The recent spate of layoffs and a softening economy have renewed policy interests in the consequences of job loss for workers. A particular group of workers-older workers with three or more years at a current job and relatively high wages-can be especially hard hit from layoffs and job loss. This group, referred to as "displaced workers," experience greater and longer-term effects in lost wages than do younger and less experienced jobholders.

Since the early 1980s, a growing number of community colleges have been providing job retraining under contract with various business, government, and nonprofit organizations. Little research, however, has examined the effectiveness of community college retraining in increasing earnings and productivity of displaced workers

For an earlier working paper on this topic, look here.

In his Center for Human Potential and Public Policy briefing, "Community College Training and Transition Back into the Workforce," Robert LaLonde, professor at the Irving B. Harris Graduate School of Public Policy Studies, presented findings from a project that examines the returns from community colleges for displaced workers. He finds that for such workers, one academic year of community college can raise earnings by about 5 percent over and above what they would have been without the further education. However, very few displaced workers complete even one year of school, cutting actual earnings gains considerably.

Study and Method

To determine the impact of community college on subsequent earnings, LaLonde and colleagues analyzed data from unemployment insurance earnings records and community college transcripts for displaced workers in Pennsylvania and Washington State. Unemployment insurance earnings records provide information about individuals' quarterly earnings, their year of birth and gender, when they lost their job, job tenure at separation, as well as information on the employer. A distinct advantage, the administrative data used for this project allowed the researchers to track employees' earnings history and college coursework for several years both prior to and after job loss.

In Washington State, the authors followed about 21,000 workers who were displaced between 1990 and 1994 and who enrolled in at least one community college course around the time of their job loss. The group included approximately 9,000 "dropouts" who enrolled in but never completed any community college courses. They also followed approximately 65,000 displaced workers who did not subsequently enroll in community college courses after the loss of their job. All workers had a strong attachment to the workforce. In Pennsylvania, which was limited to workers displaced from firms in the Pittsburgh metropolitan area, the authors followed the histories of about 3,200 workers who were permanently displaced between 1978 and 1985 from a job that had lasted three or more years. Approximately 1,000 persons among this group were dropouts.

Michael S. McPherson and Morton own Schapiro. 1999. Tenure Issues in Higher Education. Journal of Economic Perspectives, 13(1): 85-98.

Findings

The authors find that one academic year of community college raises displaced workers' earnings by about 5 percent over and above what they would have been without further education. However, the majority do not complete even one year of coursework. Sixty percent left school before the end of the first quarter. Past research has found somewhat lower, but still striking, results. McPherson and Schapiro (1999), for example, find that 35 percent of students complete only one semester or less of coursework. Therefore, the average impact of community college retraining on earnings drops to about 2-3 percent of post-displacement earnings.

A focus on technically oriented skills or similar coursework is critical to higher earnings.

LaLonde and his colleagues also find that the type of coursework undertaken is critical to future earnings. Concentrating on courses that focus on technically oriented vocational skills or science and math results in much higher returns than does a focus on other types of coursework. The expected return on earnings from a curriculum that provides an academic year of more technical and applied coursework ranges from 10-15 percent. Those focusing on a more general curriculum actually see a drop in future earnings. Individuals who take many courses spanning many areas have especially poor earnings outcomes.

The results also indicate that returns to education are greater among more skilled workers. Those with more than six years of tenure at their last job had higher returns on earnings, as did those with some prior college work. In other words, skill begets skill.

Christopher Ruhm. 1991. "Are Workers Permanently Scarred by Job Displacements?" American Economic Review, 81(1): 319-323.

Jacobson, LaLonde, and Sullivan, 1993. The Costs of Worker Dislocation. Kalamazoo, Michigan: W.E. Upjohn Institute for Employment Research.

Policy Implications

Worker retraining programs for older, more experienced displaced workers do not appear effective in offsetting earnings losses from job loss. Community college training will not offset a significant portion of their long-term earnings losses. Previous studies indicate that even several years after losing a job, experienced displaced workers earn 15-25 percent less in their new jobs than what they would have earned on their old jobs (Rhum, 1991; Jacobson, LaLonde, and Sullivan, 1993). Thus, even if displaced workers acquired one year of higher education, their earnings would still remain below what they would have made had they not lost their jobs. Further, as observed in this study, most displaced workers complete less than one academic year of schooling.

However, certain groups of workers, namely those with greater skills and those who take highly focused, technically oriented coursework, see considerably higher earnings gains. Such evidence suggests that displaced workers may gain from community college schooling only when they concentrate their coursework in a particular subject area. Taking a wide range of courses in several subjects is not as productive as focusing narrowly.

Based on these findings, an effective approach might be for policymakers to assume a more paternalistic approach to training programs, steering displaced workers to specific coursework and encouraging higher-skilled workers to retrain at community college, since they appear to experience higher returns. Above all, retraining programs should discourage a broad, well-rounded education; the returns are not worth the investment.