Job Training Mythologies: Stitching Up Labor Markets

• Publication year: 2021

98 Nebraska L. Rev. 795. Job Training Mythologies: Stitching up Labor Markets

Job Training Mythologies: Stitching up Labor Markets

Henry H. Perritt, Jr.(fn*)

TABLE OF CONTENTS

I. Introduction .......................................... 796

II. Creative Destruction .................................. 799

III. The Failure of Government "Adjustment Assistance" . . . 801
A. Components of Training ........................... 802
1. Elements of Training .......................... 802
2. Tools for Training ............................. 803
3. Economics of Training ......................... 804
4. Institutions for Training ....................... 804
5. Barriers to Private Sector Skills Training ...... 808
B. Weaknesses of Existing Programs ................. 810
1. Janesville, WI: A Case Study .................. 811
2. Registered Apprenticeships Are Not the Answer ........................................ 813
C. Labor Department Proposed Rule for Industry-Recognized Apprenticeships ....................... 820

IV. Textile Industry: A Case Study ........................ 822
A. Mechanizing the Basics: Teaching in Surrogate Families (1800-1840).............................. 823

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B. The Speedup and Stretchout-Rings and Draper Looms: Informal Worker-Level Tutelage (1840-1880) ....................................... 830
C. The South Rises: Meeting the Need for Institutionalized Education (1880-1930)........... 840
D. Global markets: Trying to Shift the Responsibility to the Government (1930-2000)...................... 849

V. Other Adjustment Mechanisms ........................ 855
A. Go West, Young Man! ............................. 855
B. Markets and Mobility ............................. 856
C. Unemployment Compensation ..................... 860

VI. Realistic Policy Directions ............................. 864
A. Restructure the Unemployment Compensation System to Provide Incentives to Relocate to Find Work ............................................. 865
B. Target Student Loans and Reform For-Profit Trade Schools ........................................... 870
C. Resuscitate the Apprenticeship Concept ............ 872

VII. Conclusion ............................................ 873

I. INTRODUCTION

Economic history shows repeated instances of "creative destruction" in which new technologies and business methods made complacent firms and entire industries obsolete.(fn1) The impact on their workforces was profound.(fn2) Labor markets adapted, of course, but this occurred primarily through replacement of the existing labor force with workers more attuned to the needs of new technologies and business models. Sometimes existing workers found places for themselves in the new technological environment through individual self-improvement efforts. At the margins, employers provided transition training when it was economically efficient to do so, as in times of labor shortage. In times of labor surplus, however, try as they might,

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state and federal governments could not do much to cushion the transition pain.

It turns out governments do not know how to fine-tune labor markets any more than they know how to steer and fine-tune product markets or capital markets. In particular, the widely popular apprenticeship concept has a poor track record. Seemingly the only apprenticeships that work are those sponsored by craft unions, and those work because they reflect the self-interest of the unions. These unions' control over the apprenticeship programs gives them a powerful mechanism to control the labor supply. It appears the only government employment program that works is unemployment insurance (UI). It works because it does not try to redefine labor markets; rather, it provides a temporary cushion, making it feasible for employees to seek retraining on their own.

Government intervention in labor markets inevitably puts the government in the position of picking winners and losers. The market does a much better job of that than democratically-elected public officials and their agency appointees, who are inevitably biased in favor of interest groups representing the status quo and opposed to the new technologies. Government sponsored retraining programs almost always reflect the future needs of employers poorly.

The Trump Administration has proposed to reform the apprenticeship system, allowing nongovernmental entities, such as colleges and industry groups, to certify "Industry-Recognized Apprenticeships," as an alternative to traditional government-defined and supervised "Registered Apprenticeships."(fn3) It remains to be seen whether the proposal will be implemented and, if it is, whether it will be any more successful than its predecessors. It provides few real incentives for employers to participate.

Two hundred years ago, the law struggled to accommodate the waves of transformative technology after the American Revolution, when water-powered spinning frames and weaving looms replaced home spinning and weaving and sent workers to factories instead of households. Today the law struggles to accommodate the waves of technology that substitute robots and computers networks for blue collar work on manufacturing assembly lines and clerical work in offices. Two hundred years ago, the factory was replacing the household as the workplace; today the gig economy is replacing the factory.

This Article uses the textile and clothing industry-where the American Industrial Revolution began-as a case study to explore adjustments of labor markets to changes in technology and in product

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markets,(fn4) while occasionally referring to other industries to reinforce a proposition or to acknowledge a difference that might alter the analysis.(fn5) The case study shows that government-supported and guided training programs played little role in equipping new members of the workforce for the industry and had little success in enabling existing workers to adapt to change.

Creative destruction will continue. It will create many new jobs. Some of the skills that workers already possess will be useful for the new jobs, but some degree of adaptation and retraining will still be necessary. This Article suggests that governments at any level are ill equipped to oversee the retraining.

This Article begins, in Part II, by explaining the concept of creative destruction, which is the engine of prosperity in all market economies. Creative destruction inherently disrupts labor markets and makes the skills of many existing workers obsolete. Part III analyzes the dismal record of government-sponsored retraining programs in facilitating worker adjustment. It explains why employer-sponsored training programs can be more effective but are largely absent during economic downturns, when they are needed most.

Part IV recapitulates the history of the textile industry and shows how labor markets adjusted to several waves of creative destruction. It reviews the technologies that played leapfrog in the textile industry from 1817 to 2017, each creating greater labor productivity.(fn6) It explores the labor markets that connected workers with the machines and focuses on specific adjustment mechanisms that allowed workers to adapt to new technologies. Few of them were government sponsored.

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This Article then shifts its focus to the future, projecting the course of further technological disruption and exploring what public policy should do about it. It concentrates on reshaping the unemployment compensation system to encourage worker mobility, strengthening worker training programs that combine classroom instruction with on-the job experience, and considers the possibility of reforming for profit trade schools to provide some of the training. It recommends a fundamental restructuring of the Labor Department's apprenticeship program, if it is to be continued at all.

II. CREATIVE DESTRUCTION

Creative destruction is the engine of progress in a market economy, but the labor market adjustments it requires are painful. Joseph M. Schumpeter explained how the process of creative destruction is a byproduct of business cycles.(fn7) Schumpeter's qualitative explanation dovetails nicely with the common understanding of Silicon Valley-fueled innovation and bursting bubbles.

Within Schumpeter's model, excess labor, capital, and other generally slack resources in business cycle troughs (recessions or depressions) eventually attract the attention of a handful of entrepreneurial leaders who have ideas for new combinations of factors of production.(fn8)They begin innovating, and their success pulls other, slightly less talented, entrepreneurs into the field. Eventually, a "swarm" of entrepreneurs have entered the market and found growing demand for their innovative products. This puts in motion a general "secondary wave" of economic growth.(fn9)

The surge of entrepreneurial innovation almost always occurs through new firms, alongside and at the expense of established firms.(fn10) Eventually, the law of diminishing returns means that the marginal level of entrepreneurial talent is less, and the quality of their innovation commands less excitement in the marketplace.(fn11) The success of the swarm throws many established firms into distress as

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consumers switch their allegiances to new products and services.(fn12)The business cycle reaches its peak and a decline into the next trough...