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Monday, November 14, 2005

Are Programs to Help Dislocated Workers Effective?

This paper talks about the effectiveness of job retraining programs for displaced workers. It is a fairly long paper so I've cut quite a bit out of it to present the highlights. If you are interested in this topic, I encourage you to read the entire paper (and also "Does job training pay off?" cited below):

Just how effective is our expanding public system for helping dislocated workers?, by Ronald A. Wirtz, Minneapolis Fed: Take two aspirin, and find a new job in the morning. Historically, that's been the advice to workers facing layoffs. Grab your bootstraps. Pound the pavement. Good luck. ... But as globalization continues apace, so has society's anxiety over the job dislocation commonly associated with it. ... Layoffs are “very traumatic” for workers ... and many are having trouble adjusting to new realities of employment. After being laid off, some workers will “sit on unemployment waiting for the world to snap back to normal.” It rarely does, and many workers find themselves ill-equipped to compete for new jobs that come close to replacing their old salaries. ... Is this gut-punch a fatal blow ... While the immediate effect of layoffs on individual households is surely great, most economists argue that such job dislocations are actually a backdoor wellspring of economic growth. Layoffs allow the economy to reallocate resources (including labor) from mature, declining firms and industries to growing, healthy ones. This job churn—the many jobs lost, and new ones found—ultimately makes the U.S. economy more competitive and, in turn, prosperous.

But that claim rests on a matter that doesn't get a lot of attention: our ability to rechannel dislocated workers ... to new job opportunities that are advantageous for both new employer and dislocated worker. Traditionally, dislocated workers have had to find their own way to the next job opportunity. But as the economy's job churn has increased over the last decade, ... What's evolving slowly ... is a public system of job-matching services for those workers not able to do it on their own. Government programs for these workers appear to be improving ... But they've also been hit with stinging and evidently well-founded criticisms about their tepid performance and questionable long-term effects. Equally important, ... redundancy becomes an issue: Public programs are offering services already available from a rapidly growing and sophisticated job-matching industry in the private sector.

Typically, dislocated workers need or seek help in three basic areas: wage insurance, which acts as a temporary fill-in for lost job income; job search, which includes hands-on activities like resume writing, interview coaching and career counseling; and skill training, which improves job-matching prospects. Each of these areas draws public and private responses of varying degree and sophistication. Wage insurance ... has been handled almost exclusively by the public system since Congress created Unemployment Insurance in 1935 as part of the Social Security Act. ... The only wage insurance offered by the private market comes in the form of severance pay, which typically goes to a small minority of laid off workers. Workers in need of other job services—specifically, search and training—will find a variety of private and public options at their disposal. For example, job Web sites like Monster.com have exploded with the advent of the Internet, complementing traditional job-search standbys ... Private staffing agencies (otherwise known as temp firms) also help unemployed workers find their way to the next job...

On the public side, myriad government programs help workers search for and obtain new jobs. This safety net is truly a bureaucratic morass of programs, resource streams and guidelines. Funding is modest at best and, it turns out, so are results—likely one reason that the majority of workers bypass such programs. The largest program geared specifically toward permanently laid off workers is the Workforce Investment Act (WIA), ... The program got its start when Congress passed the Manpower Development and Training Act of 1962 at the behest of President Kennedy, who sought redress for thousands of workers laid off as a result of growing automation.

(That same year, the Trade Expansion Act began the tradition of helping workers displaced by foreign competition, offering cash assistance and training through the Trade Adjustment Assistance program. TAA remains in force today and is the next-largest program for dislocated workers, but eligibility is narrow, limited to those who can prove dislocation by foreign competition. The program has received particularly poor evaluations from a number of government agencies and academic studies.) ...

Even with these caveats, the WIA deserves praise for the simple reason that before its creation, no comprehensive effort was made to help dislocated workers of all stripes get back on their feet. Still, it's difficult to say how well the WIA is performing. Virtually no evaluation is given to core and intensive services. Maybe more important, the utility of publicly subsidized worker training—still the programmatic heart of the WIA—is not quite the slam-dunk it might seem. Most evaluations lean toward positive, but just barely (see “Does job training pay off?”). ... [T]he WIA has often met or exceeded its performance benchmarks, ... But ... [t]hese results were not much better than those achieved by workers receiving only core and intensive job-search services. Job training apparently had little independent effect. ...

Other important program aspects remain largely overlooked in terms of evaluation. Two industry experts ... pointed out that programs are often heavy in infrastructure (like staffing and office space), leaving little money for training. The state source pointed out that retraining costs per job placement can reach into the thousands (averaging $4,500 in the source's state), despite the fact that many clients typically received just three to four weeks worth of training. “You know those people aren't getting that [full monetary] amount of training. ... It's ridiculously expensive.”...

Some argue that large pieces of public programming for dislocated workers are redundant, given the wide job-matching services offered in the private market. ... For now, private and public systems each have a different client focus, revealing something of a tiered service market. Staffing agencies ultimately work for employers... Lower-skill and other “not readily marketable” workers end up in public programs. ... Still, there are enough similarities between one-stops and staffing agencies to suggest the possibility of greater overlap in the future. ...

The WIA is currently up for reauthorization, ... One of the main proposals is to simplify the funding labyrinth for programs serving dislocated workers, a maze not uncommon to programs that develop over the course of decades. ... Once you add up the various funding sources from this confusing labyrinth, “there's a good pot of money out there” for dislocated workers, according to Golembeski. ... The problem, he says, is that his office spends “an awful lot of time” coordinating these many funding streams because each comes with its own eligibility requirements and program rules. The WIA reauthorization is proposing ... to fuse funding streams and eliminate idiosyncratic guidelines ...

Whatever changes are made in coming years to the WIA, anyone expecting a perfectly designed public safety net for dislocated workers doesn't have a good sense of the countless moving parts and circumstances that public agencies have to deal with but have little control over. For example, layoffs in rural areas are particularly challenging for any government program, given stagnant job growth and generally lower wages. If they're unwilling to move, workers have to wait—for a long—time, in some cases-for new job opportunities. Numerous program officials also acknowledged a certain amount of stubbornness and a sense of entitlement among workers when it comes to program services. Still, despite all the flaws and caveats, most people with experience in or knowledge of previous job training regimes consider the WIA a step forward. ...

I'm not ready to give up on helping displaced workers. As explained here, I beleive we owe it to those who are hurt, through no fault of their own, by the economic system we have chosen as it continues its never ending march toward greater efficiency. However, a fair reading of the evidence suggests that existing retraining programs have not had a large positive impact, certainly not as large as hoped. However, rather than conclude that these programs will not work, we can build upon the parts that do work, avoid repeating mistakes, and continue to try to find how best to help those who are negatively affected by the dispassionate and inevitable forces of globalization.

    Posted by on Monday, November 14, 2005 at 12:11 AM in Economics, Policy, Unemployment | Permalink  TrackBack (0)  Comments (42)

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