How Effective Are Retraining/Reskilling Programs?

One of the big concerns under the NEM is that with a structural shift away from low-value added export industries towards higher value-added activities and towards services, existing workers will be poorly equipped to handle the transition and find jobs under the new paradigm. With that in mind, the NEAC has suggested a transformation fund to pay for job retraining and reskilling of displaced workers to better fit the requirements of the new growth sectors.

But going by some new research, this is going to be a tough proposition. Although it focuses on youth education, this paper covers optimum investment in education across a person’s lifecycle and comes to some pretty strong conclusions (excerpts; emphasis mine):

Investing in Our Young People – Flavio Cunha and James J. Heckman

This paper reviews the recent literature on the production of skills of young persons. The literature features the multiplicity of skills that explain success in a variety of life outcomes. Noncognitive skills play a fundamental role in successful lives. The dynamics of skill formation reveal the interplay of cognitive and noncognitive skills, and the presence of critical and sensitive periods in the life-cycle. We discuss the optimal timing of investment over the life-cycle...

...This paper summarizes findings from the recent literature on child development and presents a model that explains them. A model that is faithful to the evidence must recognize that (a) parental influences are key factors governing child development; (b) early childhood investments must be distinguished from late childhood investments; (c) an equity-efficiency trade-off exists for late investments, but not for early investments; (d) abilities are created, not solely inherited, and are multiple in variety; (e) the traditional ability-skills dichotomy is misleading because both skills and abilities are created; and (f) the “nature versus nurture" distinction is obsolete. These insights change the way we interpret evidence and design policy about investing in children. Point (a) is emphasized in many papers. Point (b) is ignored in models that consider only one period of childhood investment. Points (c), (d), and (e) have received scant attention in the formal literature on child investment. Point (f) is ignored in the literature that partitions the variance of child outcomes into components due to nature and components due to nurture...

...On average, the later remediation is given to a disadvantaged child, the less effective it is. A study by O'Connor, Rutter, Beckett, Keaveney, Kreppner, & the English and Romanian Adoptees Study Team (2000) of adopted Romanian infants reared in severely deprived orphanage environments before being adopted supports this claim. The later the Romanian orphan was rescued from the social, emotional and cognitive isolation of the orphanage, the lower was his or her cognitive performance at age 6. Classroom remediation programs designed to combat early cognitive deficits have a poor track record.

At historically funded levels, public job training programs and adult literacy and educational programs, like the GED, that attempt to remediate years of educational and emotional neglect among disadvantaged individuals have a low economic return and produce meager effects for most persons. A substantial body of evidence suggests that returns to adolescent education for the most disadvantaged and less able are lower than the returns for the more advantaged (Meghir & Palme, 2001; Carneiro & Heckman, 2003, and the evidence they cite; Carneiro, Heckman, & Vytlacil, 2006). The available evidence suggests that for many skills and abilities, later remediation for early disadvantage to achieve a given level of adult performance may be possible, but is much more costly than early remediation (Cunha & Heckman, 2007). The economic returns to job training, high school graduation, and college attendance are lower for less able persons. (See Carneiro & Heckman, 2003.)...

Summary and Conclusion

...The right mix of intervention to reduce inequality and promote productivity remains to be determined. The optimal timing of investment depends on the outcome being targeted. The optimal intervention strategies depend on the stage of the life cycle and endowments at each stage. For severely disadvantaged adults with low levels of capabilities, subsidizing work and welfare may be a better response for alleviating poverty than investment in their skills. The substantial heterogeneity in endowments and effects of interventions at different ages suggests that a universal policy to combat the adverse effects of early disadvantage is not appropriate. Optimal investment should be tailored to the specifics that create adversity and to the productivity of investment for different configurations of disadvantage. As research on the economics of capability formation matures, economists will have a greater understanding of how to foster successful people.

There’s also a fascinating discussion on the role financial constraints play in education outcomes – it’s more important at earlier stages than at tertiary levels. If you don’t want to go through the whole paper, Wired magazine has a summary.

But taking the conclusions of the paper together, the obvious conclusion is that if we want:

1. To effectively transform the current workforce into one that will support a high income economy, the price is going to be steep; and
2. To create employable graduates, we have to focus not on improving tertiary education, but rather primary and preschool education.

Having said that, I have to be fair and say that much of the Malaysian workforce in low-skill, low-paying jobs are really foreign workers. Job losses in these industries will affect these workers first, and I don’t think the government (or Malaysians) will be too keen to fund their retraining.

But there’s also a lesson here regarding our current crop of unemployed and unemployable graduates – they are in an impossible position, and the current programs aimed at them are probably insufficient to make up for the gap between their abilities and skills, and what employers are looking for.

Update:

Mark Thoma points to similar research, with broadly similar findings.

Technical Notes:

Flavio Cunha, James J. Heckman, "Investing in Our Young People", NBER Working Paper No. 16201, July 2010