When It Comes to Workforce, States Matter

April 01, 2010
By  Andrew A Pack

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When there is a devastating natural disaster, governors and states are the first line of defense, and the federal government is the second line of defense. Governors must ensure that the National Guard is ready to protect citizens living in the disaster area and must ask the federal government to send help quickly. Similarly, during an economic crisis like the current one, governors are on the front lines, ensuring that their states get people back to work as soon as possible.

To accomplish this, governors and states must make sure that help from the federal government with creating a more competitive workforce comes quickly and effectively. Federal, state and local governments must work together, using long-term and innovative approaches to create a workforce that will meet the challenges of tomorrow.

ARRA Funding for Eighth District States



A recent report from the McKinsey Global Institute found that 71 percent of U.S. workers are in jobs for which there is low demand, an over-supply of eligible workers or both.[1] This is creating a flood of unemployed people in the United States that will not stop unless governors have the authority to use workforce dollars in innovative ways that fit the people who need jobs in their states. State officials know their economies, industries and workforce the best. Therefore, to create a U.S. workforce that has the skills employers need, states must have the flexibility to funnel workforce dollars into the industries that are strongest in their states.

“Some think workforce skills training is something we do for employers, to attract industries and jobs,” Gov. Haley Barbour said in the 2010 Mississippi State of the State Address. “That’s true, but that’s only part of it. I believe workforce development and skills training are something we owe our working people...to help them increase their wages and get better benefits.”[2]

Governors across the United States are identifying workforce development and job creation as their top priorities for 2010 and beyond. In fact, in their 2009 State of the State Addresses, 87 percent of governors mentioned creating a more educated work-force to compete in the 21st century as one of their highest priorities, according to the National Governors Association.[3]

In February of 2009, the federal government tried to answer many of the governors’ requests by including nearly $4 billion in the American Recovery and Reinvestment Act (ARRA) to be given to states for workforce development and job training.[4] States in the Federal Reserve’s Eighth District received a total of nearly 15 percent of the $4 billion. (See map) The bulk of the funds went to Workforce Investment Act (WIA) Youth and Dislocated Workers activities. The rest of the funding from the ARRA went to state departments of labor employment services and unemployment compensation. This funding allowed cash-strapped states to continue services to workers and to the unemployed at a critical time. However, longer-term policies that benefit the workforce of the future are needed. This money was desperately needed by the states and helpful in the short term, but more must be done to create longer-term policies that will truly benefit the U.S. workforce in the future.

While the federal government’s workforce policies are focused on allocation of workforce funds, state governments are instrumental in making sure these funds actually improve the workforce in their states. According to the National Governors Association’s Governors’ Principles to Ensure Workforce Excellence, workforce policies would be more effective if:

  • Education and training for the workforce were more responsive to the needs of businesses now and in the future.
  • Workforce policies between federal agencies and the state and local levels were more streamlined and collaborative.
  • Funding was more reliable and flexible to allow for more innovative workforce policies on a state and local level.
  • State and local workforce systems were more integrated to reduce administrative costs.[5]

Governors want to enact transformative legislation that will authorize them “to proactively implement innovations, build broad and inclusive partnerships, and activate structural reforms across education, workforce and economic development systems,” according to the National Governors Association.[6] But to do this, Congress and the administration must move to more long-term workforce policies that are not “one-size-fits-all.”

“While investments in job creation are sorely needed, there is a risk that any gains in employment will be short-lived unless workers have the skills they need to take advantage of new job opportunities, and employers can find the skilled workforce they need to grow and compete,” a January 2010 report from the National Skills Association says.[7]

“Unless the mass of America’s human capital can be developed fast, the nation risks another period in which growth resumes but income dispersion persists, with Americans in the bottom- and middle-earning income clusters never really benefiting from the recovery.”

McKinsey Global Institute report “Changing the fortunes of America’s workforce: a human capital challenge”

An example of the states’ understanding of the need and ability to tailor these policies is the execution of on-the-job (OTJ) programs under the WIA. In an OTJ training program, employers enter into agreements to hire and train new employees and receive a temporary federally funded subsidy to cover a portion of employees’ wage costs during the training period. According to the National Skills Coalition, OTJ training subsidies can be very effective in both improving workers’ skills and acting as an incentive for companies to hire more workers. Currently, the federal government has capped reimbursement for small- to medium-sized businesses at 50 percent. This is a problem for these businesses because many lack the resources and infrastructure to support training programs. Many states have obtained waivers from the federal government to increase their reimbursement percentages for OTJ training for small- and medium-sized businesses. (See graph.) Increasing caps for OTJ training is an innovative and effective approach, allowing governors more flexibility in using workforce dollars.

Reimbursement for On-the-Job Training in the Federal Reserve’s Eighth District


The economies of all of the states and territories of the United States are very different and, therefore, require different approaches to workforce solutions. “One-size-fits all” and short-term workforce policies have not prepared many workers in the United States for long-term success. Governors and states working more closely with the federal government can create an approach to workforce development that benefits the country’s long-term economic growth by channeling funds into the strongest industries in each of their states.


  1. McKinsey Global Institute. Pg. 4 www.mckinsey.com/mgi/reports/freepass_pdfs/changing_fortunes/Changing_fortunes_Executive_summary.pdf [back to text]
  2. Gov. Haley Barbour. www.stateline.org/live/details/story?contentId=452654 [back to text]
  3. National Governors Association. www.nga.org/Files/pdf/GOVSPEAK0904.pdf [back to text]
  4. DOL. www.dol.gov/recovery/map/map-eta.htm [back to text]
  5. National Governors Association. www.nga.org/portal/site/nga/
    [back to text]
  6. National Governors Association. www.nga.org/portal/site/nga/
    [back to text]
  7. National Skills Coalition. www.nationalskillscoalition.org/resources/publications/file/NSC_IssueBrief_OJT_2010-01.pdf [back to text]

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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