Government-Sponsored Training Programs not a Solution for Unemployed Canadians

Release Date: 12 December 1997

VANCOUVER, BC>>>  Are government-sponsored training programs a viable way to improve the employment and earnings prospects of unskilled and disadvantaged workers? A study released today by the Fraser Institute suggests the answer is no.

After examining the results of U.S.-based programs, the authors of Government-Sponsored Training Programs: Failure in the United States, Lessons for Canada conclude that government-sponsored training programs have been largely unsuccessful in their efforts to reduce unemployment, increase earnings, and reduce welfare dependency among poor single parents, disadvantaged adults, and out-of-school youth.

Here in Canada, provincial and federal governments are poised to embark on several training initiatives. In light of the U.S. evidence, co-authors Fazil Mihlar and Danielle Smith caution against the adoption of such "active" labour market programs.

The United States began a massive investment in government-sponsored training programs decades ago. After 30 years, billions of dollars have been spent on thousands of local job training programs. According to Mr. Mihlar and Ms. Smith, however, a large and growing body of research overwhelmingly suggests that such labour market policies do not improve the labour market prospects of workers with low skill levels and little education.

For instance, U.S. programs targeting single parents raised earnings by a maximum of $19.96 per week and a minimum of $2.18 per week. In half of all cases, these training programs did not result in reductions in AFDC (Aid to Families with Dependent Children) receipts, and when they did, reductions ranged from only 1.1 to 5.2 percentage points. Meanwhile, public expenditures on these programs ranged from US$689 to US$4,895 per program participant.

Active labour market programs targeted at disadvantaged adults and out-of-school youth in the U.S. show equally dismal results. Programs such as GAIN, SWIM and Ohio JOBS for disadvantaged adults only succeeded in increasing earnings by a maximum of US$9.65 per week; employment increases were also modest, ranging from 4 percent to 7.8 percent, while AFDC payments only fell by a maximum of $13.23 per week. Meanwhile, the JTPA directed at out-of-school youth registered no positive outcome for earnings, no reduction in Food Stamps or AFDC payments, and no increase in educational attainment for male youths. Costs per participant in these programs ranged from US$2,717 to US$15,300. According to Mr. Mihlar, "The amount being spent on these programs is quite unrelated to success rates. Additional funding is obviously not the answer."

The real reason for the failure of U.S. training programs lies in the low educational levels of program participants. Between 41.3 percent and 65.4 percent of single parents who participated in training programs had less than 12 years of formal schooling. As many as 82.9 percent of disadvantaged adults who participated in training programs had less than 12 years of education. The corresponding figure for out-of-school youth was 48.4 percent. According to the authors, training programs fail because there is little, if anything, that can be done to compensate for neglecting the first twelve years of schooling. "If these individuals are functionally illiterate and innumerate, then is it any surprise that training programs fail in achieving their basic objectives?"

Despite sizable investment in public schools, an alarming number of Canadian students drop out before graduating from high school. The ability of firms and labour markets to adjust to change, to innovate, and to improve productivity depends upon the knowledge and skills of the population. Mr. Mihlar and Ms. Smith note that different literacy indicators suggest that public education is failing to equip a large number of Canadian students with necessary skills. The authors argue that a more effective educational system, not more government-sponsored training initiatives, is the best way to improve the labour market prospects of the disadvantaged and unskilled in Canada.

"Increased spending on public schooling is definitely not the answer," states Mr. Mihlar. Per student educational spending is already higher in Canada than in most OECD countries. The crisis in Canada's educational system is not one of insufficient expenditures per pupil. Rather, it is a crisis due to the lack of competition in the education market, which is virtually a government monopoly.

Schools must be given the freedom to innovate and the requirement to do so. Mr. Mihlar and Ms. Smith argue that the way to do this is to introduce competition into the school system through a voucher scheme. "By allocating funds directly to the consumers of education, rather than to the suppliers, schools will be compelled by competitive forces to teach skills which are in demand in the market place. This, more than any government-sponsored training initiative, will work to improve both the educational levels and employment prospects of young and disadvantaged workers."

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.

For further information contact:

Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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