Lack of information and incentives among community colleges
Similar to public high schools, community colleges suffer from a dearth of real market indicators. Tuition rates, degree offerings, curricula and even faculty salaries are determined without the benefit of the same broad assessment of the value to students (and ultimately employers) or of true costs that actual prices and market exchange would provide. Taxpayer resources provided to these institutions primarily come from general state appropriations and local property taxes, meaning these schools will get funded regardless of whether or not they provide real value to students seeking occupational training. These institutions do face other constraints, of course, including political pressure and budgetary restrictions to keep tuition rates and costs low. And these pressures can restrict community colleges’ ability to respond to students’ needs, for example, by expanding programs offered, adding to existing program capacity or hiring faculty to train students in high-demand fields.
Ideally, where skills gaps exist, schools and training programs would initiate or expand training in the excess-demand fields and attract trainers and instructors away from practicing in those fields to educate others. Community colleges should be encouraged to invest more in offering courses, certificates and degrees that are in high demand, including offering competitive wages to top-quality trainers and instructors. This emphasis will have costs — it will likely mean that community colleges will have to invest less in other programs, and there may be union contracts and other bureaucratic processes that hinder or even prohibit these schools from swiftly and dynamically responding to labor market signals.
Nonmarket incentives for private training
Other postsecondary training, including for-profit training centers and schools, often are eligible for grants directly or indirectly via student aid, typically provided by the state or federal government. These grants that make training accessible to students who could otherwise not afford it act as subsidies, incentivizing the supply side of the market to provide training that meets the eligibility requirements of the funding. Most recently, Michigan’s approach to workforce training has been influenced and shaped by the Michigan Future Talent Council, comprised of business, public school and college leaders plus some state bureaucrats, and charged with advising the Michigan Talent Investment Agency “on building a strong workforce system aligned with state education policies and economic development goals,” including areas of the labor market where skilled labor is lacking. Similarly, other state and federal policy select certain types of apprenticeships and training or particular demographics of trainees.
The advisability of such incentive-shifting bureaucracies and policies largely depends on the extent to which the political actors can ascertain the correct ends and means, in order to benefit Michigan’s workers, businesses and taxpayers. Based on basic economic principles, it is highly unlikely that policymakers and these types of boards are able to allocate scarce resources in programs that will produce the optimal results. A better solution would be to give students and local communities the ability to use flexibly state funds to pursue skills training that they deem to be the most valuable to them.[*]
One perennial and popular concern about education and career preparedness is affordability. Even if a prospective student perceives a positive return on investment to obtaining a particular set of skills, credit constraints can be uniquely binding where educational investments are involved. As with many investments, tuition and fees — not to mention implicit costs of foregone current wages — are incurred up front, while the payoff of higher wages and stable employment is received at a later date.
Unlike many investments, though, human capital is hard to borrow against in private credit markets since it does not represent its own collateral. Consequently, if a student cannot cover the costs of her training, whether or not she considers it an economical investment, she cannot make the choice to invest. Nevertheless, in light of the variety of funding programs available, credit constraints seem an unlikely cause for “underenrollment” in postsecondary training.[†] Another potential explanation is that students are making accurate assessments of the costs and benefits associated with a skill investment and determine that the wage premium for skills do not compensate fully for the investment required. This leads us to discuss the functioning of the labor market, first starting with wages.
[*] This is based on the assumption that access and affordability are binding constraints on student enrollment. It is likely that there are other factors that impact how many students seek out these training opportunities.
[†] For more related economic theory and a thorough discussion of postsecondary educational investments in light of credit constraints, see: Pedro Carneiro and James J. Heckman, “The Evidence on Credit Constraints in Post-Secondary Schooling,” Economic Journal 112, no. 482 (2002): 705–734, https://perma .cc/UQD8-G8AF.