

Interest in work-based learning models like apprenticeship has grown, as has evidence of effectiveness, though employer take-up remains low. Similarly, there are some clearly successful models of career and technical education (CTE) in American high schools like Career Academies, P-Tech and technical high schools. Many pathways have been developed at the state level that connect secondary school with community college programs, and both enrollments and academic quality have risen over time. But a history of tracking poorer and/or minority students into CTE rather than college preparation and a reputation for low academic quality in the past continue to limit CTEs appeal to many students with college aspirations.

One very bright spot in the workforce development literature involves sectoral training—a training model in which intermediaries bring together representatives of high-demand, high-wage industries and training providers to generate skilled workers. While all examples of sector training are not necessarily effective, the best models—such as Project Quest, Year Up, Per Scholas, the Wisconsin Regional Training Partnership, Jewish Vocational Services and others—have generated large and lasting impacts on worker earnings in rigorous evaluations.

On the other hand, these very successful programs have remained fairly small, even while being replicated in multiple sites, and attempts to scale them have been challenging. Also, these programs tend to screen out many candidates whose basic skills and work readiness are limited to maximize completion rates and maintain employer confidence, thereby limiting their ability to serve many low-income individuals. The costs of the best stand-alone programs often average or exceed $10,000 per trainee, which impedes scaling. Most are engaged in efforts to reduce costs and reach more students, often through more use of online instruction and virtual tutoring.

Some community colleges are beginning to implement innovations that might improve the impacts of their workforce programs. But many continue to wrestle with how to implement such programs and maintain ties to regional employers while serving all students in their open enrollment systems. Many are developing “stackable credentials” pathways, where even noncredit certificates can be “stacked” or used towards the attainment of for-credit certificates or degrees. But, to date, relatively few students actually stack their credentials once the first one is achieved. Also, a range of “career pathway” programs have been developed for youth or adults with low basic skills and work-readiness to prepare them for public or private training programs, though our knowledge about their cost-effectiveness at scale remains limited.

Thus, figuring how to finance and scale the approaches developed in sectoral programs while maintaining their quality and accessibility in a dynamic labor market remains a top challenge for workforce development.

Unemployment and Labor Force Nonparticipation

In earlier decades, many economists argued that “full employment” is reached when the aggregate unemployment rate returns to the non-accelerating inflation rate of unemployment (NAIRU) at any point in time. Most labor economists believe that the NAIRU has declined from 6% or more in the 1970s to something around 4% today due to demographic changes (i.e., rising age and education levels) and perhaps some improvements in the efficiency with which the unemployed seek jobs and employers hire, especially using online search.

But another less-positive factor has likely contributed to lower unemployment rates: the drops in labor force participation among men and especially less-educated men. For men, participation has dropped continuously for decades, especially among workers with only high school education or African-American men. For women, participation rose strongly over much of the late 20^th century, but has mostly flattened since 2000.

Why have so many less-educated workers and especially men dropped out of the workforce? No doubt, declining demand for their labor due to skill-biased technical change (SBTC) and globalization has played some role in reducing their employment and labor force activity, at least partly by reducing their real (or relative) wages and moving workers down their labor supply functions. However, the estimated responsiveness of labor supply to wages (i.e., labor supply elasticities) is not large enough for wage trends to account for all of these declines.

Alternatively, these labor demand shifts imply less demand and employment at their chosen reservation wages (or at prevailing wage levels for any reason). The geographic-specific nature of demand shocks, especially in manufacturing, along with limited worker mobility across these areas plays some role in employment. Further, the limited responsiveness of educational attainment to increases in skill demands associated with SBTC can help sustain lower wages for the less-educated and high inequality as well.

Besides these labor market determinants, other contributors to the decline in working among men likely include worsening health/opioid dependence and rising disabilities, declining marriage rates, and (among Black men) high rates of incarceration, though some or all of these factors are somewhat endogenous with respect to work effort. Among women, the lack of affordable child care and paid leave likely contribute to the recent flat trends in participation among women, especially since these rates have continued to rise in other countries that provide more such family-work balance and support.

The Impacts of Workforce Development on Employment: What the Evidence Shows

By how much can various kinds of job training and workforce services affect employment (as opposed to earnings)?

To give us a rough estimate for their potential, I simulated what unemployment and labor force participation rates would be if all workers with high school or less education had access to reasonably effective job training. I assumed that workers who currently have high school or less education would have employment rates more like those with “some college,” who usually have just one year of college and whose earnings or employment are closer to those of high school than college graduates. I found that overall unemployment would decline by .5 percentage points and labor force participation would rise by 3 percentage points—not trivial magnitudes, but much less than the declines in the latter that have been observed over time.

But actual job training programs generate smaller impacts. Many of the studies that generate estimated impacts on employment (as opposed to earnings only) appear in Table 2. The estimated impacts of these credentials or services are mostly positive on employment. Estimated impacts of the services provided in job centers on employment and earnings (relative to core only) are also positive. The estimates vary a great deal with some showing very modest impacts on quarterly employment and others being larger, even at a point in time. The studies generally do not distinguish between employment increases for those who were already employed, unemployed, or out of the labor force when the training occurred.

One other approach might have a more positive effect on employment outcomes, especially among workers who are viewed as “hard-to-employ”: subsidized jobs in the private or public sector. There is currently little broad use of such approaches in the U.S.; such programs are also costly, and we have little rigorous evidence of their effectiveness to date. Indeed, such programs could help improve employment among the least-skilled people during the time when they are in effect but much less after the programs end. In other words, we would need not one-time investments but ongoing spending to sustain employment increases in these cases.

Conclusion

Can workforce development help get us to full employment? In the past, the latter goal was often associated with reducing the NAIRU; today, it should focus more on bringing less-educated workers back to the labor force, since participation has declined so much, especially among non-college educated men.

Overall, it appears that workforce training and services, as well as the credentials they often generate, have positive impacts on employment rates, though we remain very uncertain about their magnitudes. Higher earnings from many of these programs and services can lure some workers back to the labor force, and the potential of effective programs to generate these effects is significant—even if that potential is not fully realized to date. Our top priority in the workforce development field—whether in community colleges or programs by other providers—should be to expand the most cost-effective programs and to figure out how to scale them while maintaining their quality and accessibility.

Given the wide range of forces that have contributed to lower employment and labor force participation over time—as noted above—the effects of such training are potentially helpful but would not remedy all of the other causes of lower employment or labor force activity (like disability, criminal records or expensive child care) for the different populations described above.

In light of these issues and evidence, I believe the U.S. should:

Invest more heavily in workforce programs and services with strong evidence of effectiveness;
Experiment with and evaluate efforts to scale the most successful sectoral programs;
Address a range of other barriers and costs associated with rising labor force inactivity in the U.S.—including a prevalence of criminal records, disability and substance dependence, as well as the high cost of child care and family care in the U.S.; and
Consider subsidizing employment in the private or public sector as a means of raising employment for the hard-to-employ (at least during the period of subsidy for the hard-to-employ groups).

Since the Earned Income Tax Credit already subsidizes low-income worker earnings, improving their net wages, further expansion of the EITC for those who are already work-ready should be considered as well to improve the net rewards of working.

Authors