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

Labour market training 195
inefficient. Put another way, centrally devised allocation methods are likely to result in
systemic and pervasive misallocation of resources. Decentralized, market-based decision
making about job-training on the other hand, as is common in the United States, is likely
to result in fewer systemic errors of this nature.
In Europe, and particularly Sweden, classroom training is more often coupled with onthe-job
training than in North America. 51 Sweden’s classroom training programs have
often been cited as examples of effective labour market training, although it has been
found that those individuals who acquire practical, on-the-job training in the Swedish
program are more successful than those who receive only classroom instruction. Both
programs, however, have only modestly positive effects on labour market attractiveness
for participants.
On-the-job training
Subsidized employment, or on-the-job training, is already part of the government jobtraining
strategy in both Canada and the United States and some studies argue that it is
superior to classroom training. The OECD argues that the Canadian Employability
Improvement Programme (CEIP) “appears to derive much of its success from welltargeted
measures, both to the individual and to local labour market needs.” 52 Policy
recommendations include keeping “programmes small in scale and well-targeted so that
they can cater to a relatively homogeneous group of the unemployed.” 53 Evidence from
the US Employment Service suggests that the individual-treatment approach shortened
unemployment duration and yielded benefits that greatly exceeded the higher costs of
targeted programs. 54 Martin finds that programs receiving positive evaluations are
typically those that have the following three characteristics: tight targeting; small-scale
delivery; and strong on-the-job components. 55 Finally, the US National JTPA (Job
Training Partnership Act) study, conducted by Abt Associates, provides further support
for increasing use of on-the-job programs. The study found that, “adults recommended
for classroom training in occupational skills experienced no significant gains in earnings,
but adults recommended for on-the-job training achieved significant gains.” 56
However, certain problems are evident in these programs. First, most programs have
been structured without the possibility of flexible adjustments to reflect changing labour
market demands. Thus, programs have been instituted to instruct individuals in certain
skills even when there may be little demand for them. Leaving the choice of skills
acquired up to the individual worker would be a more efficient method of allocation.
Second, there are strong incentives for firms to spend very little on training or simply do
away with training altogether. Firms also have an incentive to exploit the opportunity to
hire unskilled workers (whom they may have hired and trained in any event) and train
them with government funding at little or no extra cost to themselves. Consequently,
wage subsidy programs have often been plagued by high deadweight, substitution and
displacement losses. In addition, public employment programs have tended to result in
temporary “make-work” stints with marginal effects on the future employability of
participants. 57