Labor markets in the United States have been buffeted by a range of forces over the past few decades. Business demand for workers at various skill levels has changed, due to large-scale technological changes, workplace reorganizations, and growing trade. Some businesses report that they continue to have difficulty finding and retaining highly skilled workers. At the same time, some less-skilled workers find it harder to maintain regular, stable employment. Also, the institutions (such as unions and minimum wage laws) that have traditionally protected low-wage workers have weakened. As a result, employment outcomes have changed quite dramatically, with growing wage and employment gaps between more-and less-skilled workers. The relative wages of less-educated workers have declined, and inequality in the labor market has grown.
Both the supply and demand sides of the labor market will continue to change in major ways over the next decade and beyond, though in ways that cannot be predicted with complete accuracy. On the supply side of the market, the retirements of baby boomers and continuing immigration (as well as the relative youth of the immigrant population already here) will generate some major changes in the demographic makeup of the workforce. For instance, the Bureau of Labor Statistics (BLS) and the Census Bureau project that
- the labor force will grow more slowly over the period 2004–14—at a rate of just 1.0 percent a year—than it has in the preceding decade (1. 2percent) and in the one before that (1.4 percent);
- there will be virtually no net growth in the number of young workers (i.e., those age 16–24 and those age 25–44) in the labor force in this decade, while the number of workers age 55 and above will grow by over 40 percent; and
- minorities will account for over one-third of the labor force by 2014 and just about half the nation’s population by 2050—with Hispanics accounting for 15 percent and 24 percent, respectively.1
Important changes will no doubt occur on the demand side of the labor market as well. For instance, BLS projects that
- manufacturing jobs will continue to decline (by 0. 6 percent each year) and those in construction and wholesale trade will grow more slowly than average, while jobs in professional and business, educational, and health care services will grow rapidly (at 2. 5 percent a year or more); and
- production jobs will continue declining (at 0. 9 percent each year) while those in the high-paid professional categories and low-paid service categories will grow most rapidly (at roughly 2 percent a year—see Saunders 2005).
The demand-side projections suggest continuing growth at the top and bottom ends of the job distribution relative to the middle, though some occupational and industrial growth in the latter will certainly continue.2 These projections are also somewhat more uncertain than those on the supply side of the labor market, as demand-side developments will reflect changes in technologies and trade patterns that are somewhat harder to predict from those in the past. The demand-side changes will also reflect the growing “offshoring” of work by U. S. firms, particularly to China, India, and other newly emerging industrial economies, that are not captured in the BLS projections to date (Saunders 2005).
What kinds of impacts will all these developments have on the U. S. labor market? Baby boomer retirements will likely generate a slowdown in the growth of the U. S. supply of labor, while growing offshoring will likely generate a decline for U. S. workers on the demand side. All else equal, the slowdown in labor-force growth should result in tighter labor markets, generating better employment opportunities and perhaps higher wages for U. S. workers, while offshoring implies the opposite.
Will these two developments simply offset one another, or will one outweigh the other? Given that the exact future magnitudes of baby boomer retirements and especially of offshoring remain unclear, it is somewhat difficult to predict in advance which will dominate.3 Technological changes and immigration are most likely to compound the effects of offshoring and generate further reductions in demand for less-skilled workers, though even here future trends remain uncertain.
But, along one dimension, the effects of baby boomer retirements and growing offshoring are likely to be similar: both should generate a growing demand in the United States for worker education and skills, relative to the current supply of educated and skilled workers. The baby boomers will be replaced by younger workers, including many immigrants in the labor market, whose average educational attainment is considerably lower than the current workforce’s. Thus, the demand for skills in the labor market will likely grow at or near its recent trend, while the supply of skills may fail to grow proportionately (Aspen Institute 2003).
The impacts of offshoring on demand for skills are somewhat harder to predict, as it may involve occupations that require a fairly wide range of skills (Bardhan and Krol 2003; Mann 2003). But, even if offshoring (and other technological changes) completely dominates the demographic shifts described above, the importance of education and skills in the workforce is likely to grow. For instance, maintaining our nation’s “comparative advantage” in the development of new technologies will likely require improved levels and quality of math and science education throughout the workforce. In the absence of the tight labor markets that baby boomer retirements might otherwise generate, improving the skills of less-educated workers might become even more critical to narrowing the huge earnings gaps that have emerged between them and more educated workers.4 And higher levels of education and broad skill levels will likely cushion the blow and improve the labor market prospects of those displaced by offshoring (Kletzer 1998), suggesting another reason higher education and skills might become even more valuable to workers over time.
If a growing demand for skilled labor is not matched by a comparable trend in supply, then labor market inequality will likely continue to grow in the United States. And, while labor markets will respond to these developments with a variety of adjustments (such as further substitution of capital and technology for labor, relative wage adjustments, workers investments in education and skills, and the like), output and productivity growth might be constrained by a relative dearth of skilled workers, at least in some sectors and in some places or periods.
Thus, both equity and efficiency considerations suggest that policies to further promote education and skill development among U. S. workers would be important responses to the shocks that will likely buffet our labor markets in the coming years. Exactly how to do so, particularly for less-educated workers, in a cost-effective manner is not always clear. And, at the federal level, the retirement of baby boomers is likely to strain public budgets for many years to come, especially since the costs of meeting Social Security and Medicare obligations will be growing dramatically. This means that new, very large federal outlays for education and training are fairly unlikely.
A number of questions become clear in this context. What are the various ways to encourage education and training, especially options that might require less expenditure of public resources and do more to leverage private-sector investments? How can public policy help meet employer needs for different types of workers? How can we make sure that new education and training opportunities are equitable and reach the populations at the lower end of the workforce, who might need special support to access these opportunities? Could other approaches beyond public policies related to training and education—perhaps involving immigration, retirement policy, and the like—effectively raise the supply of appropriately educated and skilled workers? And what kinds of policies will deal with other dimensions of worker needs in these changing labor market environments—including the growing need for insurance against labor market displacements(from new technologies and global forces),and the increasingly difficult task of balancing work with family responsibilities for working parents?
In this volume, we hope to shed some light on these issues. The chapters here, which were presented at a conference at the Urban Institute in Washington, D.C. , in November 2005, are written by a distinguished group of researchers who are at the forefront of analysis on each issue considered here. The chapters provide broad overviews of what we know (and don’t know) from research to date on these workforce issues and on potential policy responses. In particular, each author reviews empirical evidence on labor force trends and various policy options that suggest important directions for workforce policy over the next few decades and beyond.
The chapters are grouped into five topic areas. The first section lays out the likely labor market and policy contexts in which workforce policies will be devised over the next few decades. Richard B. Freeman focuses on likely trends in the labor market, particularly the effects of retirements and offshoring. Burt S. Barnow and Demetra Smith Nightingale present a broad overview of current workforce policies at the federal and state levels and of the factors that will influence their use over time.
The next two sections deal with education and training policies. The first of these, focusing mostly on formal schooling and especially younger individuals, features chapters by Robert I. Lerman on career training for youth in high school and beyond and by Sarah E. Turner on the access of lower-income youth and young adults to higher education. The section that follows features two chapters on training for adults: one by Paul Osterman on training for less-educated workers defined fairly broadly, and the other by Dan Bloom and David Butler on “hard-to-employ” adults with poor skills and labor market prospects.
The last two sections of the book address issues and policies beyond the realm of education and training. One focuses on efforts to increase the supply of skilled workers in the labor force, either through immigration policy or retirement policy; these chapters are written by George J. Borjas and Alicia H. Munnell, respectively. The last section of the book then highlights some remaining issues and problems that will increasingly concern workers in the future—namely, efforts to insure workers against the effects of job displacement, reviewed by Gary Burtless; and efforts to ensure a balance between work and family responsibilities for working parents of children, reviewed by Jane Waldfogel.
Together, these chapters address some of the more controversial issues in workforce policy, including these six:
- the extent to which secondary education should focus purely on academics and general skills as opposed to more specific occupational training;
- whether postsecondary financial aid for less affluent students should take the form of means-tested scholarships and loans, universally available “merit” scholarships, or broad-based tuition reductions at state colleges and universities;
- whether funding for the Workforce Investment Act can or should be increased substantially, whether the public funds can more effectively leverage private investment in training, and whether funding and “pathways” for skills training more broadly can be made less fragmented and more coherent;
- whether the least-skilled workers—including the disabled and those with criminal records—should be expected to work in much greater numbers, and how we should encourage and assist them to do so;
- whether we should change our national policies to encourage relatively greater immigration among those with more education (perhaps at the expense of less-educated immigrants), how to improve support to older workers, and whether to encourage later retirement ages in ways that might place new burdens on older workers; and
- how we can provide such benefits as unemployment insurance, health insurance, and parental leave to more workers without hurting the incentives of employees to work and employers to hire them.
Below we summarize the key themes in these chapters. We conclude by synthesizing the main policy prescriptions that emerge from these chapters.
THE LABOR MARKET AND POLICY CONTEXTS
In “Is a Great Labor Shortage Coming? Replacement Demand in the Global Economy,” Richard B. Freeman analyzes the likely effects of baby boomer retirements on the labor market, especially in light of growing competition from workers overseas. Freeman notes that many analysts predict shortages of labor when the boomers retire, especially in key occupations; but he also emphasizes several reasons these predictions might be overblown. These reasons include that the predicted magnitudes of these retirements may not be as large as is often assumed (especially if boomers work longer and retire only partially between the ages of 60 and 70); BLS projections of future occupational demand are often incorrect, and only weakly correlated with actual occupational growth; retirements in the 1990s were concentrated in declining sectors of the economy, so retirements did not induce sector-specific shortages of workers; and the employment outcomes of the baby boomers themselves were only modestly affected by the size of their cohort, while the diminished size of the “baby bust” cohort generated little recovery in terms of labor market outcomes.
These findings can be attributed to the fact that workers often face demand shocks in the labor market—associated with shifting demand over time for goods and services produced domestically and shifting modes of production—that are hard to predict in advance but are often large enough to overcome the more modest labor supply shifts caused by cohort size changes. In Freeman’s view, demographically based supply shocks might be easier to predict but are not powerful enough to overcome large demand shocks. And the latter might well predominate over the next several decades, given the doubling of the effective global workforce associated with the entry of Indian, Chinese, and Eastern European workers into the world economy and the resulting increasing competition that U.S. workers will face through offshoring and immigration.
Freeman makes a powerful case for the argument that predictions of worker shortages in light of impending baby boomer retirements have been overblown. Labor markets have many ways of responding to such supply shifts, including rising wages that draw marginal workers into the labor market; substitution of capital and technology for workers; slower retirements; replacement of retiring workers with other groups, including those from other cohorts and immigrants; and off-shoring. Freeman clearly believes that the last of these factors will be very important and on net will generate slack labor markets with declining wages rather than tight ones with rising wages for less-skilled workers.
Nonetheless, the boomer retirements constitute a moderately large supply shift that can be predicted with reasonable certainty, unlike other adjustments and demand shifts that are considerably more uncertain. Even if the boomer retirements have no effects on the overall U. S. labor market, they are likely to matter in some sectors of the economy, such as health care, elder care, and personal services, where demand is likely to be very strong and where wages may not be able to rise sufficiently to “equilibrate” (or balance) supply with demand. 5 Short supplies of semiskilled labor (in the installation, maintenance, and repair occupations, for example) may also materialize from time to time—especially in states and regions where immigration is limited and in sectors (like construction) that cannot easily be offshored. The limited mobility of workers across industries, regions, and skill groups in the short term often compounds these problems.
Thus, the net effects of retirements, offshoring, immigration, and other factors may vary considerably across sectors and areas in the coming years. This will create a need for policies that help educate and train workers to meet business demand for labor in at least some important sectors and areas and for a broader set of policies that help improve worker mobility across occupations, industries, and regions to adjust as needed to the changing economy. And, as noted above, the importance of raising the supply of skills in the workforce will likely grow, not diminish, if Freeman’s predictions are accurate.
In “An Overview of U.S. Workforce Development Policy in 2005, ”Burt S. Barnow and Demetra Smith Nightingale review a set of policy goals for the labor market, as well as a set of “levers” that are used to pursue these goals. The goals include meeting employer demand, achieving worker skills and security, enhancing opportunity, and strengthening work incentives; the levers include social insurance, regulations and mandates, tax credits, direct financing of human capital formation, labor exchange services, and other support services.
Worker training in the United States is primarily done by businesses and employers. Federally funded training of workers is mainly funded through grants and loans for postsecondary education for a large share of the population and through the Workforce Investment Act (WIA), which focuses mainly on dislocated workers, the unemployed, and workers having difficulty finding jobs. The funding provided through WIA is relatively modest compared with other public funding sources that can support education and education-based occupational training, such as the Higher Education Act. Tax credits for higher education—through HOPE scholarships and lifelong learning credits—have expanded over time. Tax-based incentives to expand employment—including the earned income tax credit for low-income workers, and various education and hiring tax incentives for employers—have also grown increasingly important in recent years. Universally available labor exchange services funded by the Department of Labor and provided through local one-stop career centers and over the Internet have been further developed. Attention to the needs of employers and workers has grown as well, and the importance of matching labor demand with the appropriate supply has increased with time.
State and local governments, which combine funding from multiple federal sources and use their own policy levers in somewhat different modes and proportions, will also grow increasingly important over the next several years, although the ability of states to fund raining depends heavily on the business cycle and its effects on their fiscal situations. The role of states will become more important, in part because of federal budget constraints that limit direct funding of training, and in part because of the broader tendency for the federal government to devolve more responsibilities down to state and local levels.
In this context, public policy responses to major labor market shifts will vary greatly across states and local areas, with much experimentation and adaptation occurring in response to varied regional labor market conditions and more limited federal activity and funding. Meanwhile, national policy options that emphasize creative strategies for using federal funds to leverage private and state funds may receive more attention.
School-Based Education and Training for Youth
Robert I. Lerman analyzes employment and training options for youth, mostly those who are not bound for four-year colleges, in his chapter, “Career-Focused Education and Training for Youth.” Lerman challenges the notion that secondary school education should focus exclusively on academic achievement and the expectation of “college for all.” These efforts do little to diminish high rates of dropping out of high school, especially among students who lack motivation to pursue serious academics. They also do little to prepare high school graduates who do not obtain any postsecondary education for the labor market.
Lerman reviews efforts that fall under the rubric of “career and technical education, ” including career academies, Tech-Prep programs, apprenticeships, and other activities funded in the 1990s by the School to Work Opportunities Act. In general, career education is associated with moderate gains in labor force outcomes for high school students after graduation; rigorous evaluation indicates much stronger gains for career academies, in which at-risk young men experience gains in earnings of nearly 20 percent four years after leaving school, without suffering any declines in their postsecondary enrollments. The strong potential of apprenticeships and other sources of private training is noted as well. On the other hand, Lerman notes that further improvements are needed in the academic quality and workplace relevance of many career education programs, and that more evaluation evidence in this area is sorely needed.
Lerman also reviews evidence on “second-chance” programs for out-of-school youth, noting the successful shorter-term impacts of the Job Corps and the promising new National Guard Youth ChalleNGe program, among other efforts. 6 He argues for a good deal more experimentation with and expansion of career-focused educational efforts, along with some second-chance programs for out-of-school youth. He thinks these can help link more disadvantaged youth to the labor market and provide them with general and occupation-specific skills, for a labor market that increasingly rewards such skills.
The labor market returns to higher education in the United States have grown consistently over the past three decades and will likely remain high in the future. Sarah E. Turner, in her chapter on “Higher Education Policies Generating the 21stCenturyWorkforce,” notes two important developments in terms of higher education outcomes: there are growing gaps across students from different family income backgrounds in rates of college attendance, and even more so in college completion; and the time needed for completion of four-year college degrees is growing, as is the presence of adults in college more broadly. Gaps across family background in college attendance and completion likely reflect some combination of differences in academic preparation, financial abilities to meet costs, and information/supports for college. The growing time needed to complete degrees and the rising presence of adults on campus could reflect changing student preferences and a desire for more flexible schooling arrangements, as well as rising costs; but the trend seems more concentrated among students at “non-flagship” state colleges and universities, where students from less affluent families are most heavily concentrated.
Turner notes that rising tuition costs at state universities likely impede the ability of students from less affluent homes to attend or complete college, and she cites evidence showing that at least some students face credit constraints that limit their ability to borrow against their future earnings for college tuition. Of course, the actual monetary costs of college attendance are often significantly lower than official tuition levels suggest, due to a variety of grant programs (such as Pell grants for low-income students) and loans (such as Stafford loans) offered by the federal government, as well as scholarship and loan assistance based on state or private funds. The evidence that Pell grants help low-income young people attend college is fairly limited, though they seem more helpful for older (nontraditional) students. Somewhat stronger evidence appears in favor of the merit scholarships at state universities that reward students with financial assistance if they meet certain academic achievement levels (usually in the form of minimum grade point averages).
Thus, while tuitions at state universities will likely continue to grow more rapidly than inflation (especially as state funding of universities faces growing competition from Medicaid and other expenditures), various forms of more targeted aid within more universally available funding opportunities like the merit programs create the best hope of helping students from less affluent families have access to higher education. Turner would also explore some restructuring of the federal grant and loan programs for lower-income students, and especially try to improve their transparency and visibility in low-income communities. And, as Turner and others have noted, equalizing access to higher education across more-and less-affluent students will require closing gaps in academic preparation and achievement in the pre-K and K–12 years, in addition to efforts to limit costs and provide greater financial assistance.
TRAINING FOR LESS-EDUCATED ADULTS
Paul Osterman reviews the state of training in the United States for less-educated adults, and considers some new approaches, in his chapter, “Employment and Training Policies: New Directions for Less-Skilled Adults.” Osterman notes that most on-the-job training for adults in the United States is privately provided and financed, and it is heavily skewed toward more-educated workers. Training for the less-educated is financed through various public sources, including funds from the Workforce Investment Act and other resources at the federal and state levels. Based on evaluation evidence, he notes some clear success stories—including adult training funded by the Job Training Partnership Act (now WIA), certain welfare-to-work programs (such as that in Portland, Oregon, in the 1990s), and programs that involve employers as well as employees (such as Project QUEST in San Antonio).7
Yet Osterman also notes some major weaknesses in the public employment and training system as a whole. In general, funding levels for less-educated workers fall far short of need. The system is highly fragmented and somewhat disconnected from private employers; few workers or employers use the public employment service, and few pathways or “ladders” provide access to private employment opportunities for those getting training from community colleges or other service providers.
In Osterman’s view, the most promising models for overcoming these gaps in the workforce system rely heavily on private labor-market intermediaries that work with employers and workers to improve the latter’s employment opportunities. Some of these efforts involve sectoral approaches, which target important sectors of local economies for training. The intermediaries often work with employers to build career ladders with training, increasingly provided by community colleges, while preparing less-educated workers for training and jobs in these sectors.
Given WIA’s limited scope and funding, Osterman argues that the program should be used primarily as a tool to encourage innovations in the workforce training system. State and local workforce boards would support these efforts and fund evaluations and replications of successful models. WIA performance standards would also have to be substantially modified to provide the incentives for state and local boards to play this innovative role.
Of course, some potential workers face particular barriers and have specific limits on their abilities to participate at all in the labor force. These groups include those with very poor skills or English language abilities, those with physical disabilities and other physical or mental health problems, and those with criminal records. Employers are often reluctant to hire these individuals (especially ex-offenders), even after accounting for their weak skills and work experience, while the workers themselves exhibit very limited labor force attachment in many cases.
In their chapter, “Overcoming Employment Barriers: Strategies to Help the ‘Hard to Employ,’ ” Dan Bloom and David Butler review approaches to improve employment opportunities for individuals who can work but have special issues that must be addressed in order for them to be most productive. Bloom and Butler find that a mix of treatments (for workers with health issues or disabilities, substance abuse problems, and so on), employment and training services, and efforts to improve work incentives hold promise for increasing the employment and earnings of these populations. But little solid evidence exists on the cost-effectiveness of various approaches. Further, the multiple public systems that serve these individuals—including transfer programs like Supplemental Security Income and Social Security Disability Insurance as well as the criminal justice and parole systems—often do not emphasize encouraging labor market participation. But Bloom and Butler also note that some systems can change dramatically over time: in particular, the nation’s welfare system changed its mission and its emphasis to one of encouraging employment in the wake of welfare reform in the late 1990s.
In light of this situation, Bloom and Butler call for a multi-pronged effort to improve employment outcomes for the hard-to-employ. They argue for major efforts to change the missions of the systems that serve (or incarcerate) these groups to put greater emphasis on employment; this would require major changes in system policies, practices, accountability and incentives for staff. Bloom and Butler argue for improved work supports and services, including child care and training, to be provided in these systems; they also call for improved work incentives, such as expansions of the earned income tax credit, to encourage more employment. Finally, they call for much greater efforts to evaluate existing models to improve our knowledge base in this area.
Increasing the Supply of Skilled Labor: Immigrants and the Elderly
Beyond efforts to increase education and training for less-skilled workers, potential policy reforms might be implemented to increase the presence of skilled workers or to more fully use available human capital, especially among such populations as immigrants and the elderly.
In “Immigration Policy and Human Capital,” George J. Borjas notes that the federal law controlling immigration since 1965 emphasizes family unification rather than personal skills in determining which foreigners can reside in the United States. As a result, immigrants in the past few decades have increasingly been concentrated among the least-educated and lowest-paid workers in the labor market. Indeed, immigration in this period has raised the supply of high school dropouts in the U.S. labor market by nearly 40 percent, while it has raised the supply of more-skilled groups by much smaller amounts. In addition, Borjas provides evidence that the concentration of immigrants among the less-skilled has significantly reduced earnings levels among native-born high school dropouts.8 He also notes the drain on public resources created by the relatively greater reliance on transfer payments among lower-income immigrant groups.
According to Borjas, the United States would be better served by immigration policies that place greater relative weight on the education and skills of those seeking admission—as is done in many other English-speaking countries (including Australia, Canada, and New Zealand)—to encourage the immigration of more highly educated instead of less-educated workers. Of course, such a policy would involve some clear trade-offs. For instance, the costs of some categories of consumer goods—including food, housing, and health care—would likely rise a bit, especially in regions of the country where most immigrants now reside; and, if the overall flow of immigrants slows while its composition changes, the future solvency of our retirement programs might be affected. Whether and what kinds of policies would effectively reduce the flow of illegal as well as legal immigrants also remain open to question, as do the potential effects of various “guestworker” programs. The diplomatic and humanitarian impacts of these changes in immigration policy would need to be weighed as well. Still, Borjas makes a compelling case for at least considering these trade-offs in immigration policy.
Alicia H. Munnell’s chapter, “Policies to Promote Labor Force Participation of Older People, ” notes that both employers and workers will face growing incentives to increase the rates of labor force activity among older Americans over the coming decades. Employers will face a need to retain skilled workers in the face of baby boomer retirements (subject to the caveats noted by Freeman), while older workers will face increasing financial strains as their savings and retirement benefits increasingly fall short of their income needs during their older years, especially as their life expectancy continues to increase.
Of course, these incentives imply that private-market forces will generate reduced rates of early retirement and longer working lives among the elderly. But Munnell also notes several barriers that could limit these adjustments, including the high costs of older labor to employers (due to both high salaries and medical and pension costs), health problems among older workers, the fixed costs of part-time work for employers, and discrimination against the elderly. In addition, labor force participation rates among the elderly have been fairly flat in recent years and so far show little sign of adapting on their own to the new realities facing older workers. Even the phasing out of defined-benefit pensions and the elimination of mandatory retirement and declines in benefits received for early retirees (at age 62) that have already been implemented have done little to increase participation of this group so far.
Munnell thus calls for considering additional policies that might actively promote more labor force activity among older workers. These include delays in the age of eligibility for early retirement benefits (beyond age 62), allowing Medicare to become the primary payer on health benefits for working older Americans, or exempting older workers from payroll taxes. But the first proposal could be costly to workers with poor health and lower life expectancies (and would face significant political opposition), while the latter two proposals would impose extra financial costs on a retirement system that already faces large future solvency problems. Thus, smaller changes to improve skills among the elderly, further decrease discrimination, or modestly reduce the costs older workers impose on employers are more feasible at this time.
Insuring Workers and Promoting Work–Family Balance
In addition to efforts to increase the supply of skills in the workforce, policymakers might need to address some concerns and pressures that already affect workers and will do so increasingly over time. One is the growing insecurity felt by many workers as they face growing rates of job displacements and shorter periods of tenure with particular employers. Another is the growing tension felt by many parents who struggle to balance their family responsibilities with their jobs and careers—especially in a world where most mothers as well as fathers work.
Gary Burtless’s chapter, “Income Supports for Workers and Their Families: Earnings Supplements and Health Insurance,” addresses the first of these issues. Burtless notes that average tenure on the job is declining, while there is at least some evidence of secular increases in the rates of job displacement. Workers increasingly need some protection against income declines associated with job loss, owing to both their lack of employment between jobs and the earnings declines that most suffer when they regain employment. The loss of health insurance is a further consequence of permanent job loss for many workers, though this problem increasingly plagues many of those working as well.
Unemployment insurance (UI), a program regulated by the federal government but financed and administered mostly at the state level, represents the country’s primary effort to protect workers from the effects of involuntary job loss. According to Burtless, UI in the United States replaces less of the lost earnings of the unemployed (on average, roughly half) and for shorter periods (usually up to six months) than is true in most other industrial countries. The fractions of unemployed workers covered by UI have also fallen over time: partly because the fraction of the unemployed experiencing long spells of joblessness (i.e., six months or longer) has risen, and partly because of changes in the demographics of unemployed workers and lost jobs (i.e., more low-income women and part-time workers, more service jobs, and so on). While Burtless is open to some modest fixes that might improve eligibility or take-up rates for marginal groups in the workforce, he cautions against simply increasing replacement rates or durations of coverage, as these actions would reduce incentives of unemployed workers to actively seek new jobs.
Burtless is more enthusiastic about implementing a new form of earnings insurance, in which displaced workers might be insured for a substantial period (e.g., up to two years) after they regain employment for any losses in wages or earnings between their old and new jobs. Such a policy would not only help workers who have suffered earnings declines from involuntary job losses, it would also increase labor market efficiency by encouraging displaced workers to seek and accept new employment more quickly than they might under current circumstances.
Burtless also reviews health insurance coverage among U.S. workers. The U.S. health system is the most expensive in the world, yet it provides more limited coverage (as well as worse health outcomes, along some dimensions) than occurs in almost any other industrial country. At least part of the problem with health insurance coverage here, according to Burtless, lies in the concept and features of employer-sponsored coverage that provides most private insurance in the United States. Because employer spending on insurance is not taxed (under a system implemented during World War II for firms looking to raise worker compensation in ways that would not violate wage and price controls), the U.S. government heavily subsidizes such insurance coverage. But, because of rising costs, increasing numbers of employers are choosing to forgo providing coverage, especially for lower-wage workers and their dependents. In addition, such a system encourages employers to discriminate in hiring against employees with potentially large health costs (such as the elderly, sick, and disabled), and it discourages job mobility among workers who fear the loss of coverage if they change jobs.
Accordingly, Burtless argues that efforts to expand health insurance coverage among U.S. workers should seek to sever the link between coverage and employer provision, phasing out tax deductions for employer provision and instead focusing on expanding individual coverage through public subsidies. Of course, the transition from the current system to a new one would be both costly and very uncertain, especially given the highly charged political environment around health care. But the new health care plan adopted by the state of Massachusetts (which mandates individual coverage and some employer contribution to health care) indicates that dramatic new approaches to expanding coverage are certainly possible.
In “Work–Family Policies,” Jane Waldfogel reviews the evidence on a range of family-friendly work practices, including sick leave and parental leave, child care and early childhood development programs, and flexible work schedules for parents. Overall, she finds clear evidence of the benefits these practices provide for the health and wellbeing of children and for their parents. But lower-income workers are much less likely to enjoy paid leave, and they spend proportionately more on child care, than do higher-income workers. The passage of the Family and Medical Leave Act in 1993 has had limited impact because it covers only unpaid leave (which most low-income families cannot afford) and is limited to larger employers. Various expansions of subsidized child care for low-income workers in the 1990s certainly helped, but they still leave the vast majority of eligible families without any subsidy.
But Waldfogel, like Burtless, does not endorse mandates on employers to provide paid leave or child care. Such mandates would likely result in lower employment or earnings for low-income families, leaving them no better (and perhaps worse) off on average. Instead, she proposes financing expanded overage of parental leaves and child care through payroll taxes (in the UI system) or some other revenue source, as California and some other states have recently done. She also praises a new system in the United Kingdom in which employers are required to consider (but not necessarily to grant) employee requests for flexible work schedules. As a result of such a flexible, voluntary system, large percentages of employers granted requests that do not appear costly to them but that workers would not have requested in the absence of the new policy.
Conclusions and Implications for Future Policy Directions
Despite considerable uncertainty about the magnitudes and net impacts of future labor market shocks such as baby boomer retirements and continuing globalization, there is some consensus on the need for policies that will continue to improve the skills of U. S. workers in the presence of these shocks. Other needs of American workers, such as insuring them against earnings declines and loss of health insurance when they lose jobs and helping them balance the needs of their jobs and their families, will be critical as well. On the other hand, a review of the policy context suggests that, while a range of policy levers will be available, the fiscal pressure generated by funding retirement programs for baby boomers render large increases in federal funding unlikely, at least in some areas.
While the specific policy recommendations of individual chapter authors are discussed above, the following broad conclusions seem warranted:
A wide range of skills must be encouraged among workers to meet future labor market needs, and a wide range of high-quality education and training options should be available to help meet these needs. Strong basic and analytical skills are essential to ensure students’ access to higher education—and to high-quality career options that do not require four-year college degrees. To fully meet future needs, it is important to increase the readiness of low-income students to access higher-level skills training and education. Thus, there is no controversy over the need to reduce “achievement gaps” between lower-income and other students in the K–8th grade years (and earlier). But there is also no clear trade-off between the provision of career education and academic achievement in high school; indeed, expanding the provision of high-quality career and technical education does not limit access to higher education, and likely complements it. Various second-chance programs for youth, and other education and training options for less-educated adults and the hard-to-employ, could also contribute significantly to a broad skill-building effort.
Funding for training and higher education should be targeted to low-income individuals more than in the past, but not limited to them exclusively. To improve the overall skill level of the nation’s workforce, future public efforts should focus on increasing education and training for those who will otherwise be among the least-educated. The chapters by Lerman, Osterman, and Bloom and Butler all emphasize efforts to improve training for various groups of individuals who will likely not achieve four-year college degrees. But improving access to higher education for lower-income youth and adults is critical as well. Sarah Turner notes that tuition at state universities will rise over time as universities receive less generous funding from states than in the past. Pell grants and loans for low-income students can perhaps be made more transparent and more visible to low-income youth, while they remain fairly effective for nontraditional student populations. Other approaches—such as merit scholarships—might have more potential to reach lower-income students, while providing at least some benefits to those from a wide range of backgrounds.
Education and training should be at least somewhat targeted to private-sector employment opportunities, and , where possible, should directly involve employers. As Robert Lerman and Paul Osterman emphasize in their chapters, publicly financed training efforts must be linked to available jobs, and they should involve private employers—who should provide some of the training as well as the jobs. Of course, workers benefit from having both general and more specific labor-market skills, and the willingness of employers to help pay depends on the mix of the two skill sets (Becker 1975).9 Still, linking training to available jobs improves the quality of the matches between the two, strengthens worker motivation, and seems to improve the resulting payoff for workers.
States should continue to experiment with a range of programs that fund education and training options, as well as those providing health insurance, family leave, and child care coverage. Lerman, Turner, and Osterman all advocate a range of state efforts to improve worker access to education and training, with appropriate federal financial support. Waldfogel also notes the promising efforts in California and elsewhere to fund parental leave and other family-friendly work practices, while Burtless notes the recent steps taken by Massachusetts to expand health insurance coverage.
Efforts to improve the skill levels of workers through immigration reform or policies to encourage employment among the elderly are feasible but involve some major costs and difficult trade-offs. George Borjas advocates immigration reforms to increase the skill levels of immigrants, and Alicia Munnell considers efforts to increase labor force participation among the elderly. But both acknowledge potential costs (including economic, fiscal, diplomatic, and humanitarian costs) as well as political opposition. These reforms should be considered, but only with a careful weighing of potential benefits and costs in each case.
In designing new policies and approaches, federal and state governments must pay careful attention to the incentives facing both employers and workers. Dan Bloom and David Butler note the critical role played by work incentives for welfare recipients and other hard-to-employ individuals, and how lack of attention to these incentives still plagues the systems that treat them. Gary Burtless and Jane Waldfogel also note that mandates on employers to provide health insurance or supports for working parents might distort their incentives to hire these workers, though they support efforts to expand health coverage and other family supports through direct public subsidies. Unemployment insurance reforms and new earnings insurance efforts must also pay attention to work incentives of recipients, but without ignoring the business context facing employers.
More research and evaluation evidence is critical for the design of cost-effective policies in all these areas. Much research and hundreds of program evaluations have been conducted on employment policies and programs over the past several decades. Yet, in virtually all the chapters focusing on education and training—and those focusing on insurance and work–family balance—many approaches were discussed that look promising but lack rigorous evaluation evidence. Increasing the stock of knowledge on cost-effective approaches to education and training for both employers and workers, including lower-income Americans, remains a high priority.
Finally, it is important to note some issues and concerns that were not a central focus of the chapters in this volume but that remain critical nonetheless. Most important, the growth of labor market inequality, and the need for policies that will directly raise or supplement the earnings of less-educated workers, will need to be addressed in future years. Policies that directly raise the earnings available in low-wage jobs, such as minimum wage increases and efforts to make it easier for workers to choose collective bargaining, deserve serious consideration.
Certain policies that directly target the demand side of the labor market should be considered as well. For instance, while some are skeptical of economic development policies that target particular sectors or industries for support (at either the national or state level), public supports and assistance for firms that provide higher wages, benefits, or advancement opportunities for low-wage workers should be seriously considered (Holzer 2004).10 Such policies might help reduce the further erosion of the middle of the wage distribution, increase the number of skilled workers who could adapt better to future changes in labor market demand, and ensure that job opportunities will continue to exist for low earners who upgrade their skills.
Overall, the chapters in this volume imply that effectively meeting the future demands for a competitive and skilled U. S. workforce will require policy strategies that involve both the demand side of the labor market and the supply side—both are critical in determining the relevant outcomes for American workers and businesses. Policies must focus on raising the skills of workers who are currently underused, while helping businesses and employers in this increasingly competitive world adapt to the changing economic contexts within which they operate. As the current labor force ages, some may be encouraged to remain in the active workforce longer, to capitalize on their skills and experience. Meanwhile, new workers replacing the retirees will need to gain new skills to meet changing demand. Immigrants may fill part of the need for skilled workers, but a critical dimension of national policy should be to improve the skills and productive potential of less-educated native-born workers. Investing in the skills of less-educated workers could enhance the overall aggregate skills of the workforce, particularly if the investments are relevant for sectors and areas expected to grow. At the same time, making these investments will serve the additional, critical goal of improving the earnings and income of the less-educated and equalizing opportunity in society.
Notes
1. For these projections, see Saunders (2005); Toossi (2005); and the U. S. Census Bureau, “U. S. Interim Projections by Age, Sex, Race and Hispanic Origin, ” http://www. census. gov/ipc/www/usinterimproj.
2. See Levy and Murnane (2004) and Autor, Katz, and Kearney (2005) for some discussion and evidence on the relatively greater growth of high-and low-wage jobs. On the other hand, employment growth in technical and craft occupations (now called “installation, maintenance and repair” by BLS) and in industries such as construction and health care will no doubt remain robust.
3. Demographic projections of labor force changes (e.g., Toossi 2005) assume little change in retirement behavior over time, or in other market adjustments. The magnitudes of jobs offshored to date have been quite modest, relative to the aggregate creation and destruction in jobs in the United States (e.g., Schultz 2004). Projections of future offshoring vary widely in magnitude, and data on these trends are somewhat conflicting (GAO 2004, 2005).
4. Richard Freeman makes both these arguments in chapter 1.
5. Since payments to health care workers are often affected by Medicare, Medicaid, and other third-party reimbursements that are capped, wage increases might be limited over time in ways that generate shortages when demand growth is strong—as it is expected to be as the boomers age. See, for instance, Stone and Wiener(2001).
6. The most recent evaluation on the Job Corps, based on longer-term follow-up on those who participated in Job Corps versus a control group, shows some fading of its impact over time, though the findings remain largely positive. See Mathematica Policy Research (2006).
7. Osterman acknowledges that some evaluation evidence—such as that on JTPA training and the major welfare-to-work programs—is based on random assignment or more rigorous empirical methods than those used in evaluating the sectoral programs. He also argues that the gains observed in the evaluation of Project QUEST were not likely attributable to the less rigorous evaluation techniques used in that study.
8. This evidence has been disputed by David Card (2001), among others. Card’s analysis focuses on differences in earnings and immigrant concentrations across geographic areas, while Borjas has estimated more aggregate impacts of immigrants over time and across education and work experience groups.
9. In Becker’s classic formulation, employers will share the costs of firm-specific training but not general training. But more recent analysis (e.g., Acemoglu and Pischke 1998) that incorporates imperfect and asymmetric information about training between workers and employers suggests these two categories of training are not so easily distinguishable from one another.
10. These supports could take the form of tax credits for training and advancement, technical assistance for firms that attempt to develop new career ladders and credentials, and the kinds of sectoral approaches discussed by Osterman in chapter 5.
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