Why are we interested in training policy as a tool of local economic growth? The short answer is that we hope training improves skills, because higher skills are linked to better economic performance.
For individuals, higher skills are associated with better labour market outcomes. For local areas, there is a clear link between skills and economic growth and labour market outcomes. That connection holds nationally, across countries and at a local level for towns and cities.
Of course faster-growing towns and cities may be able to invest more in skills and may also attract people with greater knowledge and experience, thus reversing the direction of causality between economic performance and skills; but recent studies have established a causal connection from the local skills base to local earnings and employment growth.
For all of these reasons, policy-makers in the UK and elsewhere are keen to raise skill levels. Policy-makers have been particularly keen on retraining or ‘upskilling’ low skilled workers and the unemployed, especially those in long term unemployment. In the UK these training policies have often been delivered as part of active labour market programmes such as the New Deal and the Work Programme.
Economists use the idea of ‘human capital’ to talk about the stock of competencies, knowledge, social and personal attributes (‘skills’) that help people produce economic output. We can usefully break human capital down into three main components: education, soft skills and experience. Formal education might happen in the classroom or on the job, and cover basic skills such as literacy and numeracy; academic knowledge (of a given subject) or vocational skills (for a given job or trade). Soft skills such as team-working or communication tend to be acquired along the way. Experience helps us develop formal understanding and soft skills, but also gives us broader types of knowledge about a given firm or industry.
Our review of adult employment training programmes has turned up a range of policies designed to enhance these different components of human capital – from formal qualifications to courses on soft skills and advice on job search; from classroom teaching to on-the-job internships and in-firm training; from short-term intensive courses of a few weeks, to long term retraining leading to a degree, and lasting two years or more.
In most countries, employment training programmes are devised and delivered through national governments but often have some degree of local flexibility (for instance, case workers or personal advisers may hold individual ‘budgets’ on behalf of programme participants). And in some cases – especially the US – states and cities have designed their own devolved employment training interventions.
Given the level of policy attention and spending, it is important to understand ‘what works’. To understand the impact of the policy, we need answers to four questions:
- Who are we aiming to help?
- What does the policy aim to achieve?
- How is it delivered?
- Does it work?
To understand whether policy is cost-effective, we then need to compare the benefits of any policy impacts to the cost of achieving those impacts. In the area of employment training there is reasonable evidence on the impact of policy, although it is hard to compare the magnitude of effects across different studies (we focus on whether effects are positive, zero or negative). There is very little evidence that compares benefits to costs and thus allows us to assess cost-effectiveness.
Definition of Employment Training
We define employment training programmes as:
- training targeted at people aged over 18s
- short courses and day-release courses.
- retraining initiatives (e.g. for the over 50s)
- training that is in some way publicly subsidised (either directly or indirectly)
- where private sector provision is contracted out from the public sector, or on payment-by-results basis
- fully corporate/commercial providers on the assumption that this part of the sector operates as a competitive market
- ‘A Level’ education (even where offered to adults; because this provision is primarily targeted at under-18s and is not usually publicly funded)
- academic and Higher Education (which is a topic in its own right) • apprenticeships (because the primary relationship is with the employer, and there may or may not be public subsidy)