Workforce Development as an Antipoverty Strategy: What Do We Know? What Should We Do?

WORKFORCE DEVELOPMENT AS AN ANTIPOVERTY STRATEGY: What Do We Know? What Should We Do? Harry J. Holzer October 2008 I am grateful to Maria Cancian, Sheldon Danziger, Carolyn Heinrich, Karl Scholz and other conference participants for helpful comments. Igor Kheyfets provided excellent research assistance. ABSTRACT “Workforce Development as an Antipoverty Strategy: What Do We Know? What Should We Do?” Harry J. Holzer In this paper I note the basic paradox of workforce development policy: that, in an era in which skills are more important than ever as determinants of labor market earnings, we spend fewer and fewer public (federal) dollars on workforce development over time. I present trends in funding and how the major federal programs at the Department of Labor and other agencies have evolved over time, noting the dramatic declines in funding (with the exception of Pell grants). I then review what we know about the cost-effectiveness of programs for adults and youth from the evaluation literature. I consider some other possible reasons for funding declines, such as the notion that other approaches (like supplementing the low earnings of workers with tax credits or early childhood programs) are more effective and address more serious problems. I review some newer developments in workforce policy, mostly at the state and local levels, and then conclude with some policy recommendations. 1 I. The Paradox of Workforce Development for the Poor Over the past few decades, the gaps in earnings between more- and less-educated American workers have risen. The numbers of adult workers in low-wage jobs has risen—partly because of the growing supply of these workers, associated with welfare reform and immigration (among other forces), and partly because of growing demand for these workers in low-paying jobs (Autor et al. 2006). And, at least among less-educated and minority men, the numbers with criminal records and other characteristics that make them “hard to employ” has risen dramatically as well. A consensus has developed among economists and policy analysts on the increased importance that workforce skills play in explaining the labor market problems of the disadvantaged. The lack of skills and educational credentials among disadvantaged groups, like racial and ethnic minorities and the poor, contributes to their low employment and earnings and inhibits their ability to advance in the labor market. As a result, many policymakers and researchers have suggested increased public investments in improving early education opportunities, reforming school practices in the K–12 years, and improving access to higher education (Heckman 2008; Jacob and Ludwig, this volume). In contrast, there is no such consensus about the ability of “workforce development” (or job training programs) to raise employment and earnings for disadvantaged youth and adults. Federal funding of these efforts has greatly diminished over time both in real terms and especially relative to the size of the economy, even though the economic rewards to skills have grown. Why has support for workforce development policies fallen so far as an antipoverty strategy? What are the most recent developments in the field, and what is the state of knowledge about their success? Is a resurgence of interest in workforce development for the poor merited? 2 And, for low-wage workers for whom workforce development is unlikely to be a successful option, what other policies might work? In this chapter, I address these questions. I first review trends in federal funding and the evolution of major workforce development programs and evaluation evidence about their cost-effectiveness. I then describe promising new approaches. I conclude with some thoughts on what a workforce development agenda might include, and what is needed for such an agenda to succeed. II. Trends in Federal Funding and the Evolution of Workforce Development Programs A. Training Programs at the Department of Labor Since the early 1960s, and especially since the declaration of the “War on Poverty” in 1964, the U.S. Department of Labor has funded employment and training services for the disadvantaged, along with other workers. Over the years, these efforts have evolved through several major pieces of legislation: (1) the Manpower Development Training Act (MDTA), 1962–73; (2) the Comprehensive Employment and Training Act (CETA), 1974–84; (3) the Job Training Partnership Act (JTPA), 1984–99; and (4) the Workforce Investment Act (WIA), 1999 to the present.1 These legislative developments reflect changes in priorities and perspectives on employment and training for the disadvantaged held by Congress various presidential administrations. For instance, MDTA provided direct federal grants to local service providers. In 1965, it began to fund the Job Corps, which provides a year of education and training to disadvantaged youth at residential ce