Reforming employment and training policies: more progress must be made in establishing successful job programs for disadvantaged adults and out-of-school youth in a shrinking market.

• Author: Osterman, Paul

Americans have become increasingly dissatisfied with how new entrants to the tabor force are prepared and those in difficulty are helped to upgrade their skills. Underlying the growing unease are major changes in the technological and economic demands put on the labor force, as well as worsening earnings inequality and persistent racial disparities.

The transfer of public job training programs to the states presents both risk and opportunity. The risk is that they will use funds to attract employers from neighboring states rather than truly upgrade the workforce. The opportunity is a chance to rethink and improve a system seen as less than successful.

An impressive array of research testifies to the importance of education and vocational skills. An extra year of schooling adds about 10% annually to average earnings. Vocational training yields commensurate private returns and benefits to society in reduced social problems and increased productivity.

Market failures and social goals provide a powerful rationale for public intervention in the employment and training area. Private firms are reluctant to provide sufficient training in general skills -- although these are important in their own companies -- because employees easily can leave and use them elsewhere. This failure is exacerbated by a general bias in the U.S. against supplying adequate training for low-skilled workers. The bulk of employer-provided training is directed to relatively high-level managerial and technical employees. In addition, the high turnover rates and labor pirating endemic among small firms make them reluctant to finance even directly job-related skills.

Public intervention further is justified by the high costs of social problems (particularly crime and welfare dependence) that are correlated strongly with low skills. Equity weighs heavily in completing the argument -- in both income (helping those at the bottom of the labor queue) and fairness (assisting dislocated workers who made a good-faith investment in skills that no longer are in demand).

In many respects, America's public skills delivery system is the finest in the world. Universities attract large numbers of foreign students, clear evidence of comparative quality. A strong and growing community college system provides vocational skills. In the private sector, employers over all have increased their expenditures on training.

Why, then, should there be concern over improving the employment and training system? The answer lies in the currently troubling outcomes in the American labor market that, at least in...