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Evolution of the Ecosystem: State Workforce Development Agencies

March 2014

Kathy Moore Cowan: Welcome to the Federal Reserve's Economic Development podcast series. I'm Kathy Moore Cowan with the Federal Reserve Bank of St. Louis.

As the importance of human capital evolves as a key economic development component of state and local efforts, state workforce development agencies have become an even more critical player in designing and managing programs to deploy federal funding related to job training and placement. During and since the Great Recession, these agencies have, in many cases, seen increased traffic and new types of clients and have had to adjust accordingly, as outlined in a recent U.S. Department of Labor report. The report titled Implementation of the American Recovery and Reinvestment Act: Workforce Development and Unemployment Insurance Provisions provides information on how states worked to meet the challenges of the Recovery Act implementation and economic downturn, and it identifies future federal and state policy and programmatic needs.

Today we're speaking to Rich Hobbie, executive director of the National Association of State Workforce Agencies, and Burt Barnow, Amsterdam Professor of Public Service at George Washington University. Rich and Burt are codirectors of this study.

Welcome, Rich. Welcome, Burt.

Burt Barnow: Thank you.

Moore Cowan: Burt, can you start us off by describing the methodology underlying your study and the major findings in your report?

Photo of Burt Barnow
Burt Barnow

Photo of Rich Hobbie
Rich Hobbie

Barnow: The Recovery Act was enacted in February of 2009. We used several methods to gather the information. NASWA, the National Association of State Workforce Agencies, conducted five Internet surveys of states on their workforce and unemployment issues that informed the study. The study team then conducted two rounds of site visits to 20 states that were picked for the study, and two local areas in each state to gather information on the workforce program issues. The team also systematically gathered information on the 20 states' unemployment insurance programs and conducted telephone interviews with those states.

The major findings of the study include the following: First, states and localities moved quickly to implement the Recovery Act workforce provisions. Significantly more customers were served, and, in fact, the number who received training doubled at one point from what it was prior to the implementation of the Recovery Act. From the beginning to the end of 2009, the quarterly number receiving training in the adult program increased from about 50,000 to over 100,000 people. By the end of 2011, when the funding was exhausted, the quarterly levels fell below 40,000. The services were enhanced to the participants. There were more supportive services that were provided to all the customers.

Another finding was that relationships between the workforce programs and unemployment insurance improved, leading to increased services to the unemployment insurance claimants. Training programs were improved with states offering more long-term training and more class size training. And then finally, states and localities developed many innovative strategies with Recovery Act funds to provide new services and save resources. We have over 50 examples in an appendix to the report.

Moore Cowan: As some context, Rich, can you describe the change in conditions and funding that state workforce agencies experienced before and during the economic downturn?

Rich Hobbie: The Great Recession officially began almost six years ago in December 2007 and ended in June 2009, and the unemployment rate has remained high ever since. The unemployment rate increased from 5 percent in December 2007 to a peak of 10 percent in October 2009, and then has gradually declined.

The Recovery Act was enacted in February 2009 and it was estimated to cost nearly $800 billion, about $435 billion in outlays and the rest in tax cuts. It was intended to stimulate the economy with temporary targeted and timely spending increases in tax cuts. For the Department of Labor, about $45 billion was estimated to be spent on unemployment insurance, and about $2 billion was spent on workforce activities, which includes labor exchange, services, and training. Funding after the Recovery Act mainly came in the form of extended benefits for long-term unemployed, estimated to reach over $200 billion by the end of this year. However, these extensions have been phasing down and will expire at the end of the year. And I might add, some states have even cut back on regular state benefits, which prior to the recession generally were up to 26 weeks in a year, but some states have reduced those maximums below that number.

Moore Cowan: We know that the workforce development ecosystem has a variety of diverse players, and that the most effective systems are ones in which all of the players are in regular and coordinated communication around strategy, approach, and shared outcomes. Who are these players, and what are the major takeaways for each of these sectors?

Hobbie: The major players are, of course, the U.S. Department of Labor Employment and Training Administration; also, state workforce agencies and local workforce investment boards, and their one-stop career centers, now sometimes called American Job Centers. Other players include education and economic development organizations, and, of course, the [workforce] system's customers, employers, and workers.

A couple of the key takeaways are that these programs in response to a recession can be ramped up as temporary and targeted on workforce development programs and unemployment insurance, and they can be expanded fairly rapidly to increase services to both employers and workers. Also, such programs can be phased down quickly, but that has happened this time even in the face of continuing high demand.

The system is adjusting to the cuts in spending by shifting away from providing training to providing proportionally more services in the form of labor exchange services. An excellent example exists in New Jersey called the New Jersey Talent Network, which demonstrates how workforce agencies can work with educational organizations—such as community colleges and community and technical education programs—and employers to identify sectors in the New Jersey economy which are growing in employment and asking employers in those sectors what new skills are being demanded by the jobs that are opening up.

Moore Cowan: From the states' perspectives, what were the major challenges related to supporting their respective workforce ecosystems during the Great Recession? And can you describe a few of the state successes you found in your research?

Barnow: Several challenges were encountered in implementing the Recovery Act. First, there were staffing issues at the state level and at the local level. These included hiring freezes, civil service procedures, and the training that was required for new employees. In addition, finding jobs for customers during a severe recession turned out to be very difficult and added to the challenge of implementing the programs. The Recovery Act added additional reporting requirements to what was already required under the regular programs. And then finally, states would have preferred greater ability to transfer funds between the adult and dislocated worker programs.

Hobbie: There were quite a few successes; I'd just like to mention a few significant ones. First, as Burt mentioned, despite the staffing issues that they faced, states were able to rapidly expand administrative capacity by providing overtime for existing employees, reassigning staff to process unemployment insurance claims, increasing office hours, purchasing more telephone lines, and expanding Internet capacity. And despite the challenges with civil service hiring they were eventually able to hire some new employees and also bring back some recent retirees.

Burt also mentioned that states were able to spend the money fairly rapidly. A majority of states studied spent at least 60 percent of their workforce program funds in the first five calendar quarters these funds were available. In addition, states added new information technology to aid assessments of workers, counseling of workers, and also job matching for those workers. And for the first time states implemented targeted programs for unemployment insurance claimants to make sure not only that they're eligible for the benefits they're receiving, but also to provide them with assistance in finding jobs. Evaluation subsequently found in several states that these services are highly cost-effective even though they really didn't cost that much per participant.

And then finally, states were able to maintain the timeliness of the payment of unemployment insurance benefits in the face of more than a doubling of the workload that they had to handle in the latter stages of the Great Recession.

Moore Cowan: Your report talks extensively about possible federal and state policy and programmatic efforts that can assist American workers. Can you briefly outline those suggestions, and also what suggestions do you have for local policymakers?

Barnow: Many studies have shown that policies that were implemented during the Recovery Act, including job search assistance, assessment and counseling, and training, can increase workers' earnings, and do so more than the cost of the programs. But the assistance must be focused on jobs that are available, and they have to provide earnings that are high enough to get workers out of poverty. This suggests the importance of getting good labor market information, both for the programs and the workers, assessing the skills and interests of the job seekers, matching workers with job openings, and providing training in high-quality programs that have been developed to meet employer needs.

Moore Cowan: In your opinions, how can business leaders and economic developers better support a strong workforce ecosystem?

Barnow: We think it's very important for business and economic development to be closely aligned with workforce development programs. For the past 12 years, there's been a strong emphasis on making the workforce programs demand driven. This means that employers need to be involved in helping the workforce system design and implement their training programs, and providing specific information on their hiring standards. Business leaders can help themselves and the workers by participating in customized training programs, and, when feasible, in sectoral programs that serve more than one employer in a given industry. These programs will provide training for workers that the industry plans to hire. In addition, business leaders need to continue to participate in the oversight for workforce development board and in economic development organizations.

Moore Cowan: Thank you for speaking with us today, Rich and Burt. This concludes our podcast. We've been speaking with Rich Hobbie at the National Association of State Workforce Agencies and Burt Barnow at George Washington University.

The Federal Reserve Banks of Atlanta and Kansas City and Rutgers University will cohost a conference on the Future of Workforce Development at Rutgers campus in October. We hope you will join us there.

For more podcasts on this topic and others, please visit the Atlanta Fed's website at frbatlanta.org. If you have comments or questions, please e-mail podcast@frbatlanta.org. Thanks for listening.