Understanding the Atlanta Fed's Center for Workforce and Economic Opportunity

2/1/2018

Charles Davidson: Welcome to another Economy Matters podcast. I'm Charles Davidson, staff writer with the Atlanta Fed's online magazine, Economy Matters. And today we're visiting with Stuart Andreason. Stu is director of the Bank's new Center for Workforce and Economic Opportunity. Stu, thanks for joining us today.

Stuart Andreason: Happy to be here. Thanks a lot.

Photo: David Fine

Davidson: All right. Well, we're mostly going to talk about workforce development, which is a pretty broad topic. So I guess to start with, Stu—can you give us a baseline definition of workforce development? When we say that, what do we mean?

Andreason: Sure. I think that there are a couple of definitions for it, and I'll start with the most broad, which is that, really, it's become in recent years a kind of a catch-all phrase for a number of different interventions that help promote people's ability to get a job, to move up in a job. So this often includes things like education and job training and technical skill development, but also a number of programs and policies that help people be available for work. So sometimes people will include things like childcare support or even entrepreneurship programs, in what they think of as the broad ecosystem of workforce development.

Davidson: Right. So now, no less a figure than [Federal Reserve Board of Governors chair] Janet Yellen is among those who I know have recently said that, basically, right now is the time we need workforce development, arguably more than we've ever needed it. But when you look, unemployment is pretty low and the economy is doing reasonably well. So why is this a time when this is especially important?

Andreason: I agree that it's probably more important now than ever. There's been a number of trends that have come towards some type of confluence that really make this an important topic. Number one—as the economy has changed, a lot of communities have really seen that the skill of the workforce is an incredibly important part, in terms of their ability to attract investment and to be competitive in a global marketplace. So it's become really important to economic developers.

We also know that, very broadly, there have been changes in the economy that have focused on technology, that have focused on new changes in terms of employer-employee relationships, and the gig economy, and things like that, that really have infused lifelong learning and constant transition and change into the way that people work, the work that they do, and the skills that they need for a job. So those things are important, and certainly that stuff has always happened—there's always been technological change—but the pace is seeming to pick up more and more, now than ever. And I think that part of it is that we've got to be a little bit more active in the way that we do this work, because a lot of people imagine that their job is to go to work and to perform a function, and they're not spending a lot of time thinking about what's next—nor is it an easy thing to really understand what's going to happen, what's going to be next. So I think it's really a pretty important new topic.

Davidson: Yes. Well, Stu, why does this concern the Federal Reserve? Where does it fit into monetary policy?

Andreason: It does in a number of ways. We can think about our dual mandate, which is focused on price stability and low inflation, and also maximum employment. Certainly this fits well with the portion related to maximum employment. We want to make sure that we're able to tap into the abilities and skills and potential of our entire workforce. Broadly, we can think that part of our role is to ensure that the economy is growing at a sustainable and strong pace, and as we think about what that pace might be—if we leave resources on the side—that doesn't happen. And so you can think that there's probably two ways that that ends up affecting broad, overall economic growth. If we have jobs that remain unfilled because employers can't find the workers that they need to perform the work, then that's some amount of production that's lost.

But I'd also say that there's another part of that, which is that there's this level of innovation and growth in productivity that helps drive economic growth, and people's skills and knowledge play into coming up with new ideas. And this is not just innovation that happens at big tech firms, and new things are invented. This happens on the shop floor, it happens in lots of places where someone figures out how to do something in a slightly better way, a more efficient way where you're maybe not creating a whole bunch more things, but you've improved a process, you've helped manage some costs. And those are important. Those are both things that are difficult to actually measure: Is a job unfilled because there isn't a worker with the skills? Has there been some type of shop-loor innovation that has improved productivity? They're very difficult to measure, but we know that there are things that ultimately help the economy grow. Workforce development helps to do that.

I would also say that another thing that we're focused on with the Federal Reserve's community development function is thinking about some of the distribution that happens in the economy. The community development function specifically focuses on low- and moderate-income populations. And workforce development, and helping people to find ways to get employment and to move up in employment, is certainly a way to address challenges that people with low incomes, or living in poverty, may face.

Davidson: Right. Well, that's a nice segue to explore what the new center is going to do. So, "Center for Workforce and Economic Opportunity"—the name, I think, is fairly self-explanatory, but it's also pretty broad. So, can you talk, Stu, for a minute about what the center's role is? What are some of the major focus areas for it?

Andreason: Sure. I will say that, broadly, the Center for Workforce and Economic Opportunity's mission is to explore and support the ways that training, education, and ultimately employment can help promote economic opportunity and economic mobility for workers—to help provide opportunity. That plays out in a number of ways, and I want to talk specifically about that.

So, there are challenges in the workforce development system. We know that there are a diverse set of actors that are involved in workforce development. There are economic development organizations, there are community-based organizations—and certainly community colleges, universities, the K-12 education system—so there are a lot of actors that are all working with different motivations and from different perspectives that are making out this bigger, broader system, or marketplace, of opportunities that are available.

Davidson: So we can help maybe make that a little more cohesive, perhaps?

Andreason: The hope is to make it a little more cohesive. The hope is to be able to work with groups—and especially now, as this has become more and more important, as there's been more and more interest in it, there are a lot of new people that are interested, or new actors to the field. And part of what we hope to do is to be able to bridge research and practice and really help to make sure that as people are making investments and as communities are investing in workers, that they're doing things that are going to be the absolute most successful and have the greatest chance to help people out. So we want to help to make sure that the policies and programs that communities enact are effective. Our hope is that, as a neutral player that has some connections to many of these different fields, we can help to bridge those gaps—make it a little bit more cohesive—and in a lot of ways, help the system to perform.

Davidson: How will we go about doing that, Stu? I mean, I know there will be a multipronged approach, I'm sure. But what are just a few examples of programs or events or initiatives that you guys are going to undertake?

Andreason: Well, one of our goals is also to work with our partners across the Federal Reserve System. There are people that are doing this work really deeply, on the ground with communities, helping to understand issues and identify new trends. We want to help support that and create a voice that's larger, as the Fed system.

But I think that one of the other things that we can do is that we can help in a lot of ways to link it back to questions of economic growth, and really be objective and help people understand what can work and what doesn't. I would also say that we can lean on a lot of the strengths that the Fed system has. Part of what we can do is help to take labor market analysis and economic analysis and data that is available and turn it into products and things that are relevant and useful to people that are engaged in workforce development.

I'd point to the Opportunity Occupations Monitor, which we launched last year, which takes information from a number of public data sites that helps to identify in a community what are middle-skill jobs, and jobs that don't require a bachelor's degree that pay well, that pay above median wage? Partly so that workforce organizations can help to prioritize what they train people in, towards those jobs that are hard to fill, and provide great opportunities for workers who don't have four years or six years or however long it may be to get an advanced degree. But also to help actual job seekers and students understand what opportunities are available, what happens if they get a major in one thing versus another. So we've been excited about that. We're experimenting with a number of things. Some of it will be to continue to work with the research community to make sure that there's relevant research, and that the right questions that can help people advance are getting asked and answered and explored.

Davidson: One thing that's striking, I think, about this kind of work, Stu, is the notion that this stuff is not just to help individuals find work. It really will benefit the entire economy, right? Is that an important point to convey, to get across?

Andreason: Well, I think that that's one of the really exciting things about this, is that this is an area where there are a lot of people that can benefit. We are still really engaged in a systemwide national effort called Investing in America's Workforce, which has included listening sessions across the country. It included a conference in Austin, and the subtitle of the Investing in America's Workforce initiative is "Improving Outcomes for Workers and Employers."

These are things that can help solve HR problems for companies. They can help local growth, they can help create opportunities. As a field, I think that there's still more work to be done to figure out how we can take an investment framework, that when you invest in workers, they can actually provide returns to society and to companies. So I think that there is a real benefit, and part of what we hope to do with that initiative is to find ways to frame the conversation around investments and workforce development as ones of investment rather than just thinking of them as something that really doesn't provide anyone, except for some individuals, a return.

Davidson: Right. So it's not a charity, it's not a cost. It's more of an investment. Is it important to build that case? Or has that case already been built, essentially?

Andreason: I think that getting the word out on that is important. There have been some communities, there have been some companies, that have really understood that, and they see investments in their workers as things that can help them advance. You can look at a number of examples. You can think about what ended up being relatively small-cost items: QuikTrip changed the way that they scheduled work to allow people to really have predictable schedules and understand what was available and provide advancement opportunities and training. That's led to significantly lower turnover, and they've done really, really quite well at keeping people around and really seeing their employees as one of their major assets.

We can look at an example in west Georgia, with Southwire, that actually started to invest in the K-12 education system, partly so that they could build out a workforce. But they certainly did help their recruitment challenges and helped build out their own workforce, and it's been something that's helped them stay where they are and remain competitive and have an available workforce.

So I think that there are some firms that have really started to understand that. There are communities that see that as well. We've seen growth both in the Southeast and across the country in states that are using appropriations to help further expand workforce development programs, and I think that that's because they see it as ways that they're investing in their economic development and ways that they're investing in helping address challenges related to people in poverty and lower incomes. One of the things that needs to happen to really make this much more widespread is to really communicate. What are the lessons from that? What are the lessons from that investment? What are some frameworks that are replicable or adoptable by other people that have not done that yet?

Davidson: Right. Well, Stu, this training—both at the individual company level, and through public programs—these kinds of programs have been around for some time, right? This isn't brand new activity, but it's changed pretty dramatically in recent decades, is that correct? The way it's funded, how much it's funded, and such?

Andreason: Absolutely. I will note that companies still do this, and they've done this for a long time. Often people will say that employers are really the largest provider of training. That's partly through things like educational reimbursement programs that some companies have, but also on-the-job training and training that managers do kind of informally with their employees. But firms also spend a lot of money, like actual hard money that they spend. Most estimates say well over $100 billion a year, if not closer to $200 billion a year. Of that investment, though, a huge majority of the money that is spent—actual money, by firms—is spent on employees that already have very high levels of education. So it typically goes to people that already have a bachelor's degree.

There's also been changes in public programs. If you go back to the 1980s, to the Job Training and Partnership Act—which is really the predecessor legislation to what we call the traditional workforce development legislation, the federal workforce development system, which is a smaller program out of the Department of Labor called the Workforce Innovation and Opportunity Act, which is about $3 billion a year. If you adjust for inflation, that means that since 1980 it's down by about 87 percent.

So it's considerably smaller, and that's not to say that the federal government isn't doing anything, it's just that they've reprioritized that. Pell Grants have expanded significantly in the last few years. Pell Grants provide college tuition for low-income students. That has meant significant expansion in the availability of programs, but a huge amount of Pell Grants are spent on career-based training at community colleges. So there's been a lot of change.

Davidson: So since companies tend to focus their investments in workforce development on their employees who are already pretty educated—high-skilled workers—does that mean the sort of workforce development ecosystem out there, outside the doors of the employers themselves—is it their charge? Or does it fall to them to focus on the distributional issues, which we briefly touched on earlier—the folks who don't have bachelor's degrees, from demographic groups that, in general, have not shared in the prosperity quite equally? Is that kind of how this is going to work out, or is working out?

Andreason: I would say that it goes a couple of ways. I think that that's one of the real promises, and I would say that one of the things that we find is that that is relatively true. The workforce development system helps people that need opportunities to find ways to advance. One of the challenges that that system faces is that when you start to introduce a lot of nonskill barriers—so we can think about some of the things that workforce development addresses as both skill-based barriers—someone doesn't have the technical skills to do a job—versus nonskill barriers, which are...you know, think more broadly about the kinds of conditions that they face in life.

Davidson: Transportation, housing.

Andreason: Transportation, housing, access to child care, and even some broader issues: discrimination in the labor market, or challenges finding work because of a mistake that someone made in their past—an addiction issue or criminal background. The workforce development system is well set up to deal with skill-based challenges. There have been some changes that have attempted to help address nonskill based challenges, like transportation and child care, but they're quite small. They typically only help with transportation to training, not necessarily transportation to work, other than...we've seen some programs that have really focused on helping to solve transportation issues that show really good results, but it's a challenge to find enough people to drive, and to find funding to pay for cars and things like that to get people to work.

But the workforce development system is well set up to deal with skill-based challenges. It's not as well set up to deal with nonskill based challenges. So you start to see what looked like relatively modest results from these skill-based programs, but if you factor in that they're working with populations that have real labor market challenges and challenges in getting to work and being available for work and doing work, I think that there's probably a lot of promise.

And if we think a little bit more comprehensively about how you can support workers to get to work and to be available for work and to be skilled to do work, you'd see some really great examples. To me, that's one of the really exciting things about being at the Fed and working closely with our community development group on the broad range of issues that we talk about for low- and moderate-income communities, is that this is a real connecting point that the workforce development system can make to help deal with nonskill based issues—but it's also a real opportunity for the workforce development community to bring something to populations that have really found their way to have stable housing, and some more stability in their neighborhoods and communities, and really are starting to look for ways to move up. I'm excited to help make those connections.

Davidson: Focusing on skills for just a minute here: we hear often the term "skills gap," and we hear it a lot, I think, in the Fed surveys, the Atlanta Fed surveys—at least of employers who, especially in certain industries or at certain skill levels, have difficulty finding people. The sort of surface reason given for this often is, "Well, we can't find people with the skills we need." So the term "skills gap" has sort of grown out of that.

But on the other hand, research by some of our economists here, as well as elsewhere, has found that there's a little more to it than that. It's maybe a little more nuanced than simply, "We need these skills, but people don't have those skills." So, is the skills gap real, or if not, what's the story there? Is it a little more nuanced than just the simple notion of lack of skills?

Andreason: I would say that there's a couple of different ways to answer that question, so it's a little more nuanced. There's a skills gap for certain people. There are people that will benefit from getting skills, from getting a college degree, or getting a technical certificate that allows them to do a certain type of job. Now, does that mean that there's not someone available, or that the labor force doesn't have the skills to fill the needs of an employer? It may, but there's also a challenge of how much does an employer value a certain job, and they may not be able to pay what someone with the skills wants—or they may not want to. So there may not be a skills gap. There's someone available.

One of the things that I do think is nice about, or is exciting about, workforce development is that it can help with the distribution of who has the skills and who's available for work. It can help to create more opportunity. You can almost think of it in some ways as an opportunity to help address some of those disparities that exist and to help better prepare people for work. So there's that.

So there are people, there are groups of people, that can really benefit. Is there truly a skills gap? No. There's been some analysis by the National Skills Coalition that really looked at the middle-skill gap, and their analysis suggests that we've got, in terms of high-skill workers, more high-skill workers than there are jobs available, and that there's more low-skill workers than there are jobs for low-skill workers. There's a gap in the middle. What that means is that, if we're talking just broadly across the entire economy, someone with high skills could probably do many middle-skill jobs—not all of them, but some of them. So what you end up seeing probably is that there's not truly a skills gap, that people with higher skills can filter down and do some of those jobs. But then what you end up with is people that feel like they're not meeting their potential and not being able to utilize all of their skills. And that's part of our problem, is that we want to make sure that we have a workforce that's agile to be able to deal with change but also that is well aligned with what is available in the labor market, so people aren't spending more time and money in school than they need to or ending up in a field that's not really related to their education and not related to the things that they're interested in doing.

Davidson: Right. Well, Stu, I wanted to come back—as we get ready to kind of close things out here—to the notion of workforce development as an investment and not a cost, as something that can benefit the economy and society at large. You mentioned the conference in Austin, Texas, back in October. There, a number of speakers, experts in this field and other fields as well, mentioned the idea that paying for workforce development, thinking of it as an upfront investment as opposed to back-end spending on public programs—incarceration, unemployment insurance, assistance for food purchases, and such—that basically the upfront investment is going to cost far less than the investments on the back end if we don't get better at this. Is that an important point to make, and is that valid?

Andreason: Yes, and I think that that's absolutely right. Those are some of the things that don't always get captured in evaluations of the effectiveness of workforce development. There are a few very big studies that suggest that someone that goes through workforce development—and so these are quite old—earns $500 more per year, which sounds relatively modest. Now, if you start to factor in that many of the people that are going through these programs face a lot of those nonskill barriers to work, it starts to seem a little bit better. You start to say, "Well, they were making quite a low amount of money," and that $500 sounds even better.

But that doesn't really account for the things that you just mentioned: lower incarceration rates, less public assistance, on and on. Those are real benefits, and to that point that they're not captured very well. There's been some attempts at starting to try and capture them. And in a few very, very early cases there's been something, a new financial product called a social impact bond, where if you're able to do some of these things through workforce development or other interventions cheaply, that governments and investors will actually pay for those social outcomes that they see because they're able to save money. And it can be a situation where government provides a little additional investment in something like education or workforce development, so that they're spending less later.

Davidson: All right. Well, Stu, there's a whole lot to talk about here, and we'll come back and continue this conversation later. But I think we'll probably need to wrap up for now. Thanks so much for your time.

Andreason: Thank you. Thank you for having me.

Davidson: Yes. And thanks for listening. If you want to learn more about what the Center for Workforce and Economic Opportunity is up to, check out the website at frbatlanta.org/cweo.

Thanks for listening, and come back next month. We're going to be talking with Amy Goodman, who's the head of the Sixth District cash operation, about what they do and about some pretty interesting work that they did in Puerto Rico following the devastating hurricane down there. So thank you for listening, and please come back.