Skip to main content

Does job training pay off?

September 1, 2005


Ron Wirtz Editor, fedgazette
Does job training pay off?

Though training would seem to be a no-brainer for dislocated workers, the matter is not quite so straightforward. Research to date is less than gushing on the benefits of public training programs for the individuals involved. Moreover, methodological problems in evaluating such programs mean that we still don't know a lot about its bottom-line efficacy: when to do it, for whom and how intensively. And, finally, if you include minor details like return on public investment, the question of whether and how much to invest in public job training programs becomes even murkier.

Generally speaking, job training programs have been found to have marginally positive results for those who participate in them. In a 2004 study on labor market adjustment efforts for the World Bank, Gordon Betcherman, Karina Olivas and Amit Dar find that training programs were most useful when done through on-the-job training. For those without jobs, training succeeded in increasing employment, but it did not generally increase wages. Retraining programs for workers in mass layoffs were expensive and "most often have no positive impacts, although there are exceptions," such as those combining employment services with retraining.

In a recent literature review, Christopher King says that training programs tend to have a larger positive influence on women than men, very little effect on youth and mixed results regarding the utility of more extensive and expensive training. He also points out that what we do know is limited to a short window (maybe six months to a year) after participants leave a training program; there is no long-term follow-up with them.

Lori Kletzer and Howard Rosen, in a 2004 study on labor market adjustment programs, similarly conclude that "evidence on program effectiveness is mixed at best. ... This suggests that governments are motivated by other factors in assisting displaced workers, such as social and political factors."

The fine print

These half-hearted conclusions come with a long list of caveats. For example, most studies evaluate training programs for disadvantaged workers—youth and other hard-to-employ folks. Dislocated workers, who are still fairly new targets for public training programs, have significantly different skills and circumstances. Researchers know very little about how training affects these workers.

More broadly, teasing out the scientifically valid results from training programs is a complicated matter. Most evaluations ignore, or are unable to meet, the most basic requirement of any scientific study: a randomized control group. King notes that dislocated workers are often in crisis and need accelerated assistance, which eliminates the possibility of constructing control groups. And because public training programs are voluntary, participation is self-selected, not random. Participants who enroll in them are likely to differ from the at-large population of dislocated workers in terms of their basic skill levels and other traits like motivation, making it difficult to get a true read on the benefits of training programs.

Still, according to King, the only two known scientific evaluations of dislocated worker programs (both of which look at trainees in a single state during the 1980s) mostly confirm the modest and mixed results found by nonscientific evaluations of training programs.

Educate thyself

Training programs for dislocated workers are widely believed to achieve useful results because they often involve course work at a local community or technical college, and research has shown high returns to investment in education. However, according to an issue brief by Robert LaLonde of the University of Chicago, "Little research examines the effectiveness of community college retraining in increasing earnings and productivity of displaced workers."

Research by LaLonde, Louis Jacobson and Daniel Sullivan sheds some light on that matter, and results are again mixed. The trio tracked tens of thousands of workers laid off in Washington state between 1990 and 1994, including some 16,000 who earned credits at a two-year college by 1996. Their study finds that an academic year of community college raised long-term earnings of dislocated workers an average of more than 10 percent. But results differed based on the type of retraining. Greater earnings accrued to technical, math and science training (particularly for women); "less technically oriented courses yield very low and possibly zero returns."

The authors find that training for workers over 35 had returns similar to those for younger workers—"indicat[ing] that old dogs can learn new tricks." They caution, however, that "results do not necessarily imply that society should subsidize or even encourage the retraining of older displaced workers," in part because these workers have a shorter average work-life for earning wages, thus lessening the real rate of return for public training expenditures. Indeed, evidence of a low private rate of return can be seen in low overall enrollment rates among older displaced workers.

That's one of the central conundrums facing dislocated workers and the policymakers hoping to weave a safety net under them: Research shows that long-tenured workers face the greatest economic losses from dislocation—they are the highest earners, and (depending on the industry) built-up skills may be of little benefit to them in finding a new job. Nothing short of an immersive—and expensive—training overhaul for these individuals is likely to make them economically whole again after the layoff.

A higher return elsewhere?

And here's where the matter gets sticky. If money were no object, we know that dislocated workers could regain their old salaries, and then some, if society heavily subsidized their return to college or another training-intensive program, such as an apprenticeship. But economists like the University of Chicago's James Heckman argue that you have to ask whether a greater return on that public spending could be had elsewhere. (For more on Heckman, see the June 2005 Region interview.)

In a 2000 paper, Heckman argues that the efficacy of training
adults—whether dislocated or otherwise having difficulty staying attached to the labor market—must be considered in the context of when learning is most valuable. He points out that "the returns to human capital investments are greatest for the young for two reasons: a) younger persons have a longer horizon over which to recoup the fruits of their investments and b) skill begets skill."

Heckman goes on to note, "The available evidence clearly suggests that adults past a certain age and below a certain skill level obtain poor returns to skill investment. ... For older unskilled workers whose skills have been made obsolete by newer modes of production, wage subsidies offer a more efficient alternative for raising their incomes."

Return to: Getting Back on Your Feet

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.