Artificial intelligence, automation, and offshoring are putting ever-more jobs in jeopardy. The optimal solution for people most at risk of job loss may be old-fashioned classroom training, finds research by Chicago Booth’s Anders Humlum, University of Copenhagen’s Jakob R. Munch, and University of Copenhagen’s Mette Rasmussen.
The researchers conducted their studies in Denmark, which spends as much as 2 percent of GDP on active labor-market policies to help displaced workers develop new skills through on-the-job and classroom training. By contrast, the United States relies mostly on passive programs such as unemployment benefits and disability payments.
Analyzing government data on Danish job seekers from 2012 to 2019, the researchers find that people randomly assigned to classroom training were working more two years later than before they lost their jobs. Those assigned to on-the-job training, in contrast, didn’t experience the same “robust employment gains,” the researchers write.
The classroom options ranged from language courses and university classes to vocational training and certification programs. It focused on teaching new skills, as well as on helping job seekers create résumés and navigate the application process. On-the-job training included hands-on programs such as internships or short-term, wage-subsidized positions in the public or private sector.
Per the researchers, past studies have focused more on workers who opt into training programs and who may make decisions on the basis of their specific situation: for example, someone who already has a pending job offer may not enroll in a long-term training course. Humlum, Munch, and Rasmussen, however, avoided this selection-bias problem. In Denmark, all unemployed persons can collect jobless benefits for up to two years as long as they work with a caseworker, who is assigned to individuals on the basis of birthday—as the researchers note, “essentially randomly.” That caseworker has discretion to steer a worker either toward classroom training, on-the-job training, or no training. Preferences vary among caseworkers.
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Line of Inquiry: Anders Humlum on How to Help More Injured WorkersThe Danish administrative data enabled the researchers to track individuals from their first caseworker meeting through the following two years. The data contained information on gender, age, and country of origin of all job seekers, as well as education records and employment histories, including industry, hours worked, and earnings. Of those seeking jobs, 39 percent were assigned to classroom training, 25 percent to on-the-job programs, and 48 percent to passive benefits. (The total exceeds 100 percent because 13 percent were assigned to both classroom and on-the-job programs.)
At the end of two years, those assigned to classroom training were working 25 percent more per month than before their job loss. Those assigned to only the subsidized on-the-job programs were not working more hours after two years. The latter programs “seem to help workers in the months when they’re receiving the subsidy,” Humlum says, “but these programs do not seem to have sustained positive effects on the employment outcomes of workers.”
People who completed the classroom programs, rather than those who left training early to take a job and avoid participating, drove the positive results, the researchers write. This suggests that gaining fresh, marketable skills is key, as job seekers may start over in new careers.
The biggest beneficiaries were people in jobs with the highest risk of being offshored, such as clerical and customer support staff and commercial sales representatives. Two years later, workers who previously had the high-risk jobs gained 55 hours of work a month—a 50 percent increase from their previous employment. Classroom training allowed these workers to learn new skills, such as accounting or operating a computer, that may have helped them switch occupations, the researchers explain. Jobless people in low-risk categories—firefighters, nurses, dentists, housekeepers, forestry technicians, and laborers—added close to zero hours at the two-year mark.
The study has specific policy implications for Denmark, as the results suggest the government should focus on reserving classroom training specifically for high-risk workers. Doing so would both cut costs and magnify the effect on long-term employment, according to the researchers.
Beyond Denmark, policy makers looking to reskill workers should note the high payoffs of classroom training.
Anders Humlum, Jakob R. Munch, and Mette Rasmussen, “What Works for the Unemployed? Evidence from Quasi-Random Caseworker Assignments,” Working paper, March 2023.
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