The Labor Market Returns to Customized Job Training: Evidence from Tennessee

• In Event: Approaches to Ensuring Wage Growth and Economic Mobility

Abstract

Over the past several decades, the U.S. labor market has increasingly rewarded higher levels of education and skill, resulting in a widening earnings gap between high- and low-skilled workers. In response, policymakers have turned to job training as a potential tool for promoting economic mobility. Despite $500 million in annual federal spending—just 2% of Pell grant expenditures and roughly one-quarter of the OECD average for training as a share of GDP—evidence on the effectiveness of U.S. active labor market programs (ALMPs) remains mixed. In fact, most studies on ALMPs find modest, insignificant, or transitory impacts on worker productivity. One possible explanation is that these programs may be misaligned with the skill requirements of local firms.

This paper provides the first empirical analysis of customized job training programs—an increasingly prominent and understudied model in which firms design training curricula tailored to their specific skill demands. Participation is limited to new or existing employees, and the government subsidizes training costs conditional on employment. I assemble and analyze the first comprehensive dataset on customized training programs in Tennessee, linking administrative records on program participants, firm characteristics, grant applications, training content, and post-program labor market outcomes.

To estimate causal impacts, I implement an event study design, a difference-in-differences framework, and a difference-in-instrumental-variables approach that leverages firm applications for training support. I find that participation in customized job training leads to a 7.52% increase in quarterly earnings— equivalent to $913 per quarter—with effects persisting for at least five years. These gains are concentrated among incumbent workers and remain robust across a range of model specifications and identification strategies. Heterogeneity analyses suggest the returns reflect both firm-specific human capital accumulation and partially transferable skills. Together, these results underscore the potential of employer-aligned training to generate lasting economic returns, suggesting an important role for employer-aligned training programs in bridging skill gaps and promoting upward mobility in a changing labor market.

Author

• Natalie Millar, Stanford University
  Presenting Author