Who Should Foot the Bill for Skills?

by Reihan Salam

Matt Yglesias has fun at the expense of “emo capitalists” who rue the fact that a dearth of skilled workers means that they have to pay for training workers. Henry Farrell replies (astutely) that employers are lamenting the fact that employees tend to be footloose — there is no guarantee that you will capture the benefit of training raw recruits:


The standard story in the political economy of skills literature is that this is a collective good problem – if some of the benefits of training are not captured by any individual employer, then there will be underinvestment in training. There are solutions to this problem of course. German employers in e.g. the mechanical engineering cluster in Baden-Wuerttemberg train machinists, but they do so through collective schemes, which spread the costs and the benefits among most of the relevant potential employers. Hence, they are able to support a nicely functioning high skills economy. In the US, there are few such collective institutions, and rather less emphasis on skill training, leading to a lower-skills equilibrium, and more focus on general training, acquired by the worker rather than provided by the employer.

Specialized high skills economies differ from general-skills economies in a number of different ways. The person most associated with the study of these differences in political science is Torben Iversen (who kindly provides most of his articles online for public reading). For example, this piece argues that differences in skill formation help explain attitudes to the welfare state. Roughly speaking, people with specialized skills will be more likely than people with general skills to support a strong welfare state. Their asset, being more specialized, is riskier – hence they will have incentive to push for a safety net that can provide them with a buffer in bad economic times.

I tend to think that a greater focus on general training isn’t necessarily a bad thing (quite the contrary), and Matt seems to agree. But this discussion did remind me of Elizabeth Warren’s famous discussion of taxes, which included the line, “You hired workers the rest of us paid to educate.” Given that employers tend to pay taxes, some of them might object that their tax dollars aren’t being deployed very effectively in this domain, particularly those facing a shortage of skilled workers or indeed of workers with the basic general training (literacy, basic quantitative reasoning skills) that is a prerequisite for more specialized training.