Retraining Displaced Workers

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Released: October 2010 • Discussion Paper

Related Topics: Employment & Wages, Education

Authors:

Robert J. LaLonde • Professor, Harris School of Public Policy, University of Chicago
Daniel G. Sullivan • Executive Vice President and Director of Research, Federal Reserve Bank of Chicago

Robert LaLonde of the University of Chicago and Daniel Sullivan of the Federal Reserve Bank of Chicago suggest that retraining through our nation’s community colleges is a way to reduce the skills gaps of at least some of these displaced workers and increase their reemployment earnings. Although workers may still experience significant earnings losses relative to their previous positions, training can be a socially desirable investment that can help trim these losses and have positive effects on their communities. This is an important form of social insurance for workers who experience earnings losses due to structural changes in the economy. In addition, workers may underinvest in training due to credit constraints, poor information about returns, and/or because some of the benefits accrue to society through tax receipts and lower social insurance payments.

The authors’ proposal would increase the quantity and quality of retraining by increasing Pell Grants for training-ready displaced workers, augmenting funding for community colleges so that states and localities do not cut budgets when demand for retraining is increasing, and reforming funding mechanisms so that more money is directed toward vocational training programs that produce higher returns for displaced workers. The authors also recommend that the Departments of Education and Labor both facilitate the development of standard curricula for retraining displaced workers and evaluate community college and privately provided programs.