Cato Online Forum

Preparing Students for the World of Work

By Andrew Kelly
November 2014

During the recession and the anemic recovery, America’s labor market has suffered from a seeming paradox: at the same time that millions of workers were unemployed and looking for work, millions of job openings were going unfilled. In 2012, for instance, while the unemployment rate was still over 8 percent (and millions more had dropped out of the labor force), a Manpower Development Group survey found that nearly half of employers reported having difficulty filling job openings.1

The problem? Nearly 40 percent of respondents said a lack of technical competencies, or “hard skills.” And the jobs they’re trying to fill aren’t rocket science: skilled trade workers were at the top of the list among US employers, followed by engineers and information technology staff. “Sales representative” rounded out the top four.

What’s going on here? Surely some of the 12.8 million unemployed Americans could have filled the role of sales representative? With a bit of technical training, some of them almost certainly could have been hired as a skilled tradesman or woman.

Some argue that this paradox reflects picky employers who would rather blame the educational system than their reluctance to provide any training.2 That’s certainly part of it. But the disconnect also reflects a deep flaw in our education system: most Americans get almost no exposure to the world of work as part of their K-16 schooling.

Vocational offerings like career and technical education or apprenticeships are treated as an option of last resort for struggling students, not a critical on-ramp to a successful and productive life. As a result, workers at each level of educational attainment—from high school graduates through bachelor’s degree holders—are having trouble landing a good-paying job commensurate with their level of education. And employers see a mass of under-skilled workers who need more training and experience to play a productive role.

Rethinking the balance our education system strikes between education and training— for students at all levels of the academic hierarchy—would help grow our economy without sacrificing the things that have made American education great. What exactly would this look like in practice? If I were waving the magic wand, it would mean making apprenticeships the norm rather than the exception; encouraging more flexible job training for lifelong learners who need to re-skill and retool; and creating space for private financing that would allow people to pay for all of this.

Blending School and Work “Works” …

There is plenty of evidence that blending academics and career training increases peoples’ prospects. Exhibit 1: career academies, the small learning communities housed within high schools that teach both academics and the technical skills needed for a particular career. The academies also provide opportunities for workplace learning with partnered employers. A long-term randomized evaluation of the academies found that they increased earnings by more than $2,500 per year, an increase that was stable throughout the eight years following graduation. The wage effects were limited to men, and researchers also found slightly positive effects on marriage and family formation. Importantly, contrary to fears about “tracking” students into the workforce instead of postsecondary education, attending a career academy did not depress postsecondary attendance.3

Exhibit 2 is the federal registered apprenticeship program, which enrolls about 450,000 people a year in a combination of on-the-job training with an employer and technical education courses. A 2012 evaluation of the program found that participants earned almost $6,000 more a year than non-participants. Researchers estimated that for those who actually completed their full program, the boost in career earnings would be about $240,000 (with an additional $60k in fringe benefits). The societal benefits far outweighed the costs, too. Each participant produced an estimated $49,000 in net social benefit over the course of his or her career.4

Lastly, take postsecondary certificate programs, some of which offer a larger immediate payoff than many associates and bachelor’s degree holders receive.5 These programs tend to be shorter than two years, are highly structured, have high completion rates, and are directly tied to the labor market. They also blend technical instruction with basic skills courses. To be sure, not all certificates provide a return on investment, but many do.

… But Only a Minority of Students Take Part

The problem is that these programs are small, all things considered. Some estimate that just 5 percent of young Americans train as apprentices, and most are in construction trades.6 Certificates are growing in popularity, but still make up a minority of credentials awarded.

These options are also shunned by most college-bound students. More common is the summer internship—an ad-hoc arrangement that favors the wealthy. Four-year colleges, most of whom see “job training” as beneath them, are more than happy to farm this function out to employers. But instead of informing a student’s choice of major, internships are typically done after students have chosen a field of study. This sequence is the exact opposite of what would be most useful to students who are trying to figure out what career to pursue.

What’s more, reliance on internships favors wealthy students who can afford to spend a summer working without pay. First and most obviously, unpaid interns must pay their own living expenses during the summer. Second, unpaid work at for-profit firms is not technically legal, but as long as students are getting college credit for their internship experience, firms can hire them.7 Colleges figured this out long ago, reaping tuition revenues from families who pay to have their children work for someone else off-campus. It’s those that can afford to pay for both living expenses and “internship credit” at their college that are able to take on unpaid gigs at private firms. Not surprisingly, new survey data from the Gallup-Purdue Index suggest that less than one third of students take part in an internship.8

In short, despite evidence of their effectiveness, connections between American education and the workplace are not only incomplete, they’re often nonexistent for many students. We can do better, but it will take a significant rethinking of the traditional divide between career training and academics. I see three ways to bring the worlds of education and work closer together.

Make Apprenticeships the Norm, Not the Exception

In other countries, the majority of students do an apprenticeship—also known as “dual training”—not just those who are on a vocational track. In Switzerland, for instance, nearly 70 percent of 16 to 19 year-olds participate in the three-year Vocational Education and Training (VET) program, including those that will go on to postsecondary study. After three years, apprentices can choose whether to head to work or to go onto further schooling. Apprenticeships are available in white collar and blue-collar fields alike.9 The same is true in Germany, where three out of every five students do an apprenticeship.10

Even with a magic wand, we wouldn’t want to just import these models to the United States. And even in countries with well-developed systems, not every young person does one before entering the workforce. But creating a more vibrant apprenticeship system that attracts all manner of students and covers all manner of careers would remove the stigma attached to career preparation and improve the pipeline of well-prepared workers.

Policymakers should consider reforms that make apprenticeships more attractive to employers and students. First and foremost, these programs cost money. Apprentices are paid a wage for the work they do, and somebody has to teach the courses they take as part of the program. There are currently no federal tax incentives that reward companies for taking on apprentices, but there should be.11 Policymakers could also use a social impact bond approach, where firms would front the money needed to take on apprentices but earn back a slice of the additional tax revenue generated by graduates.12

On the demand side, states and school districts have tilted the playing field toward college readiness and away from job preparation. The Common Core State Standards claim to be about both college and career readiness, but instead of defining “career-ready” separately, the architects have equated the two. If they wanted to encourage apprenticeships as a universal option, states could require all students to have some kind of on-the-job training as a prerequisite for high school graduation.

Encourage More Flexible Job Training that Is Able to Evolve With Demands

Given the pace of technological change, career training ought to look more like a checkerboard, where workers jump in and out as skill demands change. Instead, we tend to treat postsecondary education as a one-off choice made early in a student’s career that is supposed to equip him for the rest of his life. And while we heap subsidies on degree-seeking students, those who want to take individual courses or sets of courses to build skills are essentially on their own.

Finally, state and federal regulations that govern providers of postsecondary education make it difficult to offer just-in-time training that evolves with labor market demand. To get access to federal aid, providers must be accredited, but to get accredited you have to offer degrees. Meanwhile, many states require licensed providers to seek approval for any changes to curriculum or new program offerings, stunting their ability to react to real-time changes in employer needs. And those who offer online training must often get approved in each and every state where they serve students, raising costs and discouraging scale.

Clearly, career training could benefit from more flexibility. As we speak, firms like Udacity and Udemy offer a variety of low-cost massive online courses that are specifically designed to fulfill employer needs. These courses don’t cost much, but neither are they eligible for any kind of public subsidies, making it difficult for them to compete with traditional degree programs that are eligible for federal student aid (and are often subsidized by the state).

Reformers should clear out regulations that focus on inputs and processes and replace them with a chartering model where providers submit to accountability for outcomes in return for autonomy in developing and running their programs. Opening up some existing pots of federal student aid money to new, non-degree offerings could allow them to compete on an equal playing field with traditional programs. And ensuring that all colleges have “skin in the game” when it comes to student loan performance could compel them to focus more acutely on preparing them for the labor market.

Create Space for Private Financing that Rewards Value

We certainly shouldn’t rely exclusively on public coffers to finance these ideas. Apprenticeships and lifelong learning deliver private as well as public goods, and private financing can and should play a fruitful role. Specifically, students could choose to finance these offerings through Income-Share Agreements (ISAs), where private investors provide the capital needed to pay for an apprenticeship or skill upgrade in exchange for a percentage of the student’s future income over a fixed period of time. For instance, under an ISA, investors could subsidize the wages of an apprentice or pay for the educational component (or both) and then reap some of those sizable wage returns. Because investors’ return would be tied to student success, they would have incentive to guide prospects toward the most valuable apprenticeships and training programs. Students choosing the best programs would be offered the best ISA terms.

While there’s a budding ISA market in the U.S., there is still considerable uncertainty about the legal status of these contracts, their regulatory home at the federal level, and their interaction with state usury laws. Providing some legal and regulatory clarity would not cost the federal government a dime and certainly wouldn’t require a magic wand. Creating space for these financing tools would allow for more innovative career training models without putting taxpayers on the hook for the failures.

From Last Resort to Top Priority

The basic idea here—that providing more work experience will produce more skilled workers—is hardly revolutionary, nor is it unproven. But it’s time to bring these successes from the periphery of our education system to the center. All students—not just those who struggle in school—could benefit from more exposure to the world of work, and our economy would reap the benefits.

Notes

1 Manpower Development Corporation, “2012 Talent Shortage Survey Research Results,” http://www.manpowergroup.us/campaigns/talent-shortage-2012/pdf/2012_talent_shortage_survey_results_us_finalfinal.pdf.
2 Peter Capelli, Why Good People Can’t Get Good Jobs: The Skills Gap and What Companies Can Do About It (Philadelphia: Wharton Digital Press, 2014).
3 James Kemple, “Career Academies: Long-Term Impacts on Labor-Market Outcomes, Educational Attainment, and Transitions to Adulthood,” (MDRC, 2008).
4 Debbie Reed, et al., “An Effectiveness Assessment and Cost-Benefit Analysis of Registered Apprenticeship in 10 States,” (Mathematica Policy Research, 2012).
5 Anthony P. Carnevale, Stephen J. Rose, Andrew R. Hanson, “Certificates: Gateway to Gainful Employment and College Degrees,” (Georgetown Center on Education and the Workforce, 2012).
6 Tamar Jacoby, “Why Germany is So Much Better at Training Its Workers,” The Atlantic, October 16, 2014.
7 See Department of Labor, “Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act,” http://www.dol.gov/whd/regs/compliance/whdfs71.htm.
8 Sean Seymour and Julie Ray, “Recent Grads More Likely to Useful Internships,” Gallup, November 13, 2014.
9 Diane Auer Jones, Apprenticeships as an Alternative Route to Skills and Credentials in Getting to Graduation: The Completion Agenda in Higher Education, eds. Andrew P. Kelly and Mark Schneider (Johns Hopkins University Press, 2012).
10 Jacoby, “Why Germany is So Much Better at Training Its Workers.”
11 A bipartisan pair of Senators (Tim Scott, R-SC and Cory Booker, D-NJ) proposed such a credit earlier this year. See: http://www.scott.senate.gov/press-release/senator-tim-scott-and-senator-cory-booker-introduce-apprenticeship-legislation-tackle
12 Andrew P. Kelly and Michael Q. McShane, “Private Money, Public Good,” The Chronicle Review, February 18, 2013.


The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on reviving economic growth.

Andrew Kelly is the director of the Center on Higher Education Reform and a resident scholar in education policy studies at the American Enterprise Institute.