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October 2, 2012

Romney's plan for America's workforce: Personal reemployment accounts

October 2, 2012

The first in a three-part series about a central Romney jobs proposal. 

The Romney campaign has made much of the former governor’s business and job-creation acumen. A central component of Romney’s job creation proposals is the Personal Reemployment Account (PRA), a plan to redesign publicly funded training and reemployment services for unemployed workers. But do they work? Fortunately, much research has been done on PRAs, and we understand how their design affects labor market behavior, program participation, and job uptake. The research tells us that the PRA design advanced by Gov. Romney is neither cost effective nor particularly successful in properly training and reemploying workers. In this blog series, I’ll lay out the research evidence and offer recommendations for revising and improving PRAs.

In his book Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth, Gov. Romney proposes consolidating all training programs into a single program run by states and funded through a block grant. Romney encourages states to deliver training through PRAs, giving select unemployed workers a personal account to pay for training, reemployment services, or a reemployment bonus.  Unemployed workers can spend from the account as they see fit. As a retraining voucher they can make purchases from community colleges, private vocational courses, state-run training, etc. Romney’s PRA design follows that of the 2003 model developed by R. Glenn Hubbard, a Columbia University professor and one of Romney’s economic advisors. Under his proposal, unemployed workers receive $3,000 for reemployment and training services, as well as supportive services such as transportation and child care. Recipients can purchase job counseling services to help them decide how to spend their training funds, but are not required to do so. Alternatively, as an incentive to find work quickly, PRAs also act as a reemployment bonus. Recipients who find a job within 13 weeks can keep whatever funds are left in their account—60 percent upon securing a job and 40 percent after being on the job for six months.

PRAs attempt to reform public workforce programs based on the free-market principles of choice and personal financial incentives. Melding training vouchers and reemployment bonuses and giving workers ownership over personal accounts appears to be an attractive market-oriented package, but the two program components have different goals that are, to some extent, at odds. Training vouchers aim not only to get unemployed workers into jobs, but also to improve their job skills and pave the way for more productive, better-paying employment.

The reemployment bonus, however, aims to speed up job searches, encouraging workers to look immediately for jobs that use their current skills. As a result, the reemployment bonus is likely to discourage participation in training.

What’s more, the proposal doesn’t meet the criteria for cost-effective and successful training vouchers or reemployment bonuses, according to research on both components. In my next blog posts, I’ll describe what the research reveals about PRAs and discuss the proposal’s five major flaws.

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