This proposal is chapter eight of The Hamilton Project’s Policies to Address Poverty in America, and a segment in Building Skills.
Improving the skills and earnings potential of poor youth and adults should remain a top priority for state and federal policymakers. Poorer people lag behind their more affluent peers in both postsecondary educational attainment and earnings, and raising both would contribute strongly to reducing poverty among current and future generations. Tapping the full potential of public colleges to provide a leg up to those who need the educational push could go a long way toward alleviating poverty.
Students from all family backgrounds already face strong financial incentives to pursue postsecondary education. In response to the higher earnings of college graduates relative to those without college, U.S. enrollment rates have risen dramatically in the past decade, especially during the Great Recession, and degree attainment has increased somewhat at both two- and four-year colleges (Greenstone and Looney 2011; National Student Research Clearinghouse 2011). We have also greatly increased the nation’s investment in Pell Grants and other forms of assistance to improve college access for the poor (Holzer and Dunlop 2013).
But the dropout rate among low-income youth and adults in college remains extremely high; even among those who complete certificates or degrees, many choose fields of study that are not well compensated in the labor market (Bound, Lovenheim, and Turner 2009; Robst 2007). These outcomes hurt the poor, and weaken the impacts of large national investments in higher education. Low-income students would clearly benefit from having more postsecondary education or training options that they can successfully complete, and that are more closely linked to the needs of employers in high-demand fields that pay well.
Colleges can expand course offerings in high-demand fields of study, but there are other approaches as well to better align educational skills with the current labor market. One such approach is sectoral training, in which education providers work with employers to educate and train directly for the job requirements of high-demand sectors. This approach appears to have large impacts on earnings in rigorous evaluations. Career pathways are also being developed for these sectors that combine classroom education and work experience in a series of steps that ultimately lead to these jobs. And other models of work-based learning, such as apprenticeships or incumbent worker training, can accomplish many of the same goals.
Many states and localities are trying to build education and training programs in both four-year and community colleges, especially in high-demand fields, and bring them to scale. A report by the National Governors Association (2013) finds that at least twenty-five states are now building partnerships between key employers or industry associations and community colleges for sectoral training and career pathway development, and are trying to integrate these programs with their broader economic development goals.
Anecdotes abound about partnerships and programs developed in specific industries at the state level. But we have few data so far indicating the scale and outcomes achieved, much less dataon the impacts on the education or employment outcomes of the disadvantaged students engaged in these efforts. When considering future investments, maintaining both the quality achieved in the smaller evaluated programs and a focus on the poor remain important, so as not to simply provide windfalls to employers at taxpayer expense.
To improve earnings prospects for recent graduates and to encourage two- and four-year colleges to be responsive to labor market demand, I propose that state legislatures implement financial incentives for colleges to steer students toward high-wage occupations and to industries with especially high labor needs. In addition, while this proposal primarily calls for state-level reforms, I also note opportunities for the federal government to support states in this initiative.
My proposal calls on states to partially base college funding on graduates’ reported wages five years following graduation and, where appropriate, on the colleges’ provision of courses that are especially important to the local economy. These incentives may also be accompanied by technical assistance for states and colleges, plus supports for students. I also propose that states experiment with generating financial incentives for employers to engage more with colleges in sectoral efforts, and propose that employers expand their own efforts to train and hire more workers.