Job Training Programs: Here and in Germany

Job training programs in the US have always seemed to be more of an afterthought than a focused national initiative. When implemented, they become easy targets for detractors who will claim little economic impact and a waste of money. Supporters will say that this is the right thing to do so we have to do it, but the apparent results are often more consistent with wishful thinking. Drake Bennett has provided a great article in Businessweek that addresses the issues associated with job training efforts: Do the Unemployed Get a Second Act?

Even if one is dubious about past results, Bennett presents some numbers that will get one’s attention and suggest that perhaps it is time to make these programs effective. There are at least 14 million people looking for jobs, yet there are 3.2 million job openings yet unfilled.

"In surveys by Gallup and the McKinsey Global Institute, corporate CEOs and small business owners report difficulties finding workers with the right skills. Silicon Valley companies fight over software engineers; Union Health Service and the Harvard hospital system complain it’s hard to find nurses and technicians; manufacturers like Caterpillar and Westinghouse can’t hire enough welders and machinists to keep their state-of-the-art lathes running. Estimates of the size of the mismatch vary widely, but a May International Monetary Fund paper put it at a quarter of the 9.1 percent unemployment rate. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, has suggested it accounts for a full third of the unemployment rate."

Bennett first provides some data to put matters in context. The US does not invest much in job training. In 2009 we spent 0.05% of our GDP on training, or about $7.5B. Let us take Germany as being representative, funding-wise, of our Western Europe look-alikes. Germany spent 0.35% of GDP on training—equivalent to seven times more than us. The European nation we seem most like in terms of training investment is Greece.

There is $2.7B in the 2011 budget for Workforce Investment Act (WIA) funding. This includes funding for youth/student programs, those aimed at disadvantaged adults and those for displaced/unemployed adults. If the past is prelude to the present, how might these efforts fare?

"The most exhaustive training study to date was authored by three economists: Carolyn Heinrich of the University of Texas at Austin, Peter Mueser of the University of Missouri, and Kenneth R. Troske of the University of Kentucky. They examined 160,000 participants who entered WIA programs from July 2003 to June 2005—a much healthier economic climate than today’s—along with a comparison group of 3 million. What they found was that among poor workers who used training to gain a foothold at the low end of the wage scale, there were gains. Employment rates were higher among the trained than the comparison group, and pay was better by a couple of thousand dollars a year. For displaced workers, however, the study found that ‘gains from participation are, at best, very modest’."

Bennett provides examples of training initiatives that seem to work reasonably well. All involve significant participation by industry, the ultimate consumer of the trained individuals. Consider the complaint that companies cannot find people who can run state-of-the-art lathes. How is one to acquire such training? Can a community college be expected to have such equipment on campus, along with qualified teachers? Not in today’s economy. A new technology arises and appears to be an area where job growth is expected. It will take a year for a college to take note, another year to get funding, and another year to prepare a curriculum, and then two years to produce a graduate. That is five years to respond—when technologies can become obsolete in less time. Even if the technology persists, the tools and training needed to participate will have been transformed. It is industry itself, and only industry, that is in a position to know what training and skills are needed at a given time.

Fortunately, the people in charge of WIA spending are beginning to take note and now refer to "sector-based training," which envisages a partnership of some sort between schools, industry, and government. The example of Germany is provided as inspiration and also as warning. In Germany

"....53 percent of high school students opt for something called the "dual system," splitting their time between classroom coursework and apprenticeships in German companies. The system isn’t limited to manufacturing; it extends to white-collar jobs such as finance and insurance, too. The classroom component is structured around the job track the student has chosen. Employers help design the curriculum and cover two-thirds of the program’s €41 billion cost."

Industry in Germany has apparently decided that whatever is in the best long-term interests of the country, is also in the best-long-term interests of industry. This is truly a foreign concept.

This article in The Guardian provides more insight into the German system. Although it has been very efficient in providing workers for industry, it has social implications that would not be popular here.

Germany begins binning children at age ten into a three-tiered education structure. The highest is aimed at a college or university education, the two lower tracks are focused on eventual vocational training. First of all, ten years is too young to begin determining a child’s fate based on tests. Germany is also a land with a significant foreign-born population. Children for whom German is not the native language are immediately placed at a disadvantage and tend to fall predominantly in the lower categories.

What is most impressive is the extent of industry participation.

"The so-called dual system of vocational training was devised to provide some sort of equality of opportunity to young people who leave school with basic or no qualifications. Employers guarantee to provide apprentices with three years of training towards a nationally recognised vocational diploma. Apprentices spend three to four days a week in workplace-based training and the rest of the time at a further education college, or Berufschule. They receive a small salary - typically £300-£450 a month."

"Although the system is expensive - it costs employers around €18,000 (£12,000) to train one person, over 200,000 companies offer apprenticeships in around 350 different careers to over 800,000 trainees."

Germany has about one-fourth the population of the US. Scaling up these numbers, the equivalent size effort here would involve 800,000 companies and 3.2 million trainees. We’re talking educational revolution here.

We could probably use a program of this scale and it would be much less expensive than keeping people on unemployment indefinitely. The key, of course, is getting companies to participate. One would hope that they would be willing to quit complaining and do something about the situation—but hopes are frequently dashed.