Does training create jobs?

02mar98: Geoff Beacon : Jobs for hairdressers?

Our government seems to betting mostly on training and education for job creation. But how does education and training increase employment? Train a million hairdressers and we do not create a million jobs.

I know a good education can get my kids jobs that other kids will not get and training will help us compete for jobs on the world market. But how does this create jobs on a European scale?

02mar98: John Courouble, Predident-Elect OU Fabians: Training attracts jobs to Britian.

Education does a number of things; it increases the average capabilities of potential workers, and makes the country a better place to do business - rendering homegrown businesses more efficient/profitable and foreign investors more likely to choose this country as their base.

More importantly however, it ensures that there are not a group of people who are unemployable, and makes a lower rate of unemployment sustainable without creating the kind of skills shortages which lead to cost inflation. For while the Thatcherite model holds that a certain number must be unemployed so the unions can be tamed, if that number are not just unemployed but are, by virtue of long term exclusion, *unemployable* then the same number again must be put out of work to prevent high wage demands.

This is the problem of inefficiency in the labour market caused by long-term unemployment.

John Courouble, Room 4012, Keble
President-Elect, OU Fabians
Messages only : 01865 272727

Why is there only one
Monopolies Commission?

Originally posted to uk-policy, a service of Nexus. www.netnexus.org
Reproduced by permission of the author.

16mar98: Kim Swales: John Courouble's economic fallacy.

John Courouble's contribution "Training attracts jobs to Britain" suggests he thinks there are a fixed number of jobs for which we all must compete. As individuals, local authorities, nation states or larger groupings we might compete against our neighbours. But to think that we are competing for a fixed number of jobs is falling into the "lump of labour fallacy" know to every undergraduate economist.

Unemployment measures are best designed to create new jobs. Subsidies that lower the cost of using labour can clearly create new jobs. State subsidised training and education can also lower the cost of labour to the employer.

To answer Geoff Beacon's point, training a million hairdressers would create jobs by cutting the wages in hairdressing through competition. A further increase in employment would occur if standards were raised and we had our hair-cut more often, foregoing expenditure on less labour-intensive goods.

20mar98a: Nigel Allinson, Professor of Electronics, UMIST: A nation of hairdressers.

GNVQ stands for Not Generally Very Qualified. Hairdressing is the NVQ with the most students.

We are creating a nation of hairdressers.

20mar98: Richard Bromiley : Training and job quality.

Two initial thoughts from briefly reading the messages already posted.

1. Training and the quality of jobs. A recent conversation it was suggested that TECs were in some cases trying to pre-empt investment decisions by training people to do jobs they thought may be useful to inward investors. It may be good that TECs are investing effort in this type of training, creating the so-called 'flexible' workforce which is so talked about. However, in response to this I have two ideas. First, it again raises the question of the quality of jobs which people are being trained for. If the training is only to create semi-skilled, poorly paid, part-time jobs, there needs to be serious thought put into how this genuinely creates human betterment (I will discuss this more below). Second, it again demonstrates that we are unable to control the forces of globalisation in the economic sphere. What worries me is that we may be able to provide the skills for companies in the current period, but what happens when a downturn occurs or a product cycle ends and investment in these branch plants may be withdrawn? We need to look at more sustainable growth rather than pandering to multinationals.

2. Beyond the labour market? Most of what is being said about work and training is to do with rehabilitating people within the formal labour market. Whilst this may be good for many people, if jobs are unavailable or of a poor standard then there may be a case to say that social conditions may not necessarily be improved by taking jobs. To me, it seems that it may be just as easy to be disenfranchised or excluded within the formal economy by insistance of the performance of low-quality jobs as it is to be left outside. If the quality of jobs is low, we need to be thinking of how to let people realise their personal and social potential outside the formal economy, perhaps adding more to society by doing other things. A re-evaluation of the worth of community and other forms of work is I guess what I'm advocating here; some way of getting beyond paid employment and its monetary values as the yardstick of importance to society. New indicators of social wellbeing such as the Index of Sustainable Economic Welfare (ISEW) may be a way to get into this, as opposed to GNP which looks primarily at market values with little regard to more 'human' factors.

Hope this provokes a response or sets people thinking; I'd welcome any criticism as it's obviously easy for me as a 22-year old in academia to be idealistic at times.

Richard Bromiley

14jun99:Kim Swales: Training, employment and a case of Bollinger

Thanks to Simon Hinde of the Sunday Express for spotting faxfn's correction to their previous advert in Private Eye. I would always wish to be polite to fellow economists.

However, I am very disappointed that few economists challenge the myth that training is an effective means of reducing unemployment. As I have said elsewhere on faxfn
...training a million hairdressers would create jobs by cutting the wages in hairdressing through competition. A further increase in employment would occur if standards were raised and we had our hair-cut more often, foregoing expenditure on less labour-intensive goods.
(see above)
But what is the point of training a million hairdressers to force down the wages of their colleagues? This is a very weak and long-winded technique. Some MEPs, thank goodness, recognise the weakness of this approach. I warmly support the comments of Wim van Velzen
... This only underlines the European Parliament has been pointing out for years: that training people without being able to offer them jobs is pointless. For years European citizens have been trained and retrained several times in a row with money from the Structural Funds without ever finding sustainable employment.
(See Europe lacks jobs not skills)
But in an effort to lighten the struggle of getting the Treasury and their economist friends to engage in serious discussion on this subject, I am offering a case of Bollinger for the first plausible argument that shows how training can significantly reduce unemployment.

I will send the prize to Simon Hinde. He has my permission to drink it at a bottle a week - so unless I am quickly proved wrong I predict a happy journalist.

(faxfn note: replies can be sent to contributions at www.faxfn.org or to Lucre, The Sunday Express, 245 Blackfriars Road, London Se1 9UX)

23jun99:Kim Swales: No engagement at the Treasury

Thanks again to Lucre of the Sunday Express for the flattery. I hope he is enjoying the Bollinger. But my competition does have a serious purpose - to encourage the government to express the economics behind its policies more openly. As many economists know, it is particularly difficult to get the Treasury to engage in debate. So let me try again.

As I have said in a paper to the European Commission
... erroneous views are expressed by the UK Government in HM Treasury (1991, p. 70) in its discussion of the rules to be used in the evaluation of industrial and regional assistance whose central goal is job creation. "Because of crowding out at the macroeconomic level, effects on employment ... should not be included as benefits of projects in an efficiency test." (See The Employment Effect of Subsidies)
Here the Treasury was claiming that regional measures for job creation (eg. regional labour subsidies) cannot increase the national level of employment so cannot make overall savings in national benefit payments etc. As far as I can tell, this is still their view.

However, they presumably support the government's claims that job creation through training does makes extensive savings on the benefit's bill. In this case they cannot use the "crowding out" argument but must flatly deny it. They must claim that training extra hairdressers does not put existing hairdressers out of work.

But I am guessing. Open Government is not open enough for us to clearly know the Treasury view.

Webmaster's note: Professor Swales is judge and jury in this "prove him wrong" competition. This may be discouraging to entrants. We have therefore had a whip-round to fund a further six bottles of Bollinger as consolation prizes. Judges will be David Gowland, Professor of Economics at the University of Derby and John Treble, Professor of Economics at the University of Bangor.

P.S. Prof Swales has a miracle scheme that can "simultaneously increase employment and reduce taxation". Do you believe he can turn water into wine? Some discussion would be interesting. (See Kim Swales: Employment friendly VAT)

29jun99:Faxfn stringers: Testing Kim Swales' prize

After Champagne and brushing shoulders with some reasonably famous people at a private view at Canada House, the rain forced us into an eating place opposite the Savoy. Ever on the job we ordered Bollinger to check whether Prof Swales' prize was worth having. Conclusion: it is. This Bollinger was nicer than our usual, cheaper Champagne. The first glass seemed extra special. (But why? Were our palettes temporally excited by a new taste or does the freshness of the first bubbles from the bottle make the difference?)

This restaurant gave us the best meal we have had in years. (moved to faxfn's new section on creating jobs through pleasure creating jobs through pleasure - webmaster.)

After finishing the bottle and a few other drinks we tried to work out whether life-enhanceing experiences like this benefit from Prof Swales' employment friendly VAT. Did our bill help pay to employ many workers (waiters, chefs, vegetable growers, wine makers, fishermen) or would we create more jobs by buying a new digital television? By the end of the night it was beyond us.

28jul99a: The Royal Economic Society: Press release for 26th July 1999.

How Effective Are Active Labour Market Policies Like The New Deal?

Do active labour market policies like the New Deal programme in the UK and the Workforce Investment Act in the United States actually increase the wages or employment of the people they seek to help? According to new research by Professors James Heckman and Jeffrey Smith, published in the latest issue of the Economic Journal, programmes of this kind make almost no difference to the level of unemployment or the wage rates of those gaining employment. What is more, many official evaluations overstate the effectiveness of such policies because they assume unrealistically that nothing would have happened without the programmes.

How should we evaluate the effectiveness of programmes like the UK's New Deal and the US Workforce Investment Act, which provide job search assistance, job matching services and skills training to people looking for work? Heckman and Smith argue that the trick is to figure out what would have happened to unemployed people if they had not participated. At first glance, it seems natural to think that nothing would have happened - they would have remained unemployed. But using unique data from an experimental evaluation of the Job Training Partnership Act (JTPA) programme in the United States, the researchers reveal that this natural assumption is incorrect.

In the experiment, people who applied to and were eligible for the JTPA programme were assigned at random to two groups. One group was allowed to receive the programme's services and the other was excluded from them. The excluded group indicates what would have happened to unemployed people had they not participated:

  • In contrast to the intuition that without the programme, participants would remain out of work, the JTPA data reveal that the unemployed and the disadvantaged find work almost as well - and for male youth, better - without the programme as with it.
  • For most groups, the difference in employment rates is just a few percentage points.
  • Differences in average earnings are similarly small.
These findings shed new light on the high placement rates often cited by programme officials - placement rates that implicitly (and incorrectly) assume that participants would not find work without the programme.

Heckman and Smith also show that many traditional approaches to evaluation fall down because they make incorrect assumption about what would happen to people's earnings if they did not participate. Many evaluations of government programmes compare the earnings of participants just before and just after participation and attribute the difference to the programme.

The experimental data reveal that participants experience a 'dip' in earnings prior to the programme, but that their earnings would rebound and grow beyond pre-programme levels even without any programme services. Official evaluations falsely attribute such earnings growth to the programme and thereby produce overly-positive estimates of the effect of the programme.

'The Pre-Programme Earnings Dip and the Determinants of Participation in a Social Programme: Implications for Simple Programme Evaluation Strategies' by James Heckman and Jeffrey Smith is published in the July 1999 issue of the Economic Journal.
Heckman is Professor of Economics at the University of Chicago; Pack is Professor of Economics at the University of Western Ontario.

02aug99a: Kim Swales: New Deal web site shoots government in foot.

The heavyweight paper by Heckman and Smith mentioned in the previous posting is not the only one to show that training schemes like the New Deal do not affect jobless levels. Another one by Keith Marsden writing for the Centre for Policy Studies points out that France and Germany spend much more than twice as much as the UK on job schemes but have much higher unemployment.

But even before these were published, it was clear that someone in government knew the score. A careful look at the Department of Education and Employment's web site gives the game away (United Kingdom Employment Action Plan) . This claims 70,000 young people have moved from the New Deal into sustained jobs. With the "64,000 on other education, training and work experience options" the New Deal has succeeded in removing about half its entrants from unemployment.

Figures also published in the action plan suggest that before the New Deal about half of people unemployed for six months (who would now be New Deal entrants) left unemployment in the following six months.

So according to the government's web site, the New Deal does not seem to have made any difference.

03aug99a: Webmaster: European action plans: coordination or coincidence?

It has been pointed out to faxfn that most other european governments to have similar policies. The 1999 Action Plans for Employment have remarkable similarities. Did Allan Larsson, Director General of the Employment Directorate organise the hymn sheet? (The view of a swedish economics student passing through St James Park.) Or was it Commissioner Flynn? Or is this evidence of New Labour's new influence in Europe?

Faxfn has been asked to investigate. Please help.

06jan00a: Steve Cox: Education, Unemploment and Discontent in Algiers

Anecdote #1 - The Gaza Strip, Palestine in the 1990's

The Jabalya refugee camp, the largest in the Strip, is one of the poorest and most densely populated areas in the world. Casual inquiry will suggest, however, that there are more PhD's per head of population than in either Bloomsbury, London or in the university town of Boulder, Colorado. Furthermore, these doctorates are in 'infrastructural' subjects such as engineering, computer science and information technology rather than in sociology, history or literary theory. And yet the unemployment rate in this area is typically of the order of 50-60% and this area lacks proper sewers, water treatment plants and even basic communication systems, the very facilities which Gaza's educated elite are trained to provide.

Anecdote #2 - Algeria, in the 1980's

Anyone flying out of Algiers airport or taking the boat from Algiers to Marseille is likely to meet any number of highly qualified individuals fleeing the country in order to gain employment. Algeria has one of the most developed education systems of any 'third world' country and yet during the week, the city of Algiers is awash with civil engineers and computer scientists who weekly migrate from the country to look for work as bottle washers, road sweepers and shoe shine boys.

Admittedly these anecdotes prove nothing and relate to economies quite different from that of the UK, and each has their distinct problems, but what they suggest is quite simply that neither the number nor quality of jobs correlates to the level of education and expertise in a society. [One could add that in the cases cited this has resulted in a high degree of frustration and discontentment among the middle classes in these areas which in turn has contributed to the growth of a particularly reactionary form of Islamic politics. That, however, is another issue, and in any case this is not an argument against education per se.]

One might well ask then, 'Why is the notion that education creates jobs, such a popular one?' In order to answer this it is necessary to make an important distinction between:

  • an idealist notion of education, that is one which is abstracted from any real social context, which views education as the free pursuit of knowledge for its own sake, that is as 'learning', which, therefore, is necessarily 'good', and,

  • an 'embedded' or realist conception of education which views education as the concrete process which serves to legitimise the unequal allocation of places (and consequently, the unequal entitlement to resources) within an economy.

It follows that the outcome of real, as opposed to ideal, education is necessarily unequal and that access to such education, in itself, does not create equality.

The confusion between education as it exists and an idealised notion of education only explains the popular belief that education as such is intrinsically good, it does not explain why those in power promote the idea that education creates jobs. Quite simply the overproduction of people ostensibly qualified to perform a particular job increases competition for that job, competition reduces costs in this case the salary or wages attached to that job. Consequently, having a degree, the cost of which is increasingly borne by the individual, no longer guarantees a high or even a modest salary you need a degree to run a MacDonalds these days. Competition for jobs does not of itself create jobs, since a 'job', in the most abstract sense, consists of the instruments of production and the material to be worked on as well as the techniques of operation embodied in the incumbent.

Clearly if there was a match between 'places' in the economy and the number of people who were truly 'fit' to occupy them in terms of knowledge and expertise, then there would be no market in jobs, but then that would not be capitalism. The popular confusion of education as it exits with its idealised shadow, its opposite in fact, merely serves to sustain the very system under which that ideal cannot be realised. The apprehension of this confusion, on the other hand, might serve to engender the desire for an alternative where it can.

04feb03a: Update 2003: The dangers of alienation.

In the longer term, the alienation of this educated elite of many countries has frequently resolved itself into support for Islamic militancy with consequences that we have seen in Algeria.