Policy Proposals

Retraining Displaced Workers

October 13, 2010
Education, Employment & Wages

The Problem

Workers—especially those with long tenures spent honing skills that are no longer viable in the current marketplace—experience significant earnings losses when they are displaced. While federal programs for worker retraining exist, most people pay for their own training at private institutions or community colleges, which contributes to an ad hoc and weak national worker retraining system marked by low quality and disharmony between workplace needs and training programs.

The Proposal

A more holistic training system should include the ability for displaced, but rehired, workers to access Pell Grants for part-time coursework; increased federal funding for community colleges in geographic areas especially distressed by economic downturns; and reform of how high-demand classes—such as technical and health-care courses, which are often costlier to conduct—are funded within community colleges. Further initiatives should include targeting training-ready displaced workers, linking financial aid to performance, and standardized and customized curriculums for job training programs, among others.


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.