Overall, we conclude that demand for both middle-level and high-level skills is likely to grow more rapidly than the supply of these services over the next decade and beyond—both overall and within key sectors.
What does all of this mean for policy? Employers will adjust to tight labor markets in a variety of ways—such as with higher wages, more aggressive recruitment, and more selective screening. They will likely also invest more in training. But these investments take time and significant resources.
Furthermore, private sector training investments by firms are often limited by a variety of market failures that lead to suboptimal investments, especially among less-educated workers. These market failures include imperfect or asymmetric information between employers and employees, liquidity constraints in capital markets, and wage rigidities that prevent employers from financing training partly through lower wages. Another reason for underinvestment is that employers who train workers fear they will be unable to recoup their investment if other firms hire workers away once they are trained, Underinvestments in employer-led training seem to plague less-educated workers.
These market failures might lead to lowered worker performance and productivity in some sectors in the absence of sound policy responses. And the education and earnings levels of disadvantaged workers will also remain below the levels that could have been achieved with appropriate policy measures. The likely short supply of workers in several key sectors offers opportunities to improve the earnings of disadvantaged workers. In particular, low-income youth or adults can raise their earnings substantially and fill many middle-level jobs by undertaking training and postsecondary education. The result will be to improve efficiency and equity in the labor market.
How might this be accomplished? For at-risk youth—especially those in school—it means expanding opportunities for high-quality career and technical education. Options include career academies, which have demonstrated positive impacts on the earnings of youth and especially at-risk young men. Other options include Tech Prep and “Career Pathway” models, which provide ladders into certain well-paying occupational clusters based on school curricula and work experience, beginning in secondary school (or earlier) and continuing into postsecondary education.
For adults, effective approaches involve supplementing education or training, with enhanced links to employers in sectors with strong growth in middle-skill jobs. These approaches should include job search and follow-up services. Often, community or technical colleges, as well as for-profit career colleges, can deliver the relevant education and training. Labor market intermediaries can play a useful role in coordinating these components and developing connections with employers through “sectoral” training or “career ladders” that attach disadvantaged adults to these sectors and provide pathways of instruction qualifying them for specific occupations and industries. To be effective, intermediaries sometimes must offer stipends during the period of study, as well as child care, transportation, and job placement services. Financial enhancements afterwards might still be needed to incent these workers to remain attached to the labor market.
Expanding apprenticeships is a particularly attractive option for upgrading the careers of both young and experienced workers. Apprenticeship training culminates in career-related and portable credentials that are recognized and respected by employers. It relies mostly on learning in context, an effective method for teaching technical and broader skills, such as communication and problem-solving. Workers earn salaries during their training, which is particularly appealing to disadvantaged adults and youth. Although the U.S. apprenticeship system is small relative to systems in other countries, nearly 500,000 American workers are in the registered apprenticeship system and at least another 500,000 are in other apprenticeship programs. Nonexperimental evidence suggests very high earnings gains, while public spending is low (since employers finance the wages and instruction for apprentices). Doubling the Office of Apprenticeship budget