Rethink Retraining

Federal retraining funds would be better spent on employers.


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Our official unemployment rate is nearly 10 percent, a figure that doesn’t even capture the people who have given up searching or are significantly underemployed.

Meanwhile, companies remain understaffed. Even in this economy, plenty of companies are ready to hire—if only the right person would walk in the door. It just has to be the right person. Too much money and time can be lost if a new hire proves to be a poor fit for the company’s culture or needs. The risk is great enough that, in a precarious economy, it generally makes sense to leave a position unfilled unless precisely the right person comes along.

One of the federal government’s responses to high unemployment seems to miss this reality entirely.

That point comes across in an MSNBC article, “Retraining Roulette.” The article profiles laid-off RV-industry workers in Elkhart, Indiana. The article’s quoted experts suggest that people receiving federally subsidized retraining don’t necessarily do better in the job market than people who look for work without this training. The article’s subjects offer a hint at why this is. Among the laid-off individuals profiled who were receiving subsidized retraining, not one had a prospective employer directly involved. The system is not set up that way.

A Department of Labor Web site says business input “provides specifications” that shape retraining expenditures. But other than that, government determines what training gets the support.

Imagine steel being treated the same way. Imagine if manufacturers “provided specifications” on steel needs. Should government then plan steel production? Most would say no—to avoid waste, steel producers should respond directly to steel consumers. Why should the labor market be different?

For new hires, the “consumers” are employers. Therefore, if we are determined to subsidize retraining, we ought to let employers have the dollars. Personally, I question whether the federal government has the competence or Constitutional authority to be involved in this at all, but I may have lost that argument. If so, directing the funds to employers is the second-best choice.

Imagine how many companies would be encouraged to add staff if subsidies or credits supported the risk. How many other companies would develop internal training programs if funds helped offset the cost? Government dollars do work this way in certain cases, but the $3 billion budgeted to the federal Dislocated Worker Program suggests that dramatically more could be profitably redirected.

The fallacy of the current approach is that “skills” are in demand. Primarily it is people who are in demand. Even when someone has been federally retrained, that person still faces the hurdle of an employer who wonders whether this person can adapt those skills to the business’s particular needs, and whether this person can learn the ways of the organization. The cost of guessing wrong remains high. So why not lower this cost? The organizations that are actually hiring people are the ones best equipped to determine how to spend money to increase the number of hires.