How Should We Help Workers Exposed to Offshoring?

Narrator: As companies move factories to developing countries in search of more affordable labor, workers in developed countries often find themselves out of a job. Some politicians advocate job training and subsidized work programs to get these unemployed workers back in the workforce. But how successful are these programs, and are some more successful than others? Chicago Booth’s Anders Humlum and his coauthors sought to answer that question.

Anders Humlum: So in this project, we try to understand which policies help job seekers get back to work. In the European context, big tradition of active labor-market policies. So these could be classroom-based training programs or more job-focused wage subsidies. And we want to understand which of these tools, if any, can help workers find jobs. So we collected administrative microdata, so this is at individual-worker level, linking their background histories to their assignment to training programs, and then finally their labor-market outcomes. These are confidential microdata covering the whole Danish population that we link, all anonymous, at the Statistics Denmark. And this data set provides a really fantastic opportunity to understand which tools―and for which type of workers―really work in getting them back to work.

Narrator: The researchers collected data on the types of programs that caseworkers assigned to job seekers.

Anders Humlum: These are millions of observations. So we follow these workers for more than 10 years, and we have hundreds of thousands of job seekers in our database.

Narrator: The researchers studied two types of training. One was classroom programs that focused on building the human capital of the workers. They gained certificates in new skills, such as IT work or crane operation. The other type of program was job training, which focused more on putting workers on the job. These jobs could be subsidized by the government. The idea behind the programs was to get workers a foot in the door of an industry in hopes that it would create sustained employment. The data showed some stark differences.

Anders Humlum: So our key finding is that classroom training helps workers find jobs. In particular, two years after being assigned to these programs, workers have 25 more work hours every month. This is a substantial effect that we find is driven by workers completing the training programs, and after they’ve completed these programs, the reskilling or classroom-based training helps workers switch into new occupations relative to what they’ve done in the past. Furthermore, we show that these training programs make their job applications more successful. These findings underscore the mechanism by which classroom training is providing skills that are valued in the labor market. It helps the workers switch occupations, and it helps them be more successful in their job search. Something we find very starkly in the data is that classroom training is particularly beneficial for workers who face structural challenges in the labor market—for example, workers who have lost their job due to offshoring. We find that these workers really benefit from these reskilling programs, allowing them to switch into occupations that are growing and have a more robust demand for labor. We find that those negative employment outcomes really reflect a selection bias, where it’s the workers who have adverse job opportunities that are selecting into classroom training.

Narrator: The job training programs were less effective. The researchers found that while workers were receiving the wage subsidies there was a temporary effect, but this effect quickly dies out after the subsidies end.

Anders Humlum: Our study shows that by targeting classroom training to workers exposed to offshoring, we can get more bang for the buck, because these are the workers that have the highest benefits from classroom training.

Narrator: The research shows that investing in the human capital of displaced workers can pay off because it helps convert a job seeker who would otherwise have ended up on benefits into a taxpayer contributing to the social good.