Federal stimulus funds offer an opportunity to invest in our state for maximum effect — to build long-term value in our communities in a fiscally responsible way. As they consider criteria, political leaders are weighing the benefits and costs of a multitude of investment choices.
Worker training is an area that promises significant benefits — especially as unemployment continues to rise. The links between wages and productivity, wages and education, and education and productivity are all clear. Training — especially for the disadvantaged — allows workers to become more productive members of society. But the benefits do not stop there. Making workers more productive — and thus increasing their earning power — also benefits society generally because they receive less government support, pay taxes, are less likely to engage in crime, and more likely to spend money in their communities.
While the cost estimates of these training programs are often straightforward, estimating the benefits is more complicated and depends on the link between any given training program and the resulting change in a participant's wages. That said, however, estimating the gains to society involves collecting data about each of the potential benefits to society described above and then combining them in a realistic way.
One recent study from Macalester College attempts to do just that for a national training program using state-by-state data. Without the change in welfare costs, prison costs and a multiplier effect, the one-year range of increased state tax revenues from moving a full-time worker from minimum wage to $10 per hour job is $95 (Washington) to $1,835 (Michigan). With welfare savings, reduction in prison costs and a spending multiplier, the one-year benefit to individual states runs from $10,982 (Illinois) to $20,238 (Alaska) per worker. These benefits would accumulate over time.
To provide a Minnesota-specific example, the report also includes a case study of Twin Cities RISE!, a nonprofit work skills training program. For the last 15 years, Twin Cities RISE! has served a population in the Twin Cities that is very poor, chronically unemployed and suffering significant multiple barriers to long-term employment success. This program trains workers over a one-year period and places them in jobs that, for those placed in 2008, paid an average annual salary of $24,700 (an increase of $20,500) with benefits. Long-term job retention rates for graduates are 82 percent after one year and 73 percent after two.
The report assesses returns to the state. From 1997 to 2008, Minnesota invested $3.6 million in this program and received $14.1 million in a net present-value return. This translates into a 295 percent return on investment. Returns come in the form of turning tax "users" into taxpayers, as public subsidies are eliminated and employed graduates pay taxes.
With programs such as this available for state funding, lawmakers have the opportunity to create a win-win-win-win for Minnesota: Taxpayers get a great return through an effective public investment; generational poverty is eliminated for successful graduates and their dependents; our poorest communities benefit from increased employment and local spending, and employers can hire well-trained employees.
Raymond Robertson is an associate professor of economics at Macalester College. Art Berman is president and chief executive officer of Twin Cities RISE!
