Sandra McNally

Training and Re-Skilling in the Labour Market

Keynote Speech excerpts, PILLARS Inaugural Conference


When it comes to devising public policy interventions, there must be clarity regarding both the reasons for introducing such policies and the possible risks associated with them. The first questions to look at are “What are the returns?” and “Where are the gaps?”.

In labour markets facing disruption through globalisation, technological change and digitalisation, inequality can grow wide, with Intermediate and low-skilled people as the most likely to be disadvantaged. Furthermore, with people living longer, we will all have to engage in learning much more than in previous generations.

Assuming that training can lead to better outcomes, we need to identify how training can help, how to lower barriers to training for people on low incomes, and how to address externalities (such as not enough provision of training).

We also must pay attention to the risks, such as not providing the right skills, or if we end up not changing behaviour enough. Both would lead to significant waste and would become hard to justify (“deadweight”). As an example, Sandra mentioned the UK Employer Training Pilots.

It looked flawless: free training, paid time off for training, wage compensation, information advice and guidance. And yet, no effect on take up in three years. The apparent reason is that things were done that would have happened anyway.

Another example was a GM factory in Janesville, where training did not help, since it was not provided in the right things.

A further complication is that we know less about returns to training than we do about returns to formal schooling. What we do know, though, is that training and formal adult education are very heterogeneous within and across countries, and are therefore difficult to translate. Training does not travel well.

So, what lessons has research identified?

Active labour market policies can have small or even negative short-term impact, but larger impact on the medium and long term (increased probability of employment: 6-7%).

The so-called sectoral training programmes in the US, which are specifically geared to the needs of the local employers and are managed by community organisations, seem to address the shortcomings of the Janesville case (which was training in a vacuum). The short- to medium-run impacts on earnings scored about 20%.

An LSE study found that shorter programmes are more effective and that training that reflects actual jobs works better.

In some contexts, training on interpersonal skills leads to higher returns than training in technical skills. Soft-skills are particularly relevant for people on low-skilled occupations.

In general, research has shown that linking skills in curricula to labour markets leads to much better outcomes.

What do we know about policies and practices?

Individual incentives, such as through training accounts, subsidised training, tax deductibility for training expenses, seem to offer good returns, just as when human capital development is treated similar to R&D.

Other approaches that seem to work well are boot camps, as well as novel models for conferring non-degree credentials and understanding how adults learn.