What if We Paid Employers to Train Workers?

Higher education is not providing the job preparation we need.

American society has granted its institutions of higher learning an aura of nobility that, when it comes to knowledge creation at least, would seem earned. But we have also entrusted them with building the bridge for our youth from high school to productive participation in the work force, and at this they are failing. Fewer than half of enrollees complete a degree and then end up in a job that requires it. At community colleges, less than one full-time student in five achieves a two-year degree after even three years.

For many — perhaps even most — Americans, a different set of institutions is better suited to provide the kind of “post-secondary” (after high school) training that will prepare them for good jobs through which they can support families and communities: private-sector employers.

The centrality of employers to effective job training is now understood across the political spectrum. Answering the question “Why Is the U.S. So Bad at Worker Retraining?,” The Atlantic summarized the view of scholars that federal programs have been “too divorced from employers’ needs, too unrelated to workers’ interests, too light-touch, and too limited in their reach, among other flaws.” According to a bipartisan group convened by Opportunity America, the American Enterprise Institute, and the Brookings Institution, “Employers, educators, scholars and policymakers agree: there can be no effective career education without employers. . . . That’s the only way to ensure that students are learning skills in demand in today’s job market.”

But employers’ interests are not necessarily aligned behind the task. Firms face a serious problem in attempting to capture a return on their investments in training because, insofar as such training increases the productivity of their workers, those workers can command a higher wage, whether within the firm or by leaving for a competitor. Economists have proposed various ways to square this circle; for instance, if firms invest in the “specific” human capital of workers — skills that are valuable only within the particular firm — then the worker can’t command a higher wage in the market and the employer can capture the training’s value. Or, if workers are more loyal to a firm that invests in them, good training could boost retention even when the workers might be able to obtain a higher wage by leaving.

Unfortunately, these ideas illustrate a fallacy at the heart of the training debate: The public interest in boosting workers’ skills is not to create value for the employer. In making the case to employers that they should invest in training, an emphasis on the potential return is paramount. But the public interest in training is precisely that workers will develop skills through which they do command a higher wage. Patterns of training investment through which employers capture the training’s value are directly at odds with this objective, so demonstrating that they can do so solves little.

None of which is to indict employers — colleges don’t offer degrees for free, and professors aren’t volunteers. Rather, the challenge suggests a policy analogy: If we see substantial social value in facilitating the pathway into productive for work (and we should), and in many cases it is employers rather than colleges that are best suited to do this, then we should pay the employers instead of the colleges. Many hearts will recoil at the thought of taking money from our ivy-covered campuses and giving it to corporations. But while this isn’t actually an old chestnut, perhaps someday it will be: What’s the difference between a private-sector employer and a public college? One is a self-interested enterprise filled with workers pursuing personal gain, even at the expense of customers. The other is a private-sector employer.

As I propose in a new paper for the Manhattan Institute, reorienting the correct impulse to support work-force preparation toward a more constructive, employer-led model could take the form of a Workforce Training Grant of roughly $10,000 per year, attached to a “trainee” who participates in a certified program of work and skill development — just as existing higher-education support attaches to a student attending an accredited school. A qualifying program might be one that includes at least 15 hours per week of on-the-job experience and 15 hours of formal training.

In many cases, existing community colleges could provide the site for training. Critically, though, colleges could not attract this funding simply by enrolling a student — rather, their customers would now also include employers, and their success would depend on offering programs that appeal to employers’ needs. The employer would likewise have a greater incentive to engage with the community college in designing a relevant and integrated program of study. In other cases, employers might operate training programs themselves or through industry associations or union partnerships.

In June, the Department of Labor proposed a positive step in this direction: a rule allowing entities such as unions and colleges to define the parameters of industry-recognized apprenticeships that would then eligible for state and federal funding. Just yesterday, Senator Josh Hawley (R., Mo.) introduced a bill that would allow employer-based apprenticeships and other certified training programs to receive Pell grants. Especially in the early stages of this approach, though, a program will ideally err on the side of affording employers maximum flexibility to define the trainee experience, opening participation to as many industries and occupations as possible and encouraging experimentation.

Some training relationships that exhibit high potential will inevitably face exclusion while others that plainly deserve exclusion, whether because of ineffectiveness or active gaming of the system, will slip through. But the relevant measure of success is not the elimination of errors; it is the reduction of errors relative to the status quo. Today, no workforce-based programs are eligible for support, while tens of billions of dollars flow to ineffective classroom-based programs on college campuses. Introducing a Workforce Training Grant with imperfect initial guidelines, a policy that moves prospective workers out of the broken system and toward programs more likely to work, can expand the number of quality programs eligible for support and reduce the number of ineffective programs receiving funding.


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