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Estimating the Returns to Community College Schooling for Displaced Workers

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Estimating the Returns to Community College Schooling for Displaced Workers DOCUMENT RESUME ED 481 036 JC 030 483 AUTHOR Jacobson, Louis; LaLonde, Robert; Sullivan, Daniel G. TITLE Estimating the Returns to Community College Schooling for Displaced Workers. INSTITUTION Federal Reserve Bank of Chicago, IL. SPONS AGENCY Department of Labor, Washington, DC.; Washington State Workforce Training and Education Coordinating Board, Olympia. REPORT NO WP-2002-31 PUB DATE 2002-12-00 NOTE 47p. CONTRACT 99-0-0584-75-055-01 AVAILABLE FROM For full text: http://www.chicagofed.org/publications/ workingpapers/papers/wp2002-31.pdf. PUB TYPE Reports Research (143) EDRS PRICE EDRS Price MF01/PCO2 Plus Postage. DESCRIPTORS *Age Groups; *Community Colleges; *Dislocated Workers; *Education Work Relationship; Educational Benefits; Employment; Job Layoff; Job Skills; Job Training; Salaries; Two Year Colleges; *Vocational Education; Vocational Rehabilitation IDENTIFIERS Washington ABSTRACT This study examines the earnings histories of displaced workers in the state of Washington. The study sample included approximately 97,000 workers who had three or more years of job tenure when they were permanently laid off from their jobs between 1990 and 1994. About 16,000 of the workers in the sample earned some community college credit by 1996. The authors found that displaced workers who enroll in community college classes are typically prime-aged adults, many of whom have attended college before, and who have been displaced from jobs from a wide array of industries. The average age for this study was 36 for males and 37 for females. Results of the study indicate that for males, completing at least one credit is associated with about a 2.5% increase in quarterly hours worked and a 3.0% increase in average wage rates. For females, it is associated with a 3.0% increase in hours, but a trivial increase in wages. The authors also found that the effects of community college credits on earnings depend significantly on the nature of courses taken. A year of credits in technically oriented math, science, and vocational courses is estimated to increase earnings by 14% for men and 29% for women. (Contains 9 tables, 1 figure, and 32 references.) (NB) Reproductions supplied by EDRS are the best that can be made from the original document. 0 Estimating the Returns to Community bl) College Schooling for Displaced ct c.) Workers 4( Louis Jacobson, Robert LaLonde and 0 Daniel G. Sullivan U.S. DEPARTMENT OFEDUCATION PC) Office of Educational Research andImprovement EI)),JCATIONAL RESOURCESINFORMATION a.) CENTER (ERIC) 0 This document has been reproduced as received from the person ororganization originating it. I:I Minor changes have beenmade to 4) improve reproduction quality. C4 Points of view or opinionsstated in this (I) document do not necessarilyrepresent official GERI position or policy. P4 4); 4) 1.2-1 WP 2002-31 BEST COPY AVAILABLE 2 Estimating the Returns to Community College Schooling for Displaced Workers Louis Jacobson Westat Inc. Robert LaLonde University of Chicago and NBER Daniel G. Sullivan Federal Reserve Bank of Chicago December 2002 The authors thank Jeff Jaksich and the Washington State Training and Education Coordinating Board for providing the data for this project and answering many questions about its construction. We have benefited from comments by John Ham, James Heckman, Guido Imbens, Alona Lerman, Kevin Hollenbeck and participants at the HSFR Conference on Unemployment and Labor Market Policy, in Sweden, and workshops at Chicago, Harvard, Princeton, Northwestern, Michigan, Michigan State, the National Bureau of Economic Research, UCLA, Maryland, Syracuse, Bureau of Labor Statistics, the Upjohn Institute for Employment Research, CIDE, and the Federal Reserve Bank of Chicago. Ken Housinger, Jim Sullivan, and Abigail Waggoner provided technical assistance. Some of this research was funded under U.S. Department of Labor ETA contract 99-0-0584-75-055-01 and by the Washington State Workforce Training and Education Coordinating Board. The views expressed in this paper are solely those of the authors and do not necessarily represent the views of the state of Washington, the U.S. Department of Labor, the Federal Reserve Bank of Chicago or the Federal Reserve System. 3 Abstract Studies show that high-tenure displaced workers typically incur substantial long-term earnings losses. As these losses have become increasingly apparent, policy makers have significantly expanded resources for retraining, much of which takes place in regular community college classes. To analyze the effectiveness of such training, we link administrative earnings records with the community college transcript records of workers displaced from jobs during the first half of the 1990s in Washington State. We explore several issues of statistical specification for regres- sion models quantifying the impact of community college credits on earnings. These include (i) the need to allow for a transition period immediately after the end of workers' schooling when their earnings may be temporarily depressed, (ii) whether earnings gains are strictly proportional to credits earned, and (iii) how to model worker-specific unobserved heterogeneity. In our pre- ferred specification, we fmd that the equivalent of an academic year of community college schooling raises the long-term earnings of displaced workers by an average of about 9 percent for men and about 13 percent for women. However, these average returns mask substantial variation in the returns associated with different types of courses. On the one hand, we estimate that an aca- demic year of more technically oriented vocational and academic math and science courses raise earnings by about 14 percent for men and 29 percent for women. On the other hand, we estimate that less technically oriented courses yield very low and possibly zero returns. About one third of the increase in earnings associated with more technically oriented vocational and academic math and science courses is estimated to be due to increases in wage rates, with the remainder attribut- able to increased hours of work. Louis S. Jacobson Westat Inc. 1650 Research Road Rockville, MD 20850-3129 Robert J. LaLonde Irving B. Harris Graduate School of Public Policy Studies The University of Chicago 1155 East 60th Street Chicago, IL 60637 Daniel G. Sullivan Economic Research Department Federal Reserve Bank of Chicago 230 S. LaSalle St. Chicago, IL 60604 0 I. Introduction Layoffs of experienced workers are an enduring aspect of U.S. labor markets (Farber, 1993, 1997; Aaronson and Sullivan, 1998; Helwig, 2001). Studies using longitudinal data indicate that affected workers tend to incur substantial long-term earnings losses long after they return to work (Ruhm, 1991; Jacobson, LaLonde, and Sullivan, 1993a, 1993b, 1993c; Fallick, 1996; Kletzer 1998). Given this prospect of significantly lower earnings, it is natural for displaced workers to consider returning to school to obtain new skills that would allow them to fmd better jobs. Indeed, policy makers often propose subsidizing retraining as a way to cushion the blow associated with job displacement. As the costs of worker displacement became more apparent in the 1990s, and the incidence of displacement became more wide spread among industrial sectors, policy makers substantially expanded expenditures on employment and training services for displaced workers, even as they scaled back expenditures on similar services for youths (LaLonde 2002). Much of this training takes place in regular courses taught in the nation's community colleges. Policy makers' heightened support for worker retraining has occurred even though there is rela- tively little evidence on its likely impacts. The many studies of public sector-sponsored training for economically disadvantaged persons are not directly relevant because most displaced workers have substantial work experience and thus are likely to be more employable without retraining than the workers in those studies. Neither does the voluminous literature on the returns to school- ing necessarily apply because displaced workers usually have been out of school for many years, often take only a few courses, tend to be work more hours for pay while attending school, and are usually much older than the typical student. Such factors may make it more difficult to learn new skills. Much of the knowledge we do have of the effects of training displaced workers comes from sev- eral demonstration programs implemented during the 1980s (Bloom, 1990; Leigh, 1990). A more recent study examines the impact of training on a relatively small subset of displaced workers who lost their jobs as a result of increased import competition (Corson, Decker, Gleason, and Nicholson, 1993). These studies indicate that displaced workers benefit from job search assis- tance; that access to classroom vocational instruction or on-the-job training usually has little effect on subsequent earnings; and that female displaced workers likely benefit more from employment and training services than do their male counterparts (LaLonde, 1995). This paper presents new evidence on the benefits of retraining prime-aged adults by analyzing the impact of community college schooling on displaced workers' earnings in Washington State dur- ing the 1990s. We focus on this group of workers because of our ability to construct a large longi- 1 tudinal database well suited to the study of training impacts. We constructed this database by merging administrative earnings and unemployment insurance records with community college transcript
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