The Crony Capitalism of Job-Training Programs

By Adam Millsap and Anthony Randazzo

If there is one thing that labor-market analysts can agree on, it is that the workforce of today is poorly prepared to perform the jobs of tomorrow. Improving the American education system can solve part of this problem. But that won't help the millions currently unemployed, such as the former construction and manufacturing workers whose old jobs won't be coming back.

It is with these long-term unemployed in mind that Congress is considering reauthorizing the Workforce Investment Act (WIA), which has funded a host of job-training and vocational-education programs across the nation since its passage in 1998. (Though the law expired in 2003, Congress has continued funding its programs through annual appropriations.) The House passed a reauthorization called the SKILLS Act in the spring that would consolidate and eliminate a number of programs funded under WIA. And at the end of July, a different bill passed out of a Senate committee 18–3.

While both bills emphasize better coordination among the 47 job-training programs -- which are funded by nine federal agencies -- they miss a bigger problem: Neither bill substantively addresses the crony capitalism inherent in the WIA as it's currently structured.

Crony capitalism is when private interests collude with government to acquire subsidies or economic benefits that give them an advantage in the marketplace. Many job-training programs, such as the "On the Job Training Program" (OJT), serve just this purpose.

In many cases, the OJT program provides subsidized job training for specific jobs in specific areas -- because the funds are limited, only certain employers will get the money. For example, in 2009, the OJT program provided a 50 percent salary subsidy to train chemical composite technicians for Renegade Materials in Dayton, Ohio. The company and workers both benefited from the program, but the subsidy provided Renegade with an advantage over its competitors, who did not benefit from free taxpayer money.

Similarly, Canadian company Energuy built its U.S. headquarters in Sacramento, Calif., to be near an OJT program called JobLink. Energuy, which hires workers to evaluate the energy efficiency of home appliances, has been expanding in other parts of California as well, specifically targeting areas that have subsidized training. The company has become so dependent on the availability of training subsidies that, according to its president, Energuy has "actually had meetings where we've said we'll only move forward if we can get a subsidized employee; otherwise we'll have to wait until we're financially ready."

Sometimes job-training subsidies help a range of firms in a particular industry, as was the case with the $22 million used to help lobstermen in the Northeast improve their businesses with government-funded business-plan training in 2010. These subsidies favor people currently in business over those who might want to enter the industry.

Rather than just consolidate and reauthorize these programs, Congress would do better to just drop them altogether. But, as with many government programs, it will be difficult to eliminate the WIA, because so many have come to depend on it: The WIA's adult- and dislocated-worker programs have doled out $2.17 billion a year since 2006.

This is not to suggest that all job-training programs are inherently bad -- in fact, as the fundamentals of the American economy continue to shift, job training will be an increasingly necessary function of the market. Unfortunately, many federal job-training programs are not contributing substantively to this effort.

Beyond the cronyism, many federal job-training programs are simply ineffective at improving the labor market. The funds are often misallocated, with most of the money going to states with the lowest unemployment rates. In 2012, Wyoming received $92.49 per capita in funding even though the average yearly unemployment rate for the state was only 5.4 percent. Meanwhile, South Carolina received only $3.10 per capita despite a 9.1 percent average yearly unemployment rate. The money also doesn't work: The Government Accountability Office reported in 2011 that only five out of the 47 programs had completed an impact analysis up to that point, and each had found they'd had zero long-term effect on unemployment.

The private sector provides alternatives. Internship programs are already in place at companies like BAE Systems at their New Hampshire locations and Ingalls Shipbuilding in Mississippi. Or, businesses could train workers in exchange for a commitment for the workers to remain with the company for a set number of years -- an approach used by companies such as Accenture and others for MBA reimbursement.

At a minimum, legislation renewing the WIA should include plans to eliminate the crony-capitalism elements that provide government benefits to narrow, private interests. These subsidies have no place in a free-market economy. Also, since many of the programs fail to target the areas with the most unemployment and are inefficient and wasteful, eliminating them completely and allowing private-sector alternatives to replace them would do a better job of increasing employment in the long term.

Adam Millsap is a research intern, and Anthony Randazzo is director of economic research, at the Reason Foundation.

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