This paper was prepared for the June 18, 2020, conference on Automation, Training, and the Middle Class for the Brookings Institution, Future of the Middle Class Initiative.
The inability of labor markets to function effectively to satisfy the needs of employers and workers suggests that there is a growing need for policy interventions to promote workplace cultures of learning and innovation. Past research suggests that incumbent worker training programs may have a positive impact on an array of company-level outcomes, such as number of workers and labor productivity, and employee-level outcomes such as earnings. However, these studies were conducted more than a decade ago, in labor markets that were very different from what companies experience today. This paper examines the impact of a state program in California that uses a pay-for-performance approach to reimburse employers that train their employees – the California Employment Training Panel (ETP). Based on a mixed-method study of ETP, we found that, overall, ETP had positive and significant impacts on company sales and firm size. We also found variations in impact by company size, age of the company, and industry sector. The study’s findings suggest that it is important to reduce administrative burdens associated with program participation and that services may need to be tailored differently for small, medium, and large companies.
Employers in the United States express growing concerns about skills shortages, especially in middle-market employers, digital skills, and for employability skills such as problem solving and critical thinking. In addition, firms tend to underinvest in worker training because of high employee turnover and the fear that trained employees would be “poached” by other companies. At the same time, labor markets have become increasingly precarious for workers in the US, who are contending with wage stagnation, labor market polarization (declining middle-skill occupation employment), expansion of low-wage jobs, the “fissuring” of work arrangements, and declining access to employer-provided benefits for low-wage workers. The inability of labor markets to function effectively to satisfy the needs of both employers and workers suggests market failures are occurring and that there is a growing need for policy intervention. Policymakers worldwide are also concerned about how new technologies such as automation and artificial intelligence will continue to transform and disrupt the nature of work, which they anticipate will require countries to reorient their education and training systems to facilitate lifelong learning and more agile firms and workers in the future.
Research on publicly funded incumbent worker training has been very limited in scope. Hollenbeck (2008) produced a detailed survey of state-funded programs, and Moore et al. (2003) and Hollenbeck & Klerk (2007) estimated the impact of state-level programs from California and Massachusetts on company-level outcomes. In general, past research suggests that incumbent worker training programs may have a positive impact on an array of company-level outcomes, such as number of workers and labor productivity, and employee-level outcomes such as earnings. However, these studies were conducted more than a decade ago, in labor markets that were very different from what companies experience today.
This paper examines the impact of a state program that funds employers to train their employees – the California Employment Training Panel (ETP). Created through state legislation in 1982, ETP reimburses employers that invest in approved training. The program draws on funds from an employer tax collected alongside state unemployment insurance taxes and through other sources of state funding to support special training initiatives.
The founding purpose of ETP was to retain businesses and jobs in the state, increase the competitiveness of companies in California, and enhance workforce skills. ETP is governed by an eight-member Panel that has representation from labor, business management, and state government. ETP prioritizes approving applications for training funds that align with statewide priorities and special initiatives, such as training in priority industries and training for veterans, youth with disabilities, and small businesses in areas with high unemployment.
In 2017, ETP contracted with Social Policy Research Associates (SPR) to conduct a mixed-methods study of the program, meeting a requirement for periodic third-party program evaluation in the ETP legislation. The study examined how employers and workers were benefitting from ETP investments, how ETP could promote continuous improvement, and how it could be updated to reflect current training needs, training delivery methods, and economic trends. The study included:
- Qualitative interviews: 23 semi-structured interviews with key informants, such as staff, intermediaries, employers, and labor organizations to understand how ETP is administered and gather qualitative information relevant to the research questions;
- An employer survey: a survey of 673 employers participating in ETP about their training practices, skill needs, and partnerships; and
- Quantitative analysis: an outcomes study of ETP administrative data and a quasi-experimental impact study at the firm level to understand the effects of the program on company sales and employment.
This paper summarizes key findings from this study. We begin by presenting background information about ETP and describing the characteristics of ETP-funded employers. Next, we present the main findings from key informant interviews and the employer survey. Lastly, the paper summarizes findings from a quasi-experimental impact analysis of ETP training investments. In the concluding section, we draw out the main implications of the study and discuss policy recommendations. Throughout the study, California’s economy was very strong and labor markets were tight, so the results should be interpreted in that context.
This research was funded in part and reviewed prior to publication by the California Employment Training Panel. Aside from the aforementioned, the authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. Neither author is currently an officer, director, or board member of any organization with a financial or political interest in this article.
Report Produced by Future of the Middle Class Initiative
The goal of the Future of the Middle Class Initiative is to improve the quality of life of America’s middle class and to increase the number of people rising to join its ranks. Through independent, non-partisan analysis and policy development, we seek to advance public understanding of challenges facing the middle class and barriers to upward mobility.