Rethinking the Welfare State: The prospects for ... - e-Library

Rethinking the selfare state 190
states. The result is typically increasing numbers of low-skilled and therefore structurally
unemployed workers, or wage pressures such as will permit the less skilled to retain a
semblance of employment on condition of sharply reduced circumstances.
Even more troubling, key demographic groups often face disproportionate losses. For
instance, in Canada and the United States as well as in the OECD overall, the youth
unemployment rate is roughly double the aggregate figure. 17 In addition, women in North
America face an unemployment rate 1.36 times higher than that of men. Recent
immigrants are also typically among the most unemployed, in some cases as a result of
poor skill assessment by employers rather than limited skills per se. 18 Although
unemployment rates vary greatly across different education levels, the disparity in
unemployment levels between the best-educated quartile and the worst-educated quartile
has grown steadily across the OECD.
Structural unemployment poses a complex problem for the underlying rationales for
government intervention—and is thus primarily responsible for framing our focus as one
of government intervention in labour market training. As a starting premise, in the
acquisition and development of job-related skills, employers should be willing to pay for
training that is firm specific and employees should be willing to pay for the acquisition of
general human capital. 19 There are several reasons, however, for assuming that employers
and employees will be unable to make optimal decisions about investments in training—
thus providing a rationale for government intervention. First is the existence of
bargaining failures between employer and employee as to who will bear the costs of
training and in what amount. Second, the problem of human capital market failure also
arises in this context much as it does in the primary, secondary and post-secondary
education contexts. 20 Third, there are externalities associated with training that are
unlikely to be captured fully by the private investor. Finally, several government policies
cause marketbased labour market training decisions to be sub-optimal, and may therefore
make government intervention through ALMPs a “second-best” response.
Bargaining failure
There are several important complications that can lead to the benefits of training not
accruing to those who have incurred the costs of training. First, most job training
programs provide participants with increases to both their firm-specific and general
human capital. Because it is very difficult for employers and employees to accurately
measure or apportion the shares of general and firm-specific learning that will emerge
from a particular type of training, it may prove difficult to reach agreement on who
should bear the costs of training. 21 Second, even if employers and employees can arrange
training such that they each pay for the benefits that they will receive, employers face a
poaching problem to the extent that other employers, given that they have not had to
incur training costs that have yielded industry-relevant benefits, can afford to entice
trained employees away from their original employer with higher wages. 22 As Gunderson
notes, “To avoid losing their trained employee, the firm that provided the training would
have to pay the higher competitive wages. As such, they would double pay by paying for
the training and paying the higher wage to keep the trained employee.” 23 Consequently
employers are likely to under-invest in training that has some benefits that accrue solely
to the employee and similarly employees are likely to under-invest in training that has