Robert Lerman, an Urban Institute fellow, answers five questions about expanding apprenticeships to jumpstart employment and train job-seekers. Lerman also proposes a homeownership voucher program to spur growth in construction—a sector hard hit by job losses during the recession.
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January 20, 2011
1. Why is this recession different from past recessions? And why has job creation been so weak, particularly in construction?
This recession differs because it combines a standard recession with a financial crisis. We saw banks and companies' balance sheets deteriorate rapidly and, when they began to stabilize, financial institutions weren't ready to lend and invest. Also, banks now have far more rigorous standards for housing loans, so it's hard for families—even those with moderate credit—to get a mortgage.
When banks are averse to extending mortgages to middle- and lower-middle-income renters who can afford to buy homes at today's prices, the unsold inventory of houses remains high and there is no demand for new construction.
Relatively slow economic growth has kept job growth meager. Construction jobs have been particularly hard hit. In construction, the unemployment rate is about 19 percent, compared with an overall rate of 9.8 percent. Construction jobs account for 30 percent of all jobs lost, even though construction is only about 5 percent of the economy.
2. What can we do to encourage growth in construction jobs and stem the foreclosure crisis?
So far, efforts to slow foreclosures and get housing back on track revolve around foreclosure assistance, but those initiatives have had very limited success. The homebuyer's credit, meanwhile, was an inefficient strategy: chances are, it sped up some home purchases that would have happened anyway. And many who got it—including couples with incomes above $200,000 a year—didn't really need it.
So here's a more efficient alternative: a million or more homeownership vouchers that people could use to buy homes priced in the lowest quarter of houses on the market, while paying no more than 30 percent of their income toward a mortgage. Voucher-backed loans would be low-risk for lenders because a drop in the homeowner's income would just raise the value of the voucher—and the mortgage would always be covered. Also, homeownership vouchers could lock in the low housing prices and low interest rates available now, at a time when rents range well above home prices.
Homeownership vouchers could also save on rent vouchers. In Cleveland, Ohio, for instance, a home at the 25th percentile costs about $85,000. That's a mortgage payment of $525 a month if you count interest, taxes, insurance, and some maintenance costs. Even a fairly low-income family could pay about $380 a month, so the government contribution would be small—roughly $140 or $150 a month. Right now, the current rent voucher threshold for a 3-bedroom apartment is $923 a month—a lot more.
Helping a million families afford homes would do more than improve their living conditions. It could boost demand for owner-occupied housing, lessen pressure on the rental market, and cut the waiting list for low-income housing subsidies. Greater homeownership could spur demand for construction that would, in turn, stimulate the economy and create needed jobs.
We could also add a jobs program to repair and weatherize the voucher-purchased homes and other homes in low-income areas, including public housing, which is seriously short of maintenance funding. We could also build in a training program by hiring low-skilled workers to work alongside and learn from high-skilled construction workers.
Finally, my idea for paying for the vouchers is to reduce the low-income housing tax credit. We have lots of housing sitting idle, so what's the sense of subsidizing the building of more homes? Our problem is a lack of demand, not housing. Financing is tight and many families can't afford to buy homes. The voucher would help on both fronts. If you cut funding for the tax credit by 50 percent, you'd have enough to pay for the homeownership vouchers I'm proposing. You would even save money in the long run.
"UNLIKE EDUCATION SUBSIDIES, SUBSIDIES FOR APPRENTICESHIPS CAN PUT PEOPLE IN JOBS RIGHT AWAY, WHILE TRAINING THEM FOR LONG-TERM CAREERS."
3. You've recommended investing in apprenticeships to stimulate job growth. What are the benefits of apprenticeships and how common is the practice?
Apprenticeships are a great way to train and mentor people. Apprentices gain career experience and qualifications while being paid to learn on the job. Government investment is low because employers cover most of the training costs. There's less mismatch between jobs and skills because employers train people only for jobs that need to be filled. And apprenticeships improve productivity and earnings. In fact, there's some evidence that earnings gains from apprenticeships are higher than gains from technical training in community colleges. Unlike education subsidies, subsidies for apprenticeships can put people in jobs right away, while training them for long-term careers.
In some countries, 70 percent of young people go through apprenticeships. In Germany, 40 percent or so of young people take that route even if they plan to go to college afterwards. The United Kingdom is trying to double its apprenticeships; Australia managed to triple its apprenticeships over 15 years. In the United States, we have relatively few apprenticeships. We're currently training about 500,000 apprentices, or about 130,000 new apprentices per year.
4. Why aren't apprenticeships more popular here?
The federal government provides virtually no funding for the apprenticeship system. There's no money for research and analysis of what skills are needed for modern occupations. The Office of Apprenticeships has almost no funds to market the program, reach employers, and help them adopt high-quality training systems. Basically, the program is out of date and starved for cash.
The total federal investment in apprenticeship is about $25 million per year. Compare that with the Workforce Investment Act (WIA), which gets about $4 billion a year. WIA helps subsidize training for about as many people as apprenticeships do, but probably less effectively. Investment in apprenticeships is so low that even in a major industrial state like Indiana, only two people are employed for marketing, monitoring, technical support, and recordkeeping for apprenticeships. Some states invest their own money, but not all.
Adding insult to injury, we don't offer subsidies for apprenticeships, even though we subsidize college tuitions. The strong bias against vocationally oriented initiatives ignores the diversity of learning styles and career interests.
5. What do you recommend to boost apprenticeships?
I suggest more federal investment of two types. One would expand the Office of Apprenticeship and give states funds to expand their programs. Tripling the budget for the Office of Apprenticeship from $25 million to $75 million would allow them to hire more people to market and monitor apprenticeships, provide technical assistance, and help employers use apprenticeships to train their workers to the high occupational standards required for earning credentials in each field.
I also suggest offering a $5,000 tax credit for each added apprentice beyond 80 percent of the number businesses had sponsored last year. In addition to construction, several sectors could benefit—service work, health professions, maintenance and repair, transportation, and even computer networking. Some manufacturing companies are short on highly skilled workers—expanding apprenticeships could help make up for that shortfall.
We also need to better market apprenticeships to workforce agencies, students, and workers. Rustling up apprentices to fill open slots in certain occupations won't be hard—Baltimore's plumbing and pipefitting apprenticeship program received about 800 applications for 80 slots. But marketing could benefit other occupations. Today's young people need to learn about the wide variety of career fields available to them and match their interests to the emerging apprenticeships.
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