Risk & Compliance

The People Puzzle

Re-training America's workers: Thousands of workers are losing their jobs. America now faces the hard task of getting them back to work.
Economist StaffDecember 30, 2008

Moira McKamey is one of many Americans with more free time than she would like. In November DHL, an express delivery company, said that it would close its American domestic operations at the end of January. Up to 10,000 jobs may be lost in Wilmington, Ohio, where DHL has its main hub for domestic traffic, and where it is the town’s largest employer. Ms. McKamey’s job has already vanished. She is trying to keep busy but, on a break from painting her kitchen a cheerful yellow, she succumbs to tears. She worked at the hub for 20 years. Her husband is a small farmer; she supplied a steady income and the family’s health insurance. She will be 52 this month. “I just never thought I would have to start all over at my age,” she explains.

America’s overall unemployment rate is 6.7 percent. But in some states sweeping lay-offs make the outlook much gloomier. Wilmington’s predicament is among the worst in Ohio’s recent history, while in Michigan at least 90 firms have announced firings in the past two months. More will surely come as the Big Three carmakers cut costs and possibly enter bankruptcy. Town and state officials across America now face a daunting prospect: helping millions of workers find new jobs.

The federal government has three main ways for leading workers back to employment, according to Gary Burtless of the Brookings Institution, a think-tank. The first is to help match workers with employers who seek their skills. The second is to provide unemployment insurance, which replaces lost wages for a period; but this money is provided by the states and some, including Michigan and Indiana, have already run out.

The third way to help workers is to train them for new jobs. Current programmes, though, are woefully inadequate. The Trade Adjustment Assistance act (TAA) serves those who have lost their jobs because of changing patterns of trade, giving eligible workers counselling, training, income support and other services. But TAA relieves only a fraction of the displaced. The more sweeping federal initiative is the Workforce Investment Act (WIA) of 1998, which sought to replace jumbled federal schemes with a streamlined system for workers and employers. States have some flexibility, but across the country “one-stop” career centres house a fairly standardised range of programmes, including help with job searches, career counselling, and, for a few, money for training, often at community colleges.

WIA is an improvement, but a flawed one. Its funding is volatile and declining, down 10 percent since 2002 to just $3.2 billion for the whole country in 2008. Only about 40 percent of WIA money is spent on training, according to the Government Accountability Office. Overall, America spends less on training than almost any other country in the OECD. George Bush made a few small changes to the system, including a pilot programme to create something like a voucher system for training; but an overhaul of WIA is overdue.

At present the system is straining to support cities such as Wilmington. It does not help that a GM plant has just closed nearby. Keith Hyde, who operates a local one-stop centre, is a veteran of gloom: over the past 15 years he has dealt with the closure of some 75 plants. But this, he says, “is easily the biggest concentration of displaced workers that I’ve seen.” To deal with the firings, the federal Department of Labour has given Ohio an extra $3.9m for retraining. The Commerce Department will pay an “economic recovery co-ordinator” to devise a new plan for growth. DHL is paying for a “transition centre” at its air hub. And the state has deployed a “rapid response” system, whose first step is to explain to people what assistance is available.

The glut of fired workers, however, means fierce competition for jobs. The bulletin board at Wilmington’s one-stop centre used to be covered with job postings; these days patches of cork lie bare. There is good demand for a handful of professions, including skilled labourers such as plumbers. Hospital workers are also sought after. Ms McKamey says she may become a medical assistant, but does not know which degree to pursue or what money she might be given for training. Meanwhile most local community colleges, explains Mr Hyde, have waiting lists for health-care courses. This may worsen if Ohio’s budget for higher education, which has remained relatively healthy, has to be cut in 2009 as the state struggles to balance its books. College budgets are often obliged to shrink in downturns, just as demand rises.

If Wilmington is the centre of Ohio’s struggles, Michigan is the centre of America’s. The state’s unemployment rate is 9.6 percent and will doubtless swell. To respond to a long slump, Michigan has tried to have “a coherent strategy even if the Feds don’t”, explains Andy Levin, deputy director at the state’s Department of Labour and Economic Growth. The most notable new scheme is No Worker Left Behind, launched in 2007, which gives Michigan workers up to $10,000 for two years of training in a high-growth sector. Community colleges, meanwhile, are designing programmes around growing industries.

Despite such efforts, problems remain. Education does not guarantee employment, particularly in a state such as Michigan. “Families are splitting up,” says Dorothy Kaltz, who runs a one-stop outside Detroit. One parent stays with the children and the house (which often can’t be sold), while the other finds work elsewhere.

Such stories underline a fact that the states know well. Attempts to boost jobs must be matched by economic development — hence Michigan’s stress on training in growing sectors. Lee Fisher, Ohio’s lieutenant-governor, has fostered closer collaboration between higher education, training programmes and economic development. The federal Labour Department has grants to encourage such alliances. Most of the trendiest ideas have to do with the “green” economy, an area in which Barack Obama has pledged to spend some $150 billion. Michigan has a “green jobs initiative.” In Wilmington, two Obama supporters were playing Frisbee after the election when they decided that their city should be a green hub. They are promoting their idea to local officials. The trouble is that every city and state wants to attract green firms these days.

The new president will inherit this mess. David Raizk, Wilmington’s mayor, has a photograph taken of himself and Mr. Obama during the campaign. “I like this picture because I’m talking and he’s listening,” the mayor jokes. Mr. Obama’s plans include creating jobs not only through green technology but also through infrastructure projects. Most of the talk, however, remains vague.

An energetic debate on displaced workers—on the role of the private sector, for example, or which training programmes give the best return to workers and taxpayers—has yet to emerge. In the meantime some 608,000 Americans, 74 percent more than last year, are not seeking work because they think no jobs are available. Their label is simply “discouraged.”