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A Public-Private Solution to the Skills Gap

While our state is weathering an emerging skilled labor shortage crisis, a less talked about innovative Michigan program, the Michigan New Jobs Training Program (MNJTP) is not only helping employers train workers according to their specialized needs but also investing in providing value to our current workforce.

According to 2018 Michigan Job Vacancy Survey, as of the fourth quarter of 2018, there were 204,000 skilled trade job vacancies but only 183,000 unemployed in Michigan. This brings the job vacancy rate to 4.7 vacancies for every 100 positions filled in 2018 up from 3.5 vacancies in 2015 (US Bureau of Labor Statistics). In addition to this, an expected 545,000 new skilled trades jobs are going to be created by 2026 as per the same report. In the face of this reality, the state has put forward multiple initiatives like the Going PRO campaign and the MI Opportunity scholarship to bridge the gap between what employers require and what employees offer. While these programs encourage Michigan residents to acquire high in-demand skills, an important component for addressing this critical issue is incentivizing employers to invest in worker-training programs. Given that these businesses are responsible for employing millions of individuals and adding to the state’s per capita income, governments have tried to support and involve the private sector through public-private partnerships.

MNJTP, designed as an economic development incentive in 2008, allows for businesses to partner with one of the state’s 28 community colleges to develop a training program that produces highly trained employees to meet employer’s labor needs. What makes this program unique is its funding mechanism, whereby employers pay for employee training costs through withheld state individual income taxes captured from wages of the new employees receiving the training for the length of the agreement. In essence, employers pay the cost of training for new employees with dollars that would otherwise have been paid to the state thus effectively the program costs the employer virtually nothing. However, this incentive comes at a condition. To be eligible for this program, employers should be creating full-time “new jobs” that pay at least 175% of the Michigan minimum wage when the contract between the employer and the community college is signed.

Given its unique nature, I analyzed the scope of this program, its characteristics and incentives for firms and community colleges to participate.

Since launch in 2010, MNJTP has trained a total of 15,240 new employees over the decade. In 2018, the program trained 2537 new employees, had in effect 171 agreements with 75 3-digit1 industries and existed in 21 out of 28 community colleges.

Community colleges have participated varyingly throughout the state – while some colleges like Northwestern Community College, Oakland and Jackson community colleges were active in signing agreements in all the years, other colleges located far off from the hot spots including Alpena, Bay and Kirtland community colleges were the ones least active in program participation. Understanding the concentration of training contracts through the state geographically can help us in gauging the relationship between location of industry hotspots and vicinity to a community college. The geographical map of the state with number agreements signed by participating community colleges by county is shown in the figure.

To understand the incentives for employers to engage in MNJTP training, I created a menu of possible choices an employer in Michigan could face when they decide to invest in employee training. Reviewing 4 training options vis a vis employer sponsored training, the Going PRO talent fund award, the Michigan Works! on the job training and MNJTP, I tabulate the simulated costs for a 3 month training for the 4 training options an employer can face under two situations: First for a case of a high paying technical manufacturing job that involves a high training cost and second for a case where all employers either pay the minimum wage or program eligibility wage and incur average training cost in the state.

Calculations of total training costs for the menu of options show that MNJTP can be an attractive program for employers only when the training costs are equivalent to at least 26 credit hours in Michigan (at $168 per credit hour) which is usually the case for high wage technical jobs mostly in the manufacturing sector. This is what is also observed in our study of participating industries – manufacturing industries are the ones that have signed the highest number of agreements in the state.  For cases, however, that involve low training and equipment cost, an employer is better off using other training options available due to the high eligibility wage requirement for MNJTP.

To understand the incentives for community colleges to participate in this program, I looked at the enrollment numbers for all community colleges in the state. I find that since 2014, there has been a decline in the number of students enrolling in these colleges. This decline can be attributed to a push for 4-year post-secondary education as well as the stigma associated with studying in 2-year vocational schools. Nevertheless, falling enrollment numbers in community colleges can act as an incentive for these institutions to engage with employers and leverage their expertise to benefit their local economy.

The Michigan New Jobs Training Program utilizes a unique public-private strategy to incentivize job training and meet skills shortage in Michigan by leveraging the job training strengths of local community colleges. Exploration of the program model shows that this program is well suited for assisting employers with high cost, technical and customized training needs by providing attractive financial incentives for these technical job trainings as well as for helping workforce development partnerships between community colleges and employers.

Given that Michigan is a hub for manufacturing industries and with the prevailing skilled labor shortage in this sector, the MNJTP program holds potential to serve these industries effectively. However as of now, the program has been able to serve relatively fewer industries and employers. Analysis of why certain industries and community colleges participate more than others, the relationship between location of industrial hotspots and proximity to community colleges can add further to the understanding of the program and help us in designing incentives to encourage more employer participation. All this warrants further exploration to determine how this program can be designed to provide the greatest possible benefits to all stakeholders.

Read the full report here.

Sejal Luthra is a second-year Master of Public Policy student and an IPPSR Graduate Fellow.