Eric Hanushek

Lifelong Learning and Dynamic Adjustments to Changes in the Labour Market

Keynote Speech excerpts, PILLARS Inaugural Conference


When the effects of automation, robots, and AI are discussed, the focus so far tends to be on costs and harm. Less is said about what can be done to lessen potential harm, which leads to the idea of lifelong learning.

Here vocational education plays a key role, but the views on it around the world differ widely: from being eliminated in the US (and resurrected by Trump) to much more reliance on it in Europe (with Germany often cited as an example of successful application of vocational education leading to employment).

Strikingly, a study led by Eric and Ludger Woessmann with their colleagues Guido Schwerdt and Lei Zhang, showed that the returns to vocational education taper off in the later years of the working life, as shown below:

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The reason could be skill obsolescence, not keeping up with technological developments, or maybe different retirement planning.

But when it comes to discussing the related issue of lifelong learning, it is often more slogan than reality, with details seldom provided. Encouraging adult education is one of the ideas being floated, but usually accompanied with many as yet not properly answered questions: Should employers be incentivised to be more active in training their employees? What if employers countered with why should they retrain a middle-aged employee when they could more easily hire a younger one? So, should incentives be provided to employees instead? Or should training be government provided?

In view of this, Eric and his colleagues looked at it from a different standpoint. Starting from the fact that while the net aggregate effect of robots, trade and AI disruption may be zero or even positive, this is not true for individuals. Their proposal turns worker displacement on its head, by taking a cohort of young workers and focusing on adjustments before plant closures occur.

Knowing that the world will change for displaced workers, do they invest in enhancing their human capital? Do they get a payoff of that investment? Should they pursue other adjustments before closures? Who exactly should adjust?

To find out, Eric and his colleagues examined integrated employment histories (such as those available in Germany), with unique person and establishment identifiers, taking a sample that included people who completed first apprenticeship or started their first job between 1995 and 2010, mainly from large firms, observing plant closures 5+ years after employment entry, and dividing their “universe” among early adjusters, late adjusters, and controls (“stayers”).

Given that the terminology can be somewhat confusing, a clarification: with “Late adjusters” is meant people who do adjust, instead of jumping ship at least a year ahead of plant closure; those that jump ship early would be the “early adjusters”, and in Eric’s study are not being taken into account as people reacting to the disruption itself; they are likely simply bad job matches. Late adjusters, in contrast, take the hint and start investing in reorienting themselves occupationally before the plant closure approaches.

The researchers then make a comparison between stayers vs. late adjusters.

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Late adjusters experience a huge loss of income immediately, but then they climb up afterwards and end up overtaking stayers in income. Adjusters, in other words, do better over time.

In terms of second apprenticeships, late adjusters do a lot more in terms of getting new training:

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Late adjusters are also much more likely to switch occupations with plant closures: