Reemployment Services Report (1994)


REEMPLOYMENT SERVICES
A Review of Their Effectiveness

U.S. Department of Labor
April, 1994

 

TABLE OF CONTENTS

 

  1. INTRODUCTION

  2. A REVIEW OF THE RELEVANT RESEARCH

  3. PROBLEMS WITH THE CURRENT EMPLOYMENT AND
    TRAINING SYSTEM FOR DISLOCATED WORKERS

  4. APPLYING WHAT WE KNOW

 

 


 

 

  1. INTRODUCTION

    This document reviews what is known about improving the labor market prospects of dislocated workers. There is substantial evidence that certain reemployment services do yield high returns. For example, job search assistance helps dislocated workers find new jobs sooner and saves the government money. Several innovative uses of Unemployment Insurance (UI) funds have also been successful. On the other hand, some current dislocated worker programs have not been effective, and need to be fixed or eliminated.

    The stakes of this assessment are substantial. Even with economic recovery, many Americans are having difficulty getting new jobs that pay good wages.

    It also bears noting that displacement is not confined to a particular socio-economic group. Table 1 shows the characteristics of full-time workers displaced in 1990 compared to the American workforce as a whole. With few exceptions, the population of displaced workers is similar to the workforce as a whole.

    The following analysis reviews the effectiveness of what government has done in the past to assist dislocated workers, and what lessons this evidence provides for how it can do better in the future. Section II of this paper examines and summarizes existing research on specific types of employment and training programs of direct or indirect relevance to dislocated workers. Section III then analyzes some of the systemic problems in the way the nation provides reemployment services.

    The analysis concludes with a summary discussion of how the design of the Clinton Administration's dislocated worker initiative -- the Reemployment Act of 1994 -- reflects and incorporates the lessons of previous efforts.

  2. A REVIEW OF THE RELEVANT RESEARCH

    A wide variety of employment and training programs for dislocated workers have been evaluated in recent years. The sections below review these evaluations. We have attempted to cover all of the credible empirical studies in this area.

    Probably the most reliable form of evidence on the post-program labor market effects of employment and training programs comes from random-assignment experimental studies. Such evaluations are based on randomly allocating potential participants between a "treatment group" which is eligible to receive program services, and a "control group" which is not. In a well-designed experimental study, the two groups differ in no systematic way other than their eligibility to participate in the program being evaluated. For that reason, comparing the employment and earnings experience of the two groups after the program is completed yields a straightforward assessment of the difference that the program makes. Statistically significant differences in outcomes are assumed to be the result of the services received by the treatment group. This method roduces an estimate of the average change in earnings or employment that results from the program being evaluated.

    While random assignment experiments produce extremely useful information, they are difficult and expensive to implement, so comparatively few have been conducted. The literature on randomized experimental evaluations of training programs for dislocated workers is meager. Only two or three of the hundreds of short-term training programs for dislocated workers that have been active over the past decade have been evaluated using a random assignment experiment, and none of the long-term training programs have been evaluated in this way. Because of this, the sections below must occasionally rely on evidence from studies which examine the impacts of training on populations with somewhat different characteristics than dislocated workers.

    Profiling and Job Search Assistance

    Traditionally, the vast majority of unemployed workers receiving unemployment insurance (UI) benefits have not received reemployment services to help them find new jobs. A 1988 study found that even among those long-term UI recipients who exhausted their benefits -- typically after 26 weeks of joblessness -- just 6% were receiving job search assistance more intensive than the simple work registration offered by the Employment Service, and only 1% attended training programs.

    A recent series of experiments in five states -- Minnesota, Nevada, New Jersey, South Carolina, and Washington -- examined the effectiveness of a two-stage combination of "profiling" and job search assistance in reducing unemployment. The profiling stage, which occurs when individuals first claim their UI benefits, uses demographic and work history information to identify those persons who are most likely to remain unemployed for the long-term, and thus have the greatest need for reemployment services. The identified recipients then receive intensive job search assistance and counseling from UI staff.

    These demonstrations were conducted as random assignment experiments. The impacts of the experiments are shown in detail in Table 2. The exact results vary, but the general findings are quite consistent:

    Where information on the time pattern of the earnings gains was available, job search participants earned more than controls during their first year or two after receiving help finding a job. After this period, other workers who had not received JSA began to earn similar amounts. The earnings gains produced by JSA are significant but not long-lasting.

    The results of the experiments were generally similar, in that all produced significant reductions in UI receipt. However, two experiments -- in Minnesota and Nevada -- had positive results greater than the others. Programs in these states reduced UI receipt by 4 weeks (Minnesota) and 1.6 weeks (Nevada). These states provided the most intensive job search assistance services to their clients, including individual case management. This may partially account for the magnitude of the impacts in these states.

    Profiling and job search assistance were mandated for all state UI programs in the Extended Unemployment Compensation legislation enacted in 1993. Implementation of this directive will not be complete for several years.

    Self-Employment Programs for UI Recipients

    Self-employment programs allow unemployed workers the option of income support through the UI system while they start a small business. Some programs also give a small lump-sum payment to the UI recipient to use as seed capital for the new business. Program participants are provided management training and assistance in setting up their business.

    In 1987, the Department of Labor launched demonstration projects in Washington and Massachusetts that added a self-employment option to the UI programs in those states. Although the details of the programs differ, they both require enrollees to participate in entrepreneurial training and make use of business counseling in order to receive self-employment allowances or (in the case of the Washington program) a lump-sum payment to help set up their business. The programs were evaluated in a random assignment experiment that compared program participants to a control group who had expressed interest in starting a business but were not allowed to participate in the program.

    Self-employment is not for everyone; research indicates that only a small fraction (2% to 5%) of UI recipients are likely to enter these programs. Results from the demonstration projects also indicate that those who do try self-employment are disproportionately better educated, older, and white-collar.

    For those who were interested in self-employment, though, the results from these evaluations were quite encouraging:

    The NAFTA implementing legislation passed in 1993 allows states to use monies from the UI trust fund to pay self-employment allowances under state-established self-employment programs.

    Re-Employment Bonuses For UI Recipients

    Re-employment bonus programs pay a reward to unemployed workers who find new employment within a specified time and keep it for some minimum period. Usually the award is around 3 to 6 times the weekly UI benefit amount -- about $500 to $1,500, depending on the state and the individual.

    Random assignment experiments in Illinois, Pennsylvania, and Washington have found that eligibility for a reemployment bonus can produce significant declines in the time spent receiving UI benefits. Even though only about 10% to 15% of the potentially eligible clients actually made use of the bonus, the average length of unemployment among the entire group of eligibles was reduced by 1/2 to 1 week.

    Most of the evaluations found that the average size of the bonus paid plus the administrative costs of the program was about the same as the average UI benefits saved plus the additional tax receipts gained from faster reemployment. Thus, the program paid for itself from the government's perspective. However, the program more than paid for itself from the perspective of society as a whole because of the additional work and wages that it generated.

    Some economists have pointed out that a bonus system could draw more people into the UI system, thus driving up government costs. Some unemployed workers are eligible for UI benefits but choose not to receive them, because they expect to be recalled to their old job or find a new job soon. Unless safeguards were built in, bonuses would give these people an additional incentive to claim UI benefits so they could receive a bonus once their new job came through. Fortunately, this issue can be addressed in the design of a bonus system. For example, the eligibility for the bonus could be limited in certain ways (e.g., to those workers who are not recalled to their old job), and the size of the bonus could be capped to prevent an overly large incentive for "gaming" the system. (This is the approach taken in the Reemployment Act.)

    Short-Term Training Programs for Dislocated Workers

    Short-term (3 to 6 month) skills training does not appear to have been very successful in producing earnings gains for dislocated workers. In three studies, two of which were randomized experiments, workers offered relatively short-term training plus job search assistance showed no significant increase in earnings or employment when compared to workers receiving job search assistance alone. This training consisted of 3 to 6 months of either classroom or on-the-job training. The workers did not receive any income support beyond regular UI payments to support their training efforts.

    These studies provide suggestive but not conclusive evidence that short-term training may not work for many dislocated workers. In two of the studies the follow-up period was only one year, not long enough for all the effects of classroom training to show up. In the third there was an exceptionally low take-up rate for training -- only 15% of workers chose to participate -- and this led to problems in determining training effects.

    More research would be useful here. This is especially true because short-term training programs for groups other than dislocated workers have proven successful in raising earnings:

    The economically disadvantaged clientele of these programs was generally poorer, younger, and less well educated than most dislocated workers, so these results cannot simply be generalized to dislocated workers. In addition, the positive impacts of these programs may be partly due to the job search assistance they provide, which is not a form of training. But their success does suggest that well-implemented short-term training can produce benefits for certain workers.

    Long-Term Training Programs for Dislocated Workers

    There are no random-assignment evaluations of the effectiveness of long-term (1 year or more) classroom training for dislocated workers. But evidence on returns to post-secondary education suggests that long-term training is a sensible approach for many dislocated workers.

    No long-term training programs for dislocated workers currently exist that are directly comparable to the proposal in the Reemployment Act, and the evidence is scant even on indirectly comparable programs. The evidence on the Trade Adjustment Assistance (TAA) program is a case in point. TAA is a major supplier of long-term training to workers displaced by trade, and two evaluations of it have recently been completed. Unfortunately, these evaluations have not been able to reliably determine training impacts:

    Also, it should be noted that the design of the TAA program differs substantially from the proposed Reemployment Act.

    The evidence is clearer for other forms of long-term education and training. There is a great deal of solid research on the impacts of long-term post-secondary education. The earnings gains that are associated with post-secondary education, and the steady growth in the importance of advanced education, suggest that long-term skill training would be a worthwhile investment for many dislocated workers. The evidence on the earnings impacts of community colleges is especially relevant here, since many government programs deliver long-term training to dislocated workers by contracting with local community colleges to provide vocational courses.

    It is well known that a college education is associated with greatly increased earnings and employment prospects. In 1992 the median earnings of males with 4-year college degrees were $36,700, men with 2-year associate degrees earned $30,000, but male high school graduates earned just $22,800.

    There is consensus among economists that advanced post-secondary education and training is becoming more important to economic success. Between 1979 and 1992, the gap in median income between male high school and 4-year college graduates doubled from roughly 40% to about 80%. (Increases in the rewards to education are also taking place in other advanced nations, although they are not as large as those occurring here.)

    In recent years a number of studies have examined the returns to post-secondary education in more detail. Here are the key findings:

    These studies have not specifically examined the impacts of long-term post-secondary training for dislocated workers. Most of the students who were observed to benefit from long-term education had obtained their education while they were under 30, and had not returned to school for retraining in the middle of their career like many displaced workers do.

    But the general implications of the evidence are clear. Long-term post-secondary education brings substantial benefits to students, and this type of education is becoming steadily more important to labor market success. Even a year of post-secondary education -- at a community college or a 4-year school -- can improve a student's skills enough to make a measurable difference in employment and earnings.

  3. PROBLEMS WITH THE DESIGN OF THE CURRENT EMPLOYMENT AND TRAINING SYSTEM FOR DISLOCATED WORKERS

    The previous section analyzed the evidence on the impacts of particular employment and training programs. But there are also some basic problems with the overall design of the employment and training system in this country. The Reemployment Act attempts to address these problems.

    The analysis here is only partially based on evaluation research. Most of the analysis reflects qualitative observations of the system, not precise measurement of impacts from formal evaluations.

    Yhe current Federal training and employment services system for dislocated workers is fragmented and overly bureaucratic. We have numerous programs for displaced workers -- including separate programs for those laid off due to import competition, for ex-defense workers, former timber workers, and for workers laid off due to the Clean Air Act. Despite all these programs, many displaced workers do not fall into these specific categories and are not eligible for services at all. And because of the fragmented nature of the programs that do exist, even when workers are eligible they may not be aware of it.

    At the local level, the complexity of the system means that administrators and applicants often have to fill out numerous forms to access the services available in their community. The unemployed in need of assistance face a confusing task, since they may have to go to many different locations just to find out what services they are entitled to and how to get them.

    The current system frequently fails to rapidly deliver reemployment services to unemployed workers. One of the keys to success for reemployment programs is providing services to workers as soon as possible after they have been laid off. This capacity for rapid response was an important element of the successful job search experiments. But our current reemployment system often serves workers only after they have already been unemployed a significant amount of time.

    For example, the Trade Adjustment Assistance (TAA) program provides long-term training to displaced workers. But over half of TAA trainees begin their training more than 6 months after they have been laid off. For this reason, income support benefits designed to support them in training often run out before the training is completed.

    The fragmented and categorical nature of existing programs for displaced workers contributes to these delays. The TAA program only covers a narrow subset of displaced workers. In order to determine eligibility, there are complex, time-consuming certification requirements, which often delay the start of training and cause workers to run out of benefits early.

    The Unemployment Insurance system lacks a reemployment focus. The UI system has functioned almost completely as an income security system. This is certainly an important role, but it means that the UI system has not generally done a good job at providing services that can lead to reemployment for those who are not recalled to their previous jobs. As noted earlier, in the late 1980s only 6% of workers who had exhausted their conventional UI benefits -- which typically last for over 6 months -- were receiving job search assistance more intensive than the simple work registration offered by the Employment Service. Just 1% of them attended training programs. While training is not appropriate for all of the unemployed, it is disturbing to find that only a tiny fraction of the long-term unemployed -- who clearly have real difficulty finding an acceptable new job -- are engaged in it.

    Traditionally, the Employment Service has been the major source of public reemployment assistance for dislocated workers. But the Service is stretched thin. Funding for job placement services has declined by about 20% in real terms since 1979, forcing cuts in staffing; at the same time, the number of applicants seeking these services increased some 12% during the 1980s. Individualized assessment and job search services are not generally available through the Employment Service. Many job openings are not listed on its abor exchange, and those that are listed are disproportionately low-skill and low-wage.

    The output of training programs often doesn't match the needs of the labor market. Economists at the Bureau of Labor Statistics have examined the skills which training programs provide to their graduates and compared them to the skills that are in demand in the labor market. They found that training programs often turn out graduates in areas where there appears to be no need for them, while ignoring skills which are actually in demand. For example, training institutions turned out 82,000 graduates with cosmetology degrees in 1990 -- but the annual number of job openings for cosmetologists expected in the future was only 17,000.

    While in some cases training can be useful even if graduates do not obtain a job in the specific field they were trained in, it seems clear that better labor market information could improve the targeting of training programs. If such information was available to program managers designing their curricula, and to students deciding which course to enter, then it would be possible to attain a better match between skills training and the job openings actually available.

  4. APPLYING WHAT WE KNOW

    The Reemployment Act has been shaped by a review of the evaluation evidence and an analysis of the flaws in the current system. Below are the general conclusions that resulted, followed by the ways these lessons have been incorporated into the Reemployment Act and related legislation.

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    Economic change will always be a challenge. But the lessons learned during this comprehensive review of the evidence -- lessons incorporated in the Reemployment Act of 1994 -- will help create a system that does a better job in meeting this challenge than our current array of programs does. These lessons suggest no panacea for the problem of unemployment. But they do suggest an array of innovative new approaches to reemployment services and common-sense solutions to problems with our current system.