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

Labour market training 191
some benefits that accrue solely to the employer. Third, employees may have good
incentives to bear the burden of general training (through wage reductions recognizing
employer expenditures on general training, for example), but may simply be unable to do
so. There are a variety of reasons for this: because of the difficulty of disentangling
general and speciflc training, employees may be reluctant to accept wage cuts for what
may seem little return; regulations setting wage rates, such as minimum wage laws, may
make it difficult to lower wages in exchange for training; and finally, human capital
market failures may simply make wage cuts or other employee expenditures
unaffordable. 24
Failures in human capital markets
The human capital market problem as it arises here is largely the same as in the primary
and secondary education and post-secondary education contexts discussed earlier.
Individual workers who wish to upgrade their skills may find it difficult to borrow money
to finance training because they cannot post their anticipated increase in human capital as
collateral to finance debt. This explains government intervention in the post-secondary
loan market, frequently by guaranteeing student loans or providing them directly. The
parallel between post-secondary government loans and labour market training is of
course quite close. To the extent that this human capital market failure prevents
individuals from undertaking cost-justified investments in training programs, there is a
role for government in either guaranteeing loans made to those in training by private
providers, or by engaging in the direct provision of financial support to trainees.
Externalities
Reducing unemployment inevitably results in positive by-products for the public at large.
This is usually because government acts as a “provider of last resort” in a variety of
areas, ranging from the obvious social assistance and employment insurance schemes to
the less obvious health care facilities, drug treatment centres, disability payments, and
even crime prevention programs and prisons. 25 When unemployment falls, government
spending on these and other programs is reduced along with dependency, depression,
crime, substance abuse and the inevitable family difficulties that accompany any longterm
unemployment, particularly in one-income households. Many of these externalities,
such as a reduction in welfare payments, are clearly identifiable as direct savings for the
taxpayer. Others, such as the prevention of child or spousal abuse, are more difficult to
measure but unquestionably result in savings for the state. Ultimately, however, these are
benefits that individuals and businesses find difficult to internalize, and therefore any
market investment in labour training will be sub-optimal.
“Second-best” intervention
Government involvement in the job training function may constitute a “second-best”
response to incentive distortions induced by other public policies, such as unemployment
insurance, social assistance benefits, and minimum wage laws. These public policies tend
to weaken the incentives for the unemployed to seek work. Thus, embarking on a job