* what works matrix what works matrix general education job matching what works matrix what works matrix costs matrix business assistance subsidies and incentives Operating Costs capital matrix finance Capital labor matrix occupational or industry specific training Labor land matrix physical amenities business site locations market-rate housing Land Introduction

LABOR

Policymakers have paid considerable attention to labor force development as an economic development strategy. Labor is a key input in the production process. Therefore, the availability of skilled workers is critical to the success of a business or industry. Scarce, skilled and in-demand labor helps to retain or attract private investment.

The skill mix, age structure, degree of mobility and expectations of those who comprise the labor market are several characteristics that affect the industry mix and size of a regional economy. Industry structure and the existing labor pool are interdependent. Preparing workers for the demands of industry is an important goal of economic development policy.

Many work force development strategies include efforts to affect both labor supply and labor demand. Work force programs designed to improve the skills or wages of individuals are labor-supply programs. Those that focus on the needs of employers or work with employers to increase the number of persons they hire are labor-demand programs.

Interventions designed to affect work force preparedness (supply) should carefully consider their target population. Incumbent workers (those already participating in the work force) generally require specific skill training to maintain their position in the labor force or to make a transition to occupations in higher demand. New entrants (those entering the labor force for the first time) and migrants (those new to the region's labor market) will have different needs and require different approaches.

Understanding the distinct needs of these target populations is an important element of program implementation, yet this is just one side of the equation. Interventions to increase demand for labor must fully understand the needs of local industry and recognize that the demand for workers will always depend on demand for products. A failure to account for the structure of local industry and the relevance of the product cycle on the structure of demand for labor will also result in an ineffective labor force development strategy.

Another point to consider when intervening in labor markets is that many factors important to the success of workers (and therefore industry) are beyond the scope of labor force development strategies. Issues involving childcare, transportation and health, among others, have a tremendous effect on work force performance. These issues should be considered when formulating policy; the possible need for supportive services for workers should be recognized.

Policy intervention in the labor market can be justified as a means to address various forms of labor market failure. There are two primary sources of labor market failure: involuntary unemployment and underinvestment in human capital.

Unemployment represents a market failure if it is involuntary, meaning that unemployed individuals are willing to work at the prevailing wage for jobs for which they are qualified. It is considered to be involuntary unemployment, because the unemployed would be willing to work at the market rate, but cannot find jobs. An intervention that provides a benefit to the worker that is equal to the difference between the lowest wage the worker will accept and the wage the firm is paying would reduce unemployment (Bartik 1990).

Labor market failure also occurs when there is underinvestment in human capital. Individuals may underinvest in human capital due to their inability to finance education (since lenders cannot repossess human capital if the borrower fails to repay) or because training or the value of human capital is difficult to measure before it has been acquired. Society can also underinvest in human capital because it fails adequately to account for the positive externalities that result from a well-educated population (Bartik 1990).

Other justifications for intervention in labor markets include shortening search time for workers in need of jobs and firms in need of workers, reducing cyclical unemployment that results from shifts in the business cycle, and promoting objective skill standards for technical occupations to ensure the training activities satisfy market demands. Some believe that underemployment can represent market failure if workers are unable to find higher paying jobs for which they are qualified. Creating jobs for underemployed workers has been one strategy pursued, but if there is no market support for these positions, it will ultimately lead to economic inefficiency.

The labor force development strategies described below include efforts to: 1) improve the general education of the population; 2) provide occupational or industry-specific training; 3) match work force skills with industry needs.

General education programs provide instruction in basic skills that will benefit an individual working in any industry. Occupational or industry specific training programs provide specialized instruction that will benefit workers in particular jobs. Job matching programs work with the local work force and local industry to match workers with specific skill sets with businesses that demand those skills.

Within each of the three broad categories of labor force development are more specific program areas. The following sections provide a brief overview of these program areas and at least one example to illustrate their implementation. The final section includes a review of the available literature about the evaluation of work force development programs and a more general summary of what constitutes an effective labor force development program.

see corresponding section in What Works