Job retraining without job creation is, um, pointless. The federal government is banking heavily on job retraining to help those who lost jobs in this recession, as are many states. But job retraining is taking a beating these days. As my colleague Brian Doherty summarized for Reason magazine:
The federal government is planning to spend more than $1 billion this year on job retraining programs for Americans suffering layoffs during the recession. But a late 2008 government-funded study found that job retraining might not really work.
The study, commissioned by the Department of Labor and performed by the social science research firm Impaq International, looked at the effects of a 1998 federal job retraining initiative in 12 states, following 160,000 total participants who started with the program from 2003 to 2005. In the short term, earnings prospects for many groups of workers actually got worse after they participated in job retraining, “implying that those who participate in the program experience lower earnings during the first five quarters after program participation as a result of their program participation.”
Part of that effect may be due to concentrating on retraining rather than trying to find new jobs, but the assessment of the program’s long-term benefits was no brighter. It took two years for the earnings of those who received job retraining to catch up to those of their nonparticipating counterparts. “Perhaps more important,” the study said, “the growth in earnings, relative to nonparticipants, slows at that point.…Overall, it appears possible that ultimate gains from participation are small or nonexistent.”
Why might the programs be ineffective? Job retraining is irrelevant without job creation, especially job creation in the particular fields for which people are being trained. Predicting where the next employment boom will take place is difficult enough for entrepreneurs. It certainly isn’t a specialty of government bureaucrats.
A better strategy is policies that make it easier to start new businesses or expand existing ones. That creates jobs and the incentive for people to get the skills needed to land one of the new jobs.