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

Rethinking the selfare state 204
ameliorating information failures, but run the risk of force-feeding programs preferred by
the bureaucracy to consumers (exactly the sort of centralized resource allocation we
oppose) and thus reducing genuine consumer choice. However, an alternative perspective
might argue that the structurally unemployed are often less educated and more vulnerable
than the average consumer. Some degree of mentorship may in fact be necessary to
facilitate truly informed market decision making.
Accordingly, we should require full disclosure of the nature of the training and the
agency’s or employer’s past success rates measured against various indicia. Such
information could be delivered either without mentorship or through restart interviews or
advisory meetings, depending on the relative costs and benefits of funding mentorship
programs. Structured in this way, the market—by way of vouchers—may prove a more
effective mechanism for the allocation of job-training programs to those in need than the
public sector administered programs that have hitherto been dominant in North America
and many industrialized countries.
Scope of the voucher entitlement
As discussed above, a voucher scheme for labour market training should be staged to
reduce the deadweight losses associated with training those who do not need to be
trained. The first stage would include a relatively low-cost voucher that would be
provided to all unemployed workers to defray all or most of the costs of job-placement
services. The second-stage voucher, for the longer-term structurally unemployed, would
be a fixed-value voucher provided to all those who remain unemployed after a certain
period of search. This second-stage voucher could be exercised, at the participant’s
option, for classroom training, on-the-job training, or some combination of the two. The
choice would be mandatory in the sense that unemployment benefits would cease to be
payable if an election were not made. Prudent choice of a job-training strategy would be
encouraged in that payment of unemployment insurance benefits would terminate upon
completion of the job-training program if the participant does not engage in a period of
requalifying employment. The third stage of the voucher program—longer-term remedial
training—would be reserved for those who are structurally unemployed because of
functional illiteracy, or for those who would prefer to make a larger investment in human
capital than would be possible through a short-duration classroom or on-the-job training
program. For longer-term remedial training that focuses on teaching the 3Rs to the
functionally illiterate, a case similar to that discussed in the context of primary and
secondary education can be made for public funding of fixed-value vouchers. Long-term
training that takes the form of purely vocational instruction could be facilitated through
income-contingent loan programs similar to those that would be available for postsecondary
education.
Cream-skimming has proven to be a major problem with private sector involvement in
job-training programs. 121 Where private sector providers have been remunerated by
government on the basis of subsequent placement rates for participants, this has created
incentives only to enroll the easiest-to-place participants, who are least in need of jobtraining.
By shifting the subsidies to the demand-side, these incentives will likely be
somewhat muted. However, with fixed-value vouchers there will still be perverse
incentives for private providers to seek out those unemployed that present the lowest