Shocking idea about the Jobs Grants program: Give the money to trainees

Workers will use it better than either the provinces or employers
A view of employees working at the General Motors assembly plant in Wentzville, Missouri February 7, 2012. When the U.S. automaker wanted to assign the launch of the next version of their full-sized pickup trucks and SUVs, they turned to one of the toughest executives in its ranks. The 5-foot-2 Diana Tremblay, GM’s global manufacturing chief, is one of the highest ranking women in the automotive industry and has upended expectations her entire 35-year career, from directing workers in GM’s foundries to staring down union labor negotiator. Picture taken February 7, 2012. To match Feature GM-TRUCKS/ REUTERS/Sarah Conard (UNITED STATES - Tags: TRANSPORT BUSINESS)
(Frank Gunn/CP)

Maclean’s John Geddes notes that the Conservative government’s proposed Canada Jobs Grant program looks to be a battleground for yet another round of federal-provincial squabbling:

The new job grant would pay companies that set up training programs $10,000 for every worker enrolled, with the government contribution split equally between Ottawa and the province. But to qualify, the company would have to put up $5,000 of its own money for every trainee. Critics say only big employers would be able to afford to participate. As well, many premiers, including Wynne, argue they understand the real training needs of their local economies better than Ottawa does.

To pay for the new grant scheme, the Harper government proposes to take away $300 million a year that it now gives to provinces and territories under longstanding labour market agreements. Wynne’s case has been bolstered by withering criticism of the proposed Canada Jobs Grant from the Caledon Institute of Social Policy and the Mowat Centre. The two think-tanks argued in a joint report that the grant aims to supplant proven provincial training programs with Ottawa’s entirely untested scheme.

So far, the debate has been framed in terms of “giving federal money to employers” vs “giving federal money to provincial governments.” I think this is a mistake: there’s a third, better option.

Some background first. The notion of a “skills shortage” makes little sense to me, because there’s a simple and obvious way to eliminate shortages in the labour market (or indeed in any market): increase the price. In other words, when the wage is right, workers feel motivated to move from far-flung places or acquire extra-training to get the vacant jobs. This solution seems to have escaped Canadian employers, possibly because they had grown so used to paying the same wages for so long that it simply hadn’t occurred to them that paying higher wages was an option. Whining to the government, on the other hand, is a long-established and invariably successful Canadian business practice.

Employers are perhaps on firmer ground when it comes to skills that require on-the-job training. Trainees are generally not productive enough to justify paying them the same wage as fully-trained workers, and there’s always the risk the a new recruit will move on to another job before the original employer can recover the investment it made in training her. The idea of compensating firms for taking this risk has merit, but there are at least two problems with this approach. Firstly, much of this new spending will go to firms that are already engaged in on-the-job training. Secondly, the administrative process is likely to shut out smaller-scale employers. The Canada Jobs Grant program looks like just another boondoggle in which governments give free money to well-connected companies. Score another victory for the “whining to the government” Canadian business model.

The provinces don’t like this new program, and would prefer that the federal government continue to give money to them to spend as they see fit. They argue that they are better-informed about local labour market conditions, and they’re probably right. But that’s also a good reason for the federal government to not to pay much attention to their objections. Provinces are, reasonably enough, not very interested in spending money to train workers who go on to apply those skills at a job in another province.

To sum up:

  1. There is a good argument for governments to make up the difference between a trainee’s productivity and a wage paid to a fully-trained worker.
  2. Giving that money to employers is likely to be as effective as every other program that has involved giving public money to a select few private firms. That is to say, not very much at all.
  3. Giving that money to the provinces is unlikely to advance federal policy goals.

So why not give that money to the workers? If workers had access to income supplements, firms could offer reduced-wage training positions. And since the money is tied to the worker and not the firm, competitive pressures — and not bureaucrats — would determine the best employer-trainee matches. To the extent that these grants would be portable across provincial boundaries, provincial governments would be unlikely to contribute, but then again, it’s the federal government’s responsibility to advance its own policy goals.

Providing workers with income supplements while they undergo on-the-job training is a simple, market-oriented policy. Which means, of course, that the Conservative government will never, ever consider it.