Chicago Booth Review Podcast Should We Pay Coal Miners to Go to College?

Anders Humlum: What could we have done differently in response to the China trade shock? I think providing good opportunities for displaced workers to re-skill is one thing that I think our evidence supports would've been a good idea.

Hal Weitzman: In recent decades, many manufacturing workers and developed economies have lost their jobs, replaced by robots or cheaper imports. One option is to try to get those jobs back. Another is to retrain them to acquire the skills that are in demand. But does it really make sense to send displaced manual workers to college?

Welcome to the Chicago Booth Review Podcast, where we bring you ground-breaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's Anders Humlum, whose research on retraining injured workers suggests that paying them to go to college reaps big returns. They get off benefits, earn more than they did before their injuries and pay more in tax. Would the same be true for workers who lose their jobs to automation or trade? Anders Humlum, welcome to the Chicago Booth Review Podcast.

Anders Humlum: Thank you.

Hal Weitzman: We're here to talk about re-skilling injured workers. First, I'm interested, this is kind of a niche thing. People get injured, then they get re-skilled, then they go back to the workforce. How did you come up with this idea for this research?

Anders Humlum: Every year many workers face sudden setbacks in the labor market. This could be physical injuries, it could also be a robot taking over your job, or it could be international trade jobs moving abroad, making it difficult for workers to go back to their old occupations, old jobs. We wanted to understand whether policymakers can do anything to help workers adapt in the labor market.

Hal Weitzman: This is people who've been injured or who've been displaced in some way?

Anders Humlum: We focus on physical injuries. I first want to say it's actually not a niche thing. Workplace injuries are very prevalent. Every year as many workers get injured in a work accident as losing their job due to a mass layoff. I think it's understudied. I think it's underappreciated just how important physical injury and disability is in terms of the outcomes of workers.

Hal Weitzman: I stand corrected. Now obviously a physical injury has a significant effect on a person's life, but you also think about the economic effect for individuals and for the economy as a whole. Just give us kind of the headline what you found.

Anders Humlum: Work accidents is a really severe shock to workers. We see that injured workers suffer a 40% persistent loss in their labor earnings. Many of them end up on disability insurance. For the individual workers, this is very costly. It's also costly for the overall economy. First because disability benefits are expensive for taxpayers, and the scale of it, there's so many injured and disabled workers that this ends up at the macro level also to cost the economy a substantial amount of money.

Hal Weitzman: Just remind us a little bit about your methodology here. What were you looking at? Where'd you get your data?

Anders Humlum: Again, so we were after the question about whether re-skilling programs can help these disabled workers get their feedback in the labor market and provide them a pathway back to sustainable employment. Our methodology to answer that question is that we use these injuries, these workplace accidents, as sudden shocks to a worker's ability to work. You can imagine a construction worker one day getting a severe back injury. There's just no way back to construction for this worker. Then the question is by providing access to a re-skilling, this could be through a higher education program, for example, in construction engineering. Can you provide a pathway back for that injured construction worker back into the labor force? That was the key question that we were after.

Hal Weitzman: Where'd you get your data? What are the data you're looking at to answer that question?

Anders Humlum: We used data from Denmark where we could link very detailed data on these workplace accidents, the human capital investments, so what type of programs these workers enroll in, and then their labor market outcomes. We can really see whether these programs help workers reallocate from physically demanding work where they're not able to do work anymore to more cognitively intense work that are less demanding on their physical injuries.

Hal Weitzman: Essentially from blue collar to white collar?

Anders Humlum: Correct.

Hal Weitzman: I'm assuming, and you can correct me because you're from Denmark, that Denmark has a pretty generous, when you talked about we're saving disability, I'm assuming disability benefits are pretty relatively generous in Denmark?

Anders Humlum: They're very generous. They're on average around 70% to 80% of workers income levels, earnings levels before the injury. There's a substantial replacement rate and it makes it very costly for the economy that injured workers end up being packed on this income support for the remainder of their career.

Something that is also unique in the Danish setting is that there's programs that help workers re-skill after injuries, that basically closes that income gap relative to a disability insurance and pays for tuition, which makes it potentially possible for injured workers to go back to school for some years, re-skill and then transition into the job market.

Hal Weitzman: Of course, lots of countries have tried these kinds of programs where they couple disability benefit with retraining. This is fascinating and generally applicable. You set out to answer three questions. I would love to go through them and deal with them in turn and tell us what you found. The first is, do workers invest in their own human capital after losing their physical ability, which sounds like the government's investing in it in this case?

Anders Humlum: First of all, most workers do not go back to school after an injury. We find that it's an average around 15% of severely injured workers who take up re-skilling. These re-skilling programs are often higher education, so substantial amount of human capital investment seems to be needed in order to really change tracks in the labor market. We also have a bunch of smaller programs, like six-week coding courses, for example. We don't see any injured workers taking up those courses. It seems that either you go big in terms of the human capital investment or you don't go at all.

Hal Weitzman: That's fascinating. That's fascinating. The second question is do human capital programs, these sorts of retrainings we're talking about, help them switch from physical to cognitive occupation? You've said broadly they do, but give us some of the details about that.

Anders Humlum: That's the key promise of these re-skilling programs is that they can bridge that gap to a more cognitively intense work, but less physically demanding. We see that they're tremendously successful in doing so. The vast majority, so 85% of workers who take up these programs, also finish their degrees and they end up being placed in the target occupation. For example, a carpenter taking up construction architecture, that's a bachelor's, four years bachelor's program, we see that when they graduate, they end up finding jobs as construction architects. Exactly the job that are less physically demanding. They're usually sitting in front of a computer making calculations, but more cognitively intense. In that sense, the answer is yes, they do facilitate transitions from manual to cognitive work.

Hal Weitzman: I'm going to ask you in a minute about what kind of things, apart from the example you gave a construction architect, and this is a big question that you asked. What are the returns for workers and society? What's the headline there?

Anders Humlum: In some sense, the key finding is that these programs is a tremendous good investment, both for the individual worker but also for taxpayers in this society. In terms of the governments or taxpayers, these subsidies paying for tuition for re-skilling and income support, those investment pay itself back four times over.

Hal Weitzman: Wow.

Anders Humlum: Every dollar spend on these programs pays itself back four times $4. The reason is that the alternative for these disabled workers is to end up on disability benefits. You can imagine the typical injured worker is 40 years old. You're looking at two different scenarios. Either you're parked on disability benefits for the remainder of your career, 20, 30 years, or you take four years of schooling and then being placed into a job where you actually high income paying taxes. That's the reason why these programs for the government and for taxpayers is a really good deal.

Hal Weitzman: As you said earlier, that is more relevant for a country like Scandinavian country than it would be for the United States, say, where benefits are relatively meager compared.

Anders Humlum: That is true. That cost benefit in terms of taxpayers depends on how generous your social safety net is in terms of disability benefits. I want to say that disability insurance is also a big burden for government budgets in the US. There's good evidence that, for example, people who lost their job due to a trade with China, many of them are now on disability benefits.

Hal Weitzman: Absolutely. It has to do with the number of people, not necessarily because they're generous benefits.

Anders Humlum: Exactly. I think this set of evidence is also relevant in the US setting in terms of what could we have done differently in response to the China trade shock. I think providing good opportunities for this displaced workers to re-skill is one thing that I think our evidence supports would've been a good idea.

Hal Weitzman: If you're enjoying this podcast, there's another University of Chicago Podcast Network show you should check out. It's called Big Brains. Big Brains brings you the stories behind the pivotal scientific breakthroughs and research that are reshaping our world. Change how you see the world and keep up with the latest academic thinking with Big Brains, part of the University of Chicago podcast network.

Anders, in the first half we talked about injured workers and you pointed out it's a big issue, not very well studied, and you're studying it and how injured workers can retrain and all sorts of good things happen and they want to retrain, they want to do degrees. They use those degrees to get well-paying jobs and get off benefits, which is good for everyone. I'm interested, you talked about construction architect, what type of degrees, apart from that one, did you find that the injured workers pursued?

Anders Humlum: Yes. We found that there's a very strong link between what people have done in the past and the types of programs that appeal to workers that they enroll in. There's the construction worker to construction engineer, there's a welder taking up industrial engineering or production technology engineer. In general, workers tend to move within sectors or within clusters of careers, but they of course want to move away from the physically demanding work.

Hal Weitzman: But that's fascinating because sometimes you hear people talk about things like programming, and now maybe that's programming isn't an old example, but people say, "Well, we just get coal miners and teach them to be programmers." You're suggesting that that is not going to be attractive to the person and then maybe they wouldn't succeed either?

Anders Humlum: Yeah, I think that's very clear from our evidence is that we don't see any coal miners taking up coding after severe injuries or severe displacement. There's a strong line between what they've done in the past and the types of programs that both appeal to them. But I also think that it might be useful that you've been on the construction site, you've been a carpenter, and now you sit in making the calculations and you're as a construction architect or as a construction engineer. In that sense, maybe some of the sector-specific knowledge and skills they can actually take with them to their new career.

Hal Weitzman: Sure. I mean the coal miner could be interested in energy, so there's lots of renewable energy and other things that presumably would be seen as more of a development and not a complete break and something totally different, so I can see that. Tell us exactly what happened to these workers who re-skilled, what happened to their earnings?

Anders Humlum: That's also just a striking finding. The re-skilled workers, they end up earning 25% more than before the injuries. This just reflects that the types of occupations that they're placed in earn higher wages. Construction engineer earn on average more than a carpenter. That's really what's showing up in their earnings. For the individual worker, this is also a really good investment that pays off handsomely.

Hal Weitzman: It makes you wonder why people, I mean, presumably having an injury makes you reflect on lots of different things and it forces you to do something different. But entrepreneurs often have lost their job and so they're kind of forced into making a big decision. But it does make you think that there's a lot we could do for workers who haven't been injured or displaced.

Anders Humlum: There's a broader question, which is should we push more carpenters into engineering school? I do not think that's the policy implications, actually. We should not take a bunch of healthy carpenters and push them into universities or engineering schools for two reasons. First, even though they end up earning 25% more, they're in school for four years where their income is lower. Second, the reason why these investment pays for itself for the government is that the alternative for the disabled workers is to end up on income support. Whereas, if you just took a healthy carpenter, of course the alternative for the healthy carpenter would just be to stay in carpentry. For those two reasons, I think re-skilling is a tremendously good idea for disabled or displaced workers, but not for employed healthy workers.

Hal Weitzman: We referred in the first half to these societal benefits. Obviously not paying disability benefit is a strong incentive for government to run these kinds of programs. What else? What are the other good things that happen for society if people are brought back into the workforce and earning more than they were before?

Anders Humlum: Disability benefits is an important one, but actually it's an even bigger one is the tax money that is being collected when these re-skilled workers are being placed into highly paid full-time jobs, they're contributing with their taxes. That's actually an even more important part of why this is such a lucrative investment in terms of government revenues.

Hal Weitzman: They're paying more taxes because they're earning more money?

Anders Humlum: Yeah.

Hal Weitzman: Or I guess if they were on benefit, they wouldn't be paying any taxes or very low taxes.

Anders Humlum: It's both the lower transfers, but also the higher taxes being collected.

Hal Weitzman: Lots of good reasons for the state to support this kind of retraining. I was going to ask you what kinds of workers were the ones? Some of them did choose to pursue these programs, presumably others chose, well some just remained on benefits or others chose to do different kinds of things. Which of them decided to pursue this higher education option? You said earlier in the first half that the sort of six week, the non-degree programs were less attractive.

Anders Humlum: First of all, it is really these degree programs, the substantial investment. But even within that category, there's a lot of variation in which workers takes up these programs. The most important determinant is H, worker H, to the degree that no worker older than 50 go back to school after injury.

Hal Weitzman: But they have the option?

Anders Humlum: They have the option, they don't take it up. For the very oldest workers, actually, we would not want them to take up the option either because if you are four years out from retirement, then maybe it would not be a great investment to take up a four year program. But there's a group of middle-aged workers between 40 and 50 where it's only around 5% to 7% of these workers that takes up the program. We estimate that it's around a third of these workers could take up the programs and it would pay for itself entirely in terms of higher taxes, lower transfers. That seems to be really that group of middle-aged workers that are under-investing in human capital after severe displacement such as injuries. Actually, the youngest workers, they re-skill at the highest rate and they actually do very close to what's optimal in terms of private and social benefits. I would really keep my eyes out for these middle-aged workers between 40 and 50.

Hal Weitzman: Just so I understand, so those between 40 and 50, only 5%, you said will take it?

Anders Humlum: Five to seven.

Hal Weitzman: But a third of them could take it up and it would be beneficial to society if they did so?

Anders Humlum: Correct.

Hal Weitzman: Is that right? What proportion were the young, you said the younger workers were the most enthusiastic. What proportion did these increase?

Anders Humlum: Almost half of the youngest folks, so between 20 and 30, takes up these programs, so that's a very high rate of re-skilling. It's actually very close to the optimal rate. From a life cycle perspective, we want these young folks to take up re-skilling, and we see that they're actually close to hitting the optimal mark just by themselves.

Hal Weitzman: Just so I understand, if half of them re-skill, do the other half not do anything, not do any re-skilling, or do they re-skill in some other area or non-degree or whatever?

Anders Humlum: No, they do not re-skill. Either they end up on disability insurance for the remainder of the career or other income [inaudible 00:18:24].

Hal Weitzman: How long did you track them? Do you know by the end of your sample, are they still on benefits?

Anders Humlum: We track these workers for almost 30 years, so we can really follow them throughout their whole careers. That's something that is remarkable with the Danish data is that the panel dimension of the data set is so long that we can really follow workers throughout the whole career.

Hal Weitzman: What happens to them? I'm interested. If those that don't take up the retraining option, do they find it, what proportion find employment?

Anders Humlum: Very few. In that sense, we find that for the people that are on the margin of re-skilling, the alternative for these workers is to end up on disability insurance.

Hal Weitzman: It shows you how important it is, I guess. Now you've referred to it a couple of times and I'm intrigued that how you translate this to other settings, workers who've not been injured but have been displaced. You talked about automation and globalization, and obviously politically this has been a huge issue for the past few decades. How applicable is this, do you think, and what are the policy implications for that?

Anders Humlum: I see the injuries as a very neat setting to study a broader question, which is this transition from physical demanding manual work to more cognitively intense work that we've seen most advanced economies as manufacturing and physical labor has disappeared. These re-skilling programs have really promised to facilitate that transitions. I see our work in some sense, very directly informing what policies could you implement if you want to steer the economy away from physically demanding work, manual jobs on the production floor, or on the construction site towards more cognitively intense knowledge work.

Hal Weitzman: It suggests that, I mean, generally the governments have been under-investing in that kind of retraining, which I guess is not news necessarily, but it confirms that?

Anders Humlum: Training programs in the US settings are quite small. There's the Trade Adjustment Assistance, TAA program that were initially intended. I think they had good intentions of helping workers who were displaced due to import competition. It's just that the scale of these programs were way too small. What our study really shows is that a substantial investment in human capital is needed in order to help workers change tracks.

Hal Weitzman: I mean, and also I guess it feeds into, without getting too political, this debate about whether we want to bring back manufacturing or spend our effort, time and efforts doing something different like trying to reflect the world as it actually is.

Anders Humlum: I think an alternative to try to bring back manufacturing jobs is to help displaced manufacturing workers find meaningful jobs elsewhere. I think re-skilling provides one potential way to do so.

Hal Weitzman: Anders Humlum, thank you so much for coming on the Chicago Booth Review Podcast.

Anders Humlum: Thank you.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research.

This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.