Training and marginal incentives,

Claude Huss found this article on whether a government program to promote
training is using marginal incentives

Should California Media Firms Get State Funds for Training?

By SHEILA MUTO
<From The Wall Street Journal Interactive Edition

For years, the state Employment Training Panel gave little attention to
two renowned California enterprises -- multimedia and entertainment.
But then both industries started complaining of a tight labor market and
stiff competition from outside the state. As a result, a raft of companies,
including Seagram Co.'s Universal Studios, Walt Disney Co. and USWeb/CKS
Corp., have been the beneficiaries of $9 million from the Employment
Training Panel. The eight-member board metes out about $100 million
annually to attract and retain businesses and jobs by improving workers'
skills.
And while California clearly has an interest in promoting a healthy
climate for business -- including an able work force -- some are
questioning whether multimedia and entertainment are really the kind of
struggling industries that couldn't make it without state assistance.
The funds doled out by the Training Panel amount to "corporate welfare,"
says Naomi Lopez, a policy analyst at the Pacific Research Institute, a
free-market-oriented think tank in San Francisco. And "just because there's
a labor shortage in entertainment and multimedia doesn't mean we need to be
using government resources to alleviate {it}."
According to Brady Bevis, director of San Francisco's Bay Area Multimedia
Partnership, that's exactly what the Training Panel should be doing to
ensure the health of the state's economy. "These industries and jobs can go
anywhere," she adds, noting they are already moving to Canada, India and
Japan.
Training Panel funds come from a special tax collected from businesses,
which amount to a maximum of about $7 per employee. Businesses or training
agencies apply to the panel to underwrite their training programs, and can
be reimbursed for them after employees complete the training and stay with
their jobs for 90 days. The bulk of panel funds -- between 60% and 70% --
go to manufacturers.
Kathleen Milnes, a senior vice president at the Entertainment Industry
Development Corp. in Los Angeles, estimates that entertainment companies
fork over about $4 million annually to the panel fund, but until recently
hadn't benefited from it. "We were subsidizing other industries," she says.
So in 1996 Ms. Milnes's and Ms. Bevis's organizations prompted the
Training Panel's venture into the celluloid and digital realms. The two
economic-development nonprofits devised a program called SkillsNet, which
aims to keep cutting-edge, high-paying entertainment and multimedia jobs in
the state. The effort has received about $653,000 from the panel to study
which skills companies are looking for, set up a Web page, and help firms
tap into state training funds, among other things. Later this month,
SkillsNet plans to unveil a new report on the post-production industry,
plus an online posting of internships.
But misgivings about the panel's new focus are being unveiled as well.
Though he hasn't looked at the impact of state training dollars spent on
multimedia and entertainment companies, Richard W. Moore, a management
professor at California State University-Northridge, says that panel funds
are most effective when used as an incentive for employers who typically
"underinvest" in training. In contrast, entertainment and multimedia
companies "tend to invest in training anyway," says Prof. Moore, who was
commissioned by the panel to assess its effectiveness. He released reports
in 1994 and 1995; his next study is set to come out later this summer.
In general, he says, the panel "works." Based on his 1995 report, Prof.
Moore found that the training provided by panel funds meant that after two
years, employees who received retraining increased their salary by $4,910,
and new hires increased theirs by $6,038. Considering the panel spends only
about $1,500 a participant, he says that's a healthy payoff.
Still, Sen. Patrick Johnston, the Stockton Democrat who wrote the
legislation that created the Employment Training Panel in 1982, is
attempting to reel in the agency through Senate Bill 43. Among other
things, the bill, which has already passed the Senate, reduces the panel
from a grant-making agency to an advisory commission to the state
Employment Development Department.
While the panel has "helped some workers and boosted some businesses that
are important to the California economy," in other instances, it has made
less than stellar funding decisions, Sen. Johnston says, pointing to funds
given to hotels, law firms and other service industries that "clearly
weren't going anywhere." But he believes that the agency's focus on
multimedia and entertainment will prove to be "an effective use of state
funds."
During the past three years, the panel has awarded $8.9 million for
retraining about 5,000 workers and training 320 new hires on the latest
computer systems, software, and techniques in the multimedia and
entertainment fields. For example, state records show that Universal
Studios was granted $1.1 million last year to retrain 1,423 employees in
management and computer skills. And Video Symphony Entertraining Inc. in
Los Angeles, received $1.4 million to retrain workers from companies
including Walt Disney on techniques such as video editing and digital
animation.
The entertainment and multimedia industries need the funds, says Charles
Lundberg, the panel's marketing director, because "competition keeps
getting tougher and the software and hardware keeps getting upgraded."
Indeed, Paul Sidlo, chief executive of REZN8 Productions Inc., which does
everything from Web design to visual effects for film and television, says
his Los Angeles firm has lost out to Canadian companies on a handful of
contracts because they underbid him by nearly 40% -- thanks to government
subsidies. Given that, the 3-D animation training that 15 of his employees
received last year through funding from the state -- which he estimates was
worth about $40,000 in instruction costs and employees' time -- went a long
way toward reducing the $700,000 he spends annually on retraining workers.
The training subsidy, he says, "really helped."

My comments:
Trainin funds are most useful it they go to folks who would not pay for
the training themselves; perhaps due to difficulties borrowing. Also, if
the skills are useful at many employers, no single employer wants to pay
for the skills that workers walk away with to competitors.
Do you think the multimedia training subsidies meets these critera? If
not, how could one target the training better?

David I. Levine Associate professor
Haas School of Business ph: 510/642-1697
University of California fax: 510/643-1420
Berkeley CA 94720-1900 email:
levine@haas.berkeley.edu
http://web.haas.berkeley.edu/www/levine/