Abstract
This study investigates how service delivery of employment-related federal programs administered at American Job Centers (AJCs) changes as local unemployment increases. The authors analyze the impact of such changes on labor market outcomes of program participants using data for the Trade Adjustment Assistance (TAA) participants. The authors find that the demand for TAA services increases substantially when local unemployment increases. A 5% to 10% increase in unemployment raises training enrollment through the TAA program by nearly 13 percentage points and increases participation duration by more than 9 weeks. Our results do not support the concern that a sudden rise in the demand for AJC services might deteriorate the quality of service delivery and outcomes. In fact, although increases in local unemployment are generally harmful to displaced workers, occupational training during this time is effective at reducing the size of wage loss by at least 46%, resulting in a 3.4% average increase for wage replacement rates.
Keywords
Introduction
Over the past few decades, the U.S. labor force has been transformed, with the decline in the manufacturing sector as one of the most noticeable features. Between 1980 and 2013, production-related employment has decreased at an annual rate of 1.13%, whereas nonfarm total employment has increased at 1.78%. This trend has strengthened from 2000 to 2013 with a loss of 2.12% in production-related jobs annually, compared with a growth of 0.25% total nonfarm employment annually. 1 Although this decline in manufacturing employment is particularly harsh on low-skilled workers, federal employment-related programs are in place to help these workers by providing various services like job training.
The majority of these programs are administered at the American Job Centers (AJCs). 2 AJCs are the brick-and-mortar version of the One Stop System that was created by the Workforce Investment Act (WIA) of 1998 to be the universal access point for many federal programs such as Unemployment Insurance (UI), Employment Services, Welfare to Work, and the Trade Adjustment Assistance (TAA). 3 AJCs also provide services such as dissemination of local labor market information and workshops on resume writing and interview skills to anyone with no eligibility requirement. Currently, there are nearly 2,500 AJCs across the country.
Previous investigations have found that these programs face difficulties when there is a sudden increase in the number of workers in need of assistance (Government Accountability Office [GAO], 2004). Beneria and Santiago (2001) described the situation regarding mass layoffs at the Smith-Corona Corporation in Cortland, NY, in 1992. The GAO also stated that one of the difficulties that arise from a sudden increase in the workers in need is that the staff does not have enough time to properly assess each worker’s training needs. This can prevent the workers from finding the most appropriate training at the AJC. This case is well illustrated by the New Yorker magazine (Boo, 2004). When a Fruit of the Loom plant in Texas laid off all of its 791 workers to move its operation to Honduras in 2003, many of these dislocated workers chose the health care assistant training program based on the local employment projections. However, the surge in the supply of workers with this specific skill set made it more difficult for these trainees to secure jobs after exiting the program. Theodore and Carlson (1998) found that the assessment of local employment opportunities is based on aggregate labor market information rather than detailed information related to skill level or occupations. The lack of decent information on more-tailored job opportunities makes the work of AJCs less efficient, which could become worse when AJCs face unusually high workloads caused by an increase in the number of unemployed workers in the local area.
This study discusses the changes in service delivery at AJCs and their potential effects by focusing on the TAA program during times of increased local unemployment. The TAA program aims to help workers displaced as a result of import competition. It was established by the Trade Act of 1974 to reduce workers’ adjustment costs by helping workers find a new career path that would provide them with comparable earnings and a satisfying job experience. The core benefits are job training and extended income support. AJCs offer various services such as worker assessment and career planning to help participants make training decisions and choose the appropriate occupations for training.
We investigate how an increase in workloads at local AJCs influences the quality of the delivery of TAA services. We then analyze the impact of such changes on labor market outcomes—reemployment rates and wage replacement rates. We use the change in the number of unemployed workers at the metropolitan statistical area (MSA) level as a proxy for the changes in the workload of AJCs. TAA benefits are provided at AJCs along with many other programs that serve adult workers, youth, and dislocated workers. For this reason, the AJC workload is linked to a broadly defined group of workers in need of assistance rather than those who are eligible for particular programs. 4
Our data come from the Trade Act Participants Report (TAPR) and Local Area Unemployment Statistics (LAUS). TAPR provides detailed information on the TAA participant characteristics, services they received, and postparticipation outcomes for all participants. The evaluation of the TAA program used to rely on specially designed survey data because of a lack of comprehensive data on TAA participants (Corson & Decker, 1995; Jacobson, 1998; Koppel & Hoffman, 1996; Marcal, 2001). Park (2012) and Reynolds and Palatucci (2012) were among the first researchers to use this comprehensive data set. We acquired TAPR data from the U.S. Department of Labor (DOL) through the Freedom of Information Act. LAUS provides information on local unemployment statistics that we use to construct our main variable, local unemployment growth.
We first show that the demand for TAA services increases substantially when local unemployment increases. The likelihood of enrolling in any type of training increases by 7.59 percentage points when an MSA experiences a 0% to 5% increase in unemployment and jumps up to 12.96 percentage points for an increase of 5% to 10%, compared with an MSA that sees decreases of unemployment at 0% to 5%. Most of these changes in training enrollment are driven by changes in enrollment to occupational skills training. Specifically, a 0% to 5% increase in local unemployment increases occupational skills training by 9.27 percentage points and climbs to 13.75 percentage points for increases of 5% to 10%. We also find a significant increase in training completion, with completion rates rising by 7.23 percentage points during periods of 0% to 5% unemployment increases and by 17.94 percentage points during periods of 5% to 10% unemployment increases. Higher rates of training enrollment and completion naturally lengthen the duration of participation by 7.62 (13.43) weeks, with training duration rising by 5.95 (9.3) weeks in cases of a 0% to 5% (5% to 10%) increase in local unemployment.
One might be worried that such a large increase in the demand for training services could deteriorate the effectiveness of the program, but our results find this not to be the case. In fact, although increases in local unemployment are generally harmful to displaced workers, occupational training during this time is effective at reducing the size of wage loss by nearly half (47%). We test the hypothesis that a lengthier participation—possibly by enrolling in occupational skills training—reduces the adverse effect of a bad labor market by allowing participants to wait out unfavorable labor market conditions. We find little evidence of this. An increase in participation duration by 7.6 weeks in cases of a 0% to 5% unemployment increase improves the reemployment rate by 0.025 percentage points and the wage replacement rate by 0.022 percentage points. With larger increases in local unemployment of 5% to 10%, participation duration increases by 13.43 weeks, which improves both the reemployment and wage replacement rates only by 0.04 percentage points.
The next section of this study summarizes the TAA program and how various services are delivered to the participants. The third section describes the data set. The fourth and fifth sections describe the methodology and present the results along with robustness checks. The last section concludes.
Trade Adjustment Assistance and the Service Delivery Process
The TAA program is a dislocated worker program designed to reduce the adjustment costs of workers adversely affected by import competition. 5 The eligible workers can receive various services such as job training, income support, job search assistance, and Health Coverage Tax Credits. 6 (For the complete list of the TAA benefits, 7 see Park, 2012.)
AJCs provide TAA services and are part of the One Stop System established by the WIA of 1998 8 to streamline all federal employment and training services. Therefore, the AJC staff serves not only TAA participants but also any adult or youth workers who seek federal assistance in their immediate and future employment.
The services provided at AJCs are composed of three tiers: core services (local vacancy listings, employment projection information, resume writing, and interview skill workshops), intensive services (worker assessment, counseling, career planning), and training. Core services are provided through public-use computers and various brochures available at AJCs without any particular staff assistance. A worker who wants services beyond this point can receive intensive services on approval. To maximize cost efficiency, all participants are required to receive core services before discussing the possibility of receiving intensive services. Dolfin and Berk (2010) found that 41.9% of TAA participants in their sample received counseling on whether training is necessary.
Once training is deemed essential to reemployment, participants can choose one of many training options provided under the TAA: occupational skills training, on-the-job training (OJT), customized training, and remedial training. Approximately 90% of trainees receive occupational skills training, which takes place at a local community college or a vocational school. OJT is provided on site once a participant is employed. In this case, the DOL pays 50% of the participant’s wage for up to 6 months. Customized training is provided by a local firm and is designed to teach skill sets specific to the needs of the firm. The difference between OJT and customized training is that OJT trainees are paid employees during the training whereas the trainees in customized training are not. In addition to these opportunities, participants can receive remedial training, which includes more basic education, such as GED certification or English language instruction. The TAA-certified training can last up to 2 years with 6 additional months for remedial training. Mack (2009) found that the decision on whether to receive training is left often to the participants, but AJC staff is more involved in choosing a specific training program.
To make training a viable option for the participants, the TAA provides a Trade Readjustment Allowance (TRA), which is extended income support for the entire duration of training. TRA payments kick in when the participant exhausts UI benefits. TRA effectively extends income support up to 104 weeks (26 weeks of UI and 78 weeks of TRA) and another 26 weeks in the case of remedial training. If participants are not enrolled in any training by the time their UI benefits expire, they may receive a training requirement waiver to secure 26 additional weeks of income support. The waiver is issued if immediate employment is not possible but training enrollment is unnecessary or unavailable. 9 The waiver issuance is often used to earn up to 26 weeks without losing income support and training eligibility in case a participant cannot find a proper training program by the deadline.
The Trade Adjustment Assistance Reform Act of 2002 (2002 Reform Act) tightened the training enrollment deadline to 8 weeks from the certification date or 16 weeks from the qualifying separation date in an attempt to speed up the administrative process. Prior to this amendment, there was no set time limit on training enrollment. The GAO (2007) described the operational difficulty around this change as
one state noted that trying to enroll participants in training by the 8-16 deadline is particularly challenging when dealing with large layoffs because it is difficult to handle all the logistics, such as notifying workers and setting up appointments, for a large number of workers within the deadline.
It also reports that meeting the 8- to 16-week deadline was a challenge for three quarters of 46 states surveyed. This challenge becomes even greater when local unemployment increases (Mack, 2009).
Additionally, the 2002 Reform Act puts tighter restrictions on the use of the TAA budget allocated to each state. Of its total funding, 85% is tied to training enrollment and TRA payments for trainees. Only 15% of the funds can be spent on any nontraining services. To deal with the funding needs for other services, including worker assessment and counseling, the 2002 Reform Act encourages co-enrollment of TAA participants in WIA. Once the participant is co-enrolled in WIA, he/she is more likely to receive all eligible services using WIA funds. Mack (2009) noted that this co-enrollment—and the resulting delivery of the appropriate level of TAA services—is negatively affected when WIA staff receives a new influx of cases because of an increase in local unemployment. 10
Data
Trade Act Participant Report
The TAPR is the data set that the DOL collects on TAA participants. Data collection began in the third calendar quarter of 1999. We acquired the data set through the Freedom of Information Act. The sample used in this study covers 355,295 observations 11 who participated in the program between 1998Q1 and 2007Q3 and exited between 1999Q3 and 2008Q2. The TAPR consists of three parts. Identification and Participant Characteristics covers individual characteristics such as gender, ethnicity, education, and preparticipation earnings. Activity and Service Record summarizes various services the participant receives, such as types of training, occupation of training, and income support. Outcomes reports employment, occupation of reemployment, and earnings for three quarters after the program exit.
Table 1 provides summary statistics of the sample on participant characteristics and their service receipts. Panel A presents the individual characteristics of TAA participants in our sample. What we see here is consistent with what Dolfin and Berk (2010) have in their sample. Only 25% of the participants in our sample have at least some college education, and 65% of the participants are 40 years or older. The literature on the TAA program has consistently found that the TAA participants, compared with other unemployed workers, are older, less educated, and have longer tenure with the previous employers; many of them have limited English proficiency as well (Baicker & Rehavi, 2004; Corson & Decker, 1995; Dolfin & Berk, 2010). We observe the same stylized facts with our sample compared with unemployed manufacturing workers and all unemployed workers reported in Dolfin and Berk (2010).
Summary Statistics: Participant Characteristics and Services Delivered.
Note. TAPR = Trade Act Participants Report; MSA = metropolitan statistical area; OJT = on-the-job training.
All observations in TAPR. bAll TAPR observations with their MSA identified. cParticipated between 1998 and 2007. dParticipated between 2003 and 2007. eData on TAA eligible workers (some did not participate) collected through a survey of these samples span from third quarter of 2003 and 2009. fThe gender composition is the participant characteristic that shows a substantial difference between the samples. However, these numbers are not statistically significantly different. gAs a percentage of all participants.
Panel B presents the summary of service receipts for our sample. A direct comparison of service receipts to the sample from Dolfin and Berk (2010) or to a general sample of unemployed workers is not available. 12 Of the sample, 72.68% received some type of training. More than 90% of trainees received occupational skills training. OJT and customized training accounted for a very small fraction of participants—2.29% and 0.50%, respectively—and12.45% enrolled in remedial training. This percentage is higher in states with a large population of Hispanic workers, such as Texas (31.89%) and California (21.03%), potentially for ESL enrollment. Of the participants who received remedial training, 70.72% also received occupational skills training, with 3.25% receiving OJT and 3.39% receiving customized training.
A surprisingly large number of participants were issued a training requirement waiver (83.69%). The GAO (2004) reported that a training waiver is often issued to earn time before enrolling in training without losing eligibility for training and income support. We find support for this claim in our sample—69.18% of participants with a training waiver later received some type of training. This percentage falls to 51.50% for the postreform sample compared with 88% for the prereform sample. This is possibly because of the strict 8 to 16 training enrollment deadline. With this deadline imposed, the incentive to receive a waiver decreases, which is evidenced by a much smaller fraction of participants seeking the waiver.
Table 2 summarizes the labor market outcome variables. DOL currently uses the reemployment rate, average 6-month postparticipation wages, and retention rates to evaluate the program performance. Prior to 2007, wage replacement was used instead of postparticipation earnings. 13 Preparticipation earnings are also shown for comparison to postparticipation earnings. The retention rate is not analyzed here because it does not show much variation across participant characteristics or service receipts (see Park, 2012).
Summary Statistics: Postparticipation Outcomes. a
These statistics are calculated using the entire sample from the Trade Act Participant Report (TAPR). bTAPR reports the quarterly earnings for three quarters immediately prior to participation rather than three quarters prior to the qualifying layoff. For this reason, it is not rare to have zeros or substantially smaller earnings figures in later quarters. To pick up the earnings from the previous employment for which participants are certified for the TAA benefits, we chose the maximum value among the reported earnings. cWe discard the earnings information if the maximum quarterly earnings among the reported value is less than $2,000, which represents the approximate level of quarterly earnings if a worker is employed full time at minimum wage. Earnings below $2,000 could be temporary employment between the qualifying layoff and participation.
We find that trainees have a much higher reemployment rate. Wage replacement rates are slightly higher for nontrainees, but postparticipation earnings differ greatly. The earnings differentials are observed in preparticipation earnings as well. The average quarterly earnings for nontrainees is more than 20% higher than those that train. It is possible that participants with better skill sets expect to find a job without training or find a new occupation and opt out of training. Overall, the outcome measures vary across participant characteristics and services they received. We control for these differences in our estimations.
TAA Petition Data
To analyze the workload changes at the local AJCs, we need location information for the participants. Unfortunately, TAPR does not report the participants’ addresses beyond the states of their residency to protect their privacy. We merge the TAA petition data to TAPR using the TAA petition number reported in TAPR. TAA petition data include information about the petitioned plant such as location (up to street address), industry, petition date, and whether it is certified or denied. By assuming that a worker lives within a commuting distance from the previous employer, the address of the former workplace is used as a proxy for the participant location. The TAA petition data set is also acquired through the Freedom of Information Act. A total of 289,440 participant cases are successfully matched to the petition data and identified with approximate geographic location.
Local Area Unemployment Statistics
To measure the workload variation of local AJCs, we use changes in the number of unemployed workers at the MSA level 14 from LAUS published by the U.S. Bureau of Labor Statistics. LAUS report the number of employed workers, number of unemployed workers, unemployment rate, and the size of labor force at various aggregation levels of local areas ranging from states to towns. 15 Because not all participants live in an MSA, this reduces our sample size to 82,857. The overall participant characteristics do not change as we move from all TAPR observations to an MSA-identified sample. The participant characteristics for the MSA sample are reported in the third and fourth columns of Table 1.
A total of 332 MSAs are identified with an average size of 4 million employed people with a standard deviation of approximately 126,000 in LAUS. A brief summary of MSA-level unemployment rates and the annual changes of the number of unemployed workers are presented in Table 3. During the observation period, the average unemployment rates were between 5.10% and 7.33%, with the standard deviation less than 1%. The changes in the number of unemployed people fluctuate a lot during this period, ranging from −7.72% in 2006 to 21.15% in 2001. Years 2001 and 2002 experienced exceptionally large increases in the number of unemployed workers. 16 Columns 4 to 10 show the percentage of MSAs that fall into each range of changes in unemployment. Other than 2001 and 2002, the majority (83.81%) of MSAs experience an unemployment change between −15% and 15%.
Local Area Unemployment Statistics: MSA and County Level.
Note. MSA = metropolitan statistical area.
This is the mean size of total employment of each geographical unit (MSA or county) calculated using Local Area Unemployment Statistics (LAUS) data. Each geographic unit is counted as one observation in calculation of these statistics.
Merging the LAUS data to TAPR data, we show changes in service delivery and labor market outcomes with local unemployment growth in Table 4. Similar to Table 3, most (76.88%) participants join the program during periods of unemployment changes that range between −15% and 15%. As seen in Table 3, most cases of large increases in unemployment occurred in 2001 and 2002. The sample excluding 2001 and 2002 has 92.27% of the sample in the −15% to 15% range. This is approximately the same (95.62%) for our postreform sample (participated in 2003 and after).
Local Unemployment Change and TAA Service Delivery and Outcomes.
Note. TAA = Trade Adjustment Assistance; MSA = metropolitan statistical area; OJT = on-the-job training.
Panel A of Table 4 summarizes service delivery and Panel B summarizes postparticipation outcomes. Training enrollment is the lowest when the change in unemployment is close to zero. Training enrollment increases drastically from 58.83% to 80.23% as local unemployment rises by 5% to 15%. This could be driven by the marketability of their current skill sets. In bad labor market situations, it is harder to find a job with the skill sets that could have been marketable in normal times. This raises the incentive to enroll in training and acquire new skills. Additional increases in unemployment raises training enrollment further by a small amount, indicating most changes in service receipt occur in cases of a moderate increase in local unemployment. The link between training enrollment and changes in local unemployment shows a U-shaped relationship. When the unemployment changes by a rate between −15% and −25%, training enrollment rises up to 76.21% compared with 58.83% during more normal periods. Perhaps in an extremely favorable labor market, people feel secure enough to take this as a skill-upgrading opportunity. In all cases, the majority of training enrollment takes the form of occupational skills training.
The impacts of changes in local unemployment on labor market outcome measures are less straightforward. Reemployment rates are largely unaffected by the changes in local unemployment. Wage replacement rates are affected more. Although it does not display a monotonic trend, wage replacement rates are lower during periods of high increases in unemployment. This is also the case in terms of the level of postparticipation earnings.
Estimation
The main goal of this study is to investigate how an increase in the workload at the access point of TAA services influences the delivery of these services and what such a change in service delivery means for their postparticipation reemployment and wage replacement rates. Although usage of these measures in evaluating federal training programs is problematic (Barnow & Smith, 2004), these are easily measurable by using information reported in the TAPR.
The main variable used as a proxy for the increase in AJC’s workload is the percentage change in the number of unemployed workers at the MSA level compared with the previous year. We use the unemployment change rather than the unemployment rate because it is more directly linked to the workload of AJCs. We believe that the change in local unemployment is better at capturing the workload of AJCs than the change in TAA participants or the unemployment rate. We do not use the change in the size of TAA participants because the TAA is a relatively small program compared with other programs accessible at AJCs, and therefore the change in TAA participants is not likely to have a large influence on the overall operation of AJCs. A reasonable increase in TAA participants can be handled by spreading the cases among the staff members. This may affect the quality of service delivery if these TAA layoffs are associated with a mass layoff, in which case the increase in local unemployment would reflect this large increase.
We do not use the unemployment rate or its changes because the unemployment rate is influenced by the changes in the labor force as well as the changes in the unemployed, and the unemployment change captures the changes in people flowing through AJCs. 17 AJCs serve anyone who is seeking assistance in finding a job. Whether a worker’s need for assistance is because of a recent displacement or reentry into the labor force, the worker is not likely to make a substantial difference in AJC operations. Furthermore, in an area with high jobless rates, the AJC is more likely to be prepared to handle the consistently large flow of participants of any programs they handle. In fact, TAA funds are allocated to each state based on the number of participants in the previous fiscal year. The difficulty arises when there is an unusually large flow of participants increasing the typical workload of case workers. However, following the insights of Beaudry and DiNardo (1991), we use the unemployment rate at the time of exit as a control in our estimations to separate the effect of job search in a bad labor market from the effect of service changes because of workload increases. 18
Methodology
We use increases in unemployment at the time of participation as a proxy for the workload of local AJCs in investigating how the delivery of TAA services might change along with the labor market outcomes from receiving these services as a result of increased workloads. Equation (1) describes the baseline estimation for evaluating the delivery of TAA services, whereas Equation (2) provides the baseline estimation for evaluating outcomes. We use probit analysis for the indicators of training enrollments and reemployment. We use ordinary least squares for duration variables and wage replacement rates.
Equation (1) introduces the first set of estimations that examine the impact of rising local unemployment on the delivery of TAA services. The dependent variables are indicator variables for enrollment in any training, enrollment in a specific training program (occupational skills, OJT, customized, and remedial training), training completion, receipt of training waiver, matching between occupations of training and reemployment, participation duration, and training duration.
where
Equation (2) provides the basis for the second set of estimations on postparticipation labor market outcome measures: reemployment and wage replacement rates. Again, the postparticipation outcomes are observed for three quarters. The reemployment indicator is 1 if a participant is employed for at least one quarter during the first three quarters from the exit. Another outcome variable we explore is the wage replacement rate. It is the ratio of quarterly earnings of new employment to that of previous employment. 21
For labor market outcomes, we use a different specification identifying changes in unemployment in a quadratic fashion. The
Results
Service Delivery
Table 5 presents the results for the estimation of Equation (1), in which our dependent variables of choice are various measures for service variables. In Table 5, we certainly see evidence of changes in service delivery when local unemployment increases. The most prominent change we observe is in enrollment in occupational skills training, training completion rate, duration of training, and duration of participation.
Impacts on the Delivery of TAA Services.
Note. TAA = Trade Adjustment Assistance; OJT = on-the-job training.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
A 0% to 5% increase in local unemployment at the time of participation raises the likelihood of enrolling in any type of training by 7.59 percentage points compared with a period with a 0% to 5% decrease in unemployment at the MSA. This increases to 12.96 percentage points for a 5% to 10% increase in local unemployment. This is driven by an enrollment increase in occupational skills training, which climbs 9.27 percentage points for a 0% to 5% increase in local unemployment or 13.75% for a 5% to 10% increase in local unemployment. To put this in context, recall that the average training enrollment rates for the MSA sample are 69.52% for any training and 65% for occupational skills training (Table 4). When workers are displaced with little chance of finding a new job with their current skill sets, they have an incentive to enroll in job training to acquire new marketable skills. As discussed above, whether to take training is largely up to the participants themselves when the AJC staff receives an unusually high workload. With the training opportunities readily available under the TAA program, it is not surprising to see such a large increase in training enrollment.
Training completion rates rise by 7.23 percentage points with a 0% to 5% increase in local unemployment, for which the average training completion rate is around 70%. This again jumps to 17.94 percentage points for a 5% to 10% increase in local unemployment compared with a 0% to 5% decrease in unemployment. Again, this is not surprising. One reason trainees may leave the training program early is that they find a job. In a harsher labor market, the chance of finding a job during training is smaller; trainees are more likely to stay until the end of the program.
Greater training enrollment and higher completion rates translate to a longer duration of training and participation. A 0% to 5% increase in local unemployment leads to 7.6 more weeks in the TAA program with 5.95 more weeks in training compared with a 0% to 5% decrease in local unemployment. Again, this takes another big jump with a 5% to 10% increase in unemployment, leading to 13.4 more weeks of participation in the program and 9.3 more weeks of training. Matching between the occupation of training and that of reemployment actually increases by 9.3 percentage points with a 0% to 5% increase in local unemployment, whereas it drops by 13.6 percentage points in cases of extremely large unemployment increases (25% or more).
Altered Service Delivery and the Outcomes
The previous section shows that an increase in workload at the AJC—proxied by increases in local unemployment—greatly alters the nature of service delivery for the TAA program. The most noticeable trend is that there is a substantial increase in the demand for various services, which is especially true for occupational skills training leading to longer durations of participation. In this section, we investigate how such changes in service delivery influence the labor market outcomes of participants who enter the program in a labor market with increasing local unemployment.
One hypothesis discussed earlier is that the choice of training occupation is less than ideal during periods of high local unemployment increases because of the reduction in resources assigned to each participant. As noted in Mack (2009), training choices are generally left to participants in cases of a large increase in the AJC staff workload. These unsupervised choices could deteriorate the program performances. On the other hand, the training opportunities provide a means for dealing with harsh labor markets by providing new marketable skills.
To test these hypotheses, we focus on occupation skills training enrollment 22 and participation duration. The labor market outcome measures used here are the reemployment rate and the wage replacement rate. We estimate three specifications. The first is a simple estimation of the impact of various services on reemployment and wage replacement rates without any variables containing local unemployment changes. The second specification includes the change in unemployment separated by increases and decreases along with the quadratic terms as described earlier. The third is our main specification to analyze the impact of altered service delivery induced by changes in local unemployment on labor market outcomes. We use the interaction term between the unemployment change and service variables of interest: the indicator for occupational skills training enrollment and participation duration measured in weeks. The results are shown in Tables 6 and 7.
Altered Service Changes and the Outcomes: Occupational Skills Training.
Note. OJT = on-the-job training; MSA = metropolitan statistical area.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
Altered Service Changes and the Outcomes: Participation Duration.
Note. OJT = on-the-job training; MSA = metropolitan statistical area.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
Enrolling in occupational skills training raises the reemployment rate and lowers the wage replacement rate regardless of the local labor market situation. The lower wage replacement rate for occupational skills training is likely to be picking up the selection problem around training enrollment. The workers who lack other marketable skills because of low educational attainment and narrow job experience are more likely to enroll in occupational skills training. The previous employment for these workers could have been protected by unions, resulting in a high wage rate. This, combined with a lower skill level, makes it harder for these workers to find a new job with a comparable wage compared with workers with more marketable skills.
Both reemployment and wage replacement rates are negatively affected by the rise in local unemployment. A 5% increase in local unemployment at the time of participation reduces the reemployment rate by 0.77 percentage points compared with workers displaced with no change in local unemployment. The impact on wage replacement rates is larger—a 5% increase in unemployment reduces wage replacement rates by 1.38 percentage points. 23 In this second specification, the coefficients are nearly the same when considering both positive and negative changes in unemployment.
The third specification for both the reemployment rate and the wage replacement rate provides two facts. First, we do not find any evidence of worse outcomes for the trainees who entered training during periods of high unemployment growth. For wage replacement rates, we find a significant positive effect. Although high unemployment growth causes a large decline in the wage replacement rate, enrolling in occupational skills training reduces this decline by nearly half.
In cases of an increase in local unemployment, the wage replacement rate of the TAA participants falls, but occupational skills training offsets the decline by 46%. 24 This suggests that unsupervised training choices during periods of high workloads do not deteriorate labor market outcomes. 25 This could be an indication that in-depth worker assessment and counseling is not crucial in improving participants’ outcomes. There is some support for this; Koppel and Hoffman (1996) point out that training vouchers—which essentially leave decision making to workers—are more efficient. Although our analysis does not make any comparison between training and potential alternatives, our results could support the idea of a training voucher by showing that hands-on case management is not superior in terms of outcomes and inferior in terms of cost efficiency.
Another noticeable change in service delivery during high unemployment growth periods is the increase in the duration of training and participation. One way that participation duration might influence labor market outcomes is that participants can wait out the unfavorable labor market situation by participating in the TAA program for a longer period by enrolling in occupational skills training. The analysis of this hypothesis is presented in Table 7.
When local unemployment change is not controlled, the impact of participation duration on reemployment rate or wage replacement is negative but negligible. 26 One more week of participation reduces the reemployment rate by 0.03 percentage points and the wage replacement rate by 0.02 percentage points. To have an effect of a 1 percentage point reduction requires 33 more weeks of participation for the reemployment rate and 50 weeks for the wage replacement rate. For workers who participate during periods of increasing local unemployment, longer duration is beneficial, but again this is negligible. A 5% increase of local unemployment reduces wage replacement rates by 2.3 percentage points, and 1 more week of participation offsets this by only 0.003 percentage points. According to Table 5, a 5% to 10% increase in unemployment for the local area raises the participation duration by 13.43 weeks; 13.43 weeks more of participation would raise the wage replacement rate by only 0.04 percentage points.
Robustness
To confirm that our results are not specific to our sample, we estimate the same specifications using variations of our sample—two time subsamples and different geographic disaggregation level. The first time subset excludes participants who entered the program in 2001 and 2002. Table 3 shows that the unemployment growth at both the MSA and county levels were unusually high during these years (around 20%) compared with one-digit positive or negative values in the rest of the sample years. The second subset investigated is the sample of workers who participated after the 2002 Reform Act. As noted earlier, the act changed the restriction on timing of training enrollment, which could affect the incentive to participate and enroll in training fundamentally.
Table 8 shows the estimation results for the two time subsamples on service delivery among our MSA sample. Excluding 2001 and 2002 does not seem to change our main finding with the MSA sample including all years: large increases in training enrollment and completion with the impact concentrated on smaller increases in local unemployment.
Service Delivery: MSA Time Subsamples.
Note. MSA = metropolitan statistical area.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
The results are qualitatively similar for the postreform sample, but the magnitude is much larger. Local unemployment increases of 5% to 10% raise occupational skills training enrollment and the training completion rate by 26.2 and 22.9 percentage points, respectively, compared with local unemployment decreases of 0% to 5%. This is compared with 13.75 and 17.9 percentage points in the main estimation presented in Table 5. A further increase in local unemployment raises the occupational skills training enrollment even higher. 27 The Reform Act of 2002 tightened the deadline for training enrollment to either 8 weeks from certification or 16 weeks from separation. If participants fail to find a job by this deadline, they are incentivized to enroll in a training program to avoid losing the other benefits. Finding a job soon after separation (or certification) is more difficult with higher local unemployment growth; more participants are put into a situation in which they need to make a quick training decision. The large and negative coefficient on matching with 15% to 25% unemployment growth is the evidence that suboptimal decisions were made because of both a tight deadline and extra difficulty finding a job. Because the choices of training occupation as well as the decision to enroll in a training program are made hastily, the match between the occupations of training and reemployment is harder to achieve.
We find a similar pattern for duration variables. The results on the sample without 2001 and 2002 are similar to the main results. The magnitude of the results on the postreform sample is larger—a 5% to 10% increase in unemployment lengthens participation duration by 17.65 weeks, and a large increase of local unemployment by 15% to 25% increases participation duration by 22.4 weeks.
Table 9 shows the estimation results of these two subsamples for the rates of wage replacement and reemployment, which are qualitatively the same as the main results discussed previously with stronger magnitudes. Wage replacement rates are much more negative, but enrolling in occupational skills training reduces all of this adverse effect. For the sample excluding 2001 and 2002 participants, occupation skills training offset all of the adverse effect on wage replacement rates. For the postreform sample, occupation skills training offset 83.5% of the adverse effect. Reemployment rates are not significantly changed when we consider the two time subsamples. Increases in local unemployment are still damaging to reemployment, and whereas enrolling in occupation skills training increases the reemployment rate, enrolling during increases in unemployment is not statistically better.
Occupational Skills Training and the Outcomes: MSA Time Subsamples.
Note. MSA = metropolitan statistical area; OJT = on-the-job training.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
We repeat the same analysis using information at the county level rather than MSA level in Tables 10 and 11. This expands the size of the estimation sample by 23% to 32% depending on specifications. Table 10 shows the link between the local unemployment increases and the delivery of the TAA services. The results are similar to our main sample. The impacts on enrollment in any training are more subdued for moderate growth; they do not consistently take the big jump with increases of 5% to 10%. Training duration and completion rates also increase with similar magnitudes to those discussed in the MSA sample. Table 11 shows the impacts of such changes in service delivery on postparticipation outcomes. Again, we have the same qualitative results on both reemployment rates and wage replacement rates, with slight changes to the magnitude and the levels of significance. 28
Robustness: Service Delivery: County Sample.
The state and two-digit SIC industry controls are omitted because of estimation convergence issue.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
Robustness: Occupational Skills Training and Outcomes: County Sample.
Note. OJT = on-the-job training.
***, **, and * denote coefficients significant at the 1%, 5%, and 10% levels, respectively.
Conclusion
In this study, we investigate how services promised to TAA program participants change as workloads at the point of service delivery increase and the impacts of such changes on postparticipation labor market outcomes. TAA services are accessible at the AJCs, which serve most large federal employment and training programs, such as UI, Employment Services, and TAA under the WIA. They provide services such as disseminating information on the local labor market and provide one-on-one case management services such as worker assessment, counseling, and career planning. Because these AJCs service a wide range of people who seek federal assistance in training and reemployment, a general increase in local unemployment raises the workloads at these centers and could potentially alter the nature of service delivery to participants of various programs administered at AJCs, including the focus this study: the TAA program.
We measure changes in workloads at AJCs as the increase in the number of unemployed workers in the MSA level. We argue that an increase in local unemployment at the time of participation captures the stress that may be put on the AJC staff better than other labor market statistics. For instance, the unemployment rate is better at capturing the general hardship of finding a job as participants exit the program. Furthermore, we know that TAA funds are allocated to each state based on the number of participants in the previous year.
We use data from the TAPR and LAUS. LAUS is used to construct various measures for the local labor market at MSA and county levels. We acquired TAPR data from DOL through the Freedom of Information Act. The TAPR covers workers who entered the TAA program between 1998 and 2007. The geographic location of participants is proxied by the location of their previous employers obtained by linking the TAPR data to the TAA petition data.
We find that the demand for various services rises drastically. This is most prominent for training provisions. For example, the likelihood of enrolling in any type of training increases by 13.43 percentage points for eligible workers when displaced during a time when an MSA experiences a 5% to 10% increase in unemployment compared with an eligible worker displaced in an MSA with a 0% to 5% decrease in unemployment. Most of these changes are driven by the change in enrollment for occupational skills training (13.75 percentage points for a 5% to 10% increase in unemployment). Other noticeable changes are training completion rates (17.94 percentage point increase for a 5% to 10% increase in unemployment). This rise in occupational skills training enrollment and training completion naturally lengthens the duration of training (additional 9.3 weeks for a 5% to 10% increase in unemployment) and participation (additional 13.4 weeks for a 5% to 10% increase in unemployment).
We find that enrolling in occupational skills training during periods of high unemployment growth is particularly beneficial by offsetting the adverse effect of a bad labor market on wage replacement rates. Previous research (GAO, 2004, 2007; Mack, 2009) suggests that the TAA program may be less effective at times when local unemployment surges. We do not find support for this. High local unemployment growth generates a uniformly negative effect on two key postparticipation labor market outcomes: the reemployment rate and the wage replacement rate. An increase in local unemployment reduces the wage replacement rate but receiving occupational skills training offsets at least 46% of this negative effect. This finding is robust across various samples. We explore two time subsamples for the MSA sample, one excluding workers who participated in 2001 and 2002 and one with workers who participated after the 2002 Reform Act. We also explore the whole sample and two time subsamples at the county level. The results are qualitatively the same with larger magnitudes for the postreform sample on all training-related specifications and on the benefits of enrolling in occupational skills training. The impact of occupational skills training on the reemployment rate is also positive, but weaker and statistically insignificant.
It should still be noted that high local unemployment growth at the time of participation hurts the labor market outcomes for participants greatly. Although occupational skills training can serve as a means to soften the blow through the acquisition of more marketable skills in poor labor market situations, the TAA program does not perfectly insure the participants from this negative outcome. Perhaps the services more directly dealing with job search—that is, matching of local vacancies and participants’ skill sets—combined with a training provision could enhance the benefits of occupational skills training in harsh labor market situations.
Footnotes
Acknowledgements
The authors thank Eric Johnson, Lockwood Reynolds, Shawn Rohlin, and anonymous referees for their helpful comments. The authors are also grateful to participants of seminars at the University of Memphis, Kent State University, and Cleveland State University, as well as to participants at the Midwest International Economics Group Meeting.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.