The Obama administration recently directed federal agencies to make government more accountable by “applying existing evidence about what works, generating new knowledge, and using experimentation and innovation to test new approaches to program delivery.” So how should this directive apply to the administration’s policies on investing in the earnings capacity of Americans?
Currently, the administration and the Congress are failing to use the best evidence to choose investments that are most cost-effective in increasing people’s skills and thereby strengthening the middle class. Unfortunately, they now spend a tiny amount on apprenticeship—an evidence-based approach that works—while showering massive funding on certain post-secondary education strategies of dubious effectiveness. If the administration truly wants to allocate dollars based on the strongest evidence, it should embark on a major expansion of the apprenticeship system.
Such an initiative would combine work-based and academic learning to sharply increase skills, employment and earnings, production, and access to valuable occupational credentials.
What’s the evidence for apprenticeships?
The international evidence for the cost-effectiveness of apprenticeships is compelling. Countries with robust apprenticeship systems achieve far lower youth unemployment rates than countries without these systems, as documented by the Organization for Economic Cooperation and Development. Its 2010 report “Off to a Good Start: Jobs for Youth (2010)” highlights the role of apprenticeships in smoothing the transition from school to work and in achieving low youth unemployment. Earnings gains from apprenticeships yield high rates of return, often in the range of 15 percent or more.
Along with these monetary benefits comes a sense of pride in mastering an occupation. These are not the only social benefits. Employers gain as well; they recoup most or all of their training costs during the apprenticeship period. The rest is gravy, coming in the form of reduced hiring costs and increased innovation.
Apprenticeships in the United States are highly cost-effective
While apprenticeships in the United States are far less common than in other advanced economies, studies show U.S. apprenticeships are extraordinarily cost-effective. According to analyses conducted for Washington State’s Workforce Board, the government nets almost three times its spending on apprenticeships within two and a half years of the program’s completion. In this short period, benefits to participants and taxpayers are about five times the costs. By the time former apprentices age reach age 65, projections suggest public benefits of $23 for each $1 spent. These gains to apprenticeship far outweigh the net benefits to community college career programs.
Another study of returns to apprenticeship in 10 states documents large earnings gains for participants. Six years after starting a program, average apprenticeship participants earn 1.4 times as much as their peers with similar work histories but who were not apprentices. The estimated apprenticeship returns were nearly $28 in social benefits for every dollar of government and worker costs.
Can U.S. employers be persuaded to expand apprenticeships?
The evidence shows that apprenticeships are cost-effective, but can they actually be expanded? Again, the evidence shows a well-executed marketing effort can help make it happen. For example, in South Carolina, small incentive payments and a low-cost marketing initiative reaching out to individual employers generated a five-fold increase in apprenticeships, even during the latest downturn when employment was plummeting.
Reallocate funds from less effective school-based strategies
The funding required for an expansion of apprenticeship would be modest compared with past and future increases in higher education spending. Pell grants for low-income students to attend college—over half of which go for two-year public and private colleges—tripled in 2011 dollars from $12.7 billion to $37.0 billion in the past 10 years.
Federal spending on loans for higher education is skyrocketing as well; the recently passed reduction in interest rates on student college loans will probably add $5 billion per year to the costs of the program. Meanwhile, federal dollars for the apprenticeship system has declined sharply in real terms and today amount to less than a measly $30 million.
The evidence offers no support for giving priority to added higher education outlays over spending for expanding apprenticeship. A college education yields generally high returns, but the evidence of college effectiveness is weak for the many marginal students who start and never finish two-year colleges. The government’s own What Works Clearinghouse cites a rigorous study showing that added scholarship funding for community college students did not increase enrollment credits or academic achievement, let alone have labor market impacts. For the United States as a whole, college completion rates are dismal, especially for two-year public institutions. Only one in five students entering full-time two-year programs completed them within 150 percent of the expected time.
If the Obama Administration follows its own directive and uses evidence to determine investments in human capital, we should see a shift toward major investments in apprenticeship in the coming years. Let’s hope the message gets through the many layers of government.
Apprentice photo from Shutterstock