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Lamar County — Paris Economic Development Plan <br />Guiding Principle 11: Improving Labor Quality in a Way That is Responsive to Business <br />and Worker Needs Can Play a Crucial Role in Local Economic <br />Development. <br />Improving local labor quality is crucial to firms because so much of business costs are labor <br />costs. The issue is whether economic development policies targeting individual firms can be effective in <br />improving local labor quality. <br />One study indicates that government grants for customized job training, when the job training is <br />tied to a firm's technology upgrading efforts, can be effective in promoting improved productivity. Holzer <br />and his colleagues found, in their study of a Michigan program giving grants for technology- related <br />training, that product scrappage rates went down significantly more in assisted firms than in comparable <br />unassisted firms. Product scrappage rates went down enough that the program's economic benefits <br />probably exceeded the costs of the job training grants. <br />Beyond the effects of customized worker training efforts on firm performance, there may be <br />benefits to workers from providing more support to firms for training and upgrading their workforce. As <br />argued by Paul Osterman in his book Employment Futures, if firms have more financial support for <br />worker training, and better information on effective training techniques, then firms have an incentive to <br />change their technologies and human resource systems. Firms which receive more support for worker <br />training may compete more on the basis of quality than on low wages, and may emphasize retaining their <br />workers and worker upgrading rather than simply hiring and laying off in the open labor market as <br />demand shifts. Such firms may provide workers with better wages, more job security, and greater upward <br />mobility. <br />Subsidies for customized training should be focused on small and medium sized businesses, and <br />on training that increases worker productivity in a variety of businesses. We know that small and medium <br />sized businesses, due to financial constraints and higher worker turnover, are least likely to currently <br />provide on-the-job training. Firms have less incentive to invest in training that will make workers more <br />generally productive, because such training may make workers more attractive to other firms. Subsidies to <br />large firms or for firm- specific training may subsidize training that the firm would have done anyway. <br />Guiding Principle 12: Programs Can Be Designed That are Effective in Providing <br />Businesses with Useful Training and Knowledge. <br />There is some evidence that programs that seek to provide businesses, particularly small and <br />medium -sized businesses, with training and advice, can be effective in improving firm performance. <br />Industrial extension services and small business development centers, which provide businesses with <br />information on modernization, training, exporting, or business planning, seem to have been fairly <br />effective at times. Several surveys have reported that a sizable proportion of the business clients of such <br />programs felt that the program had beneficial effects on their employment, productivity, costs, or sales. <br />Moreover, a recent study by Benus indicates that entrepreneurial training and start-up <br />assistance to potential entrepreneurs can significantly increase the rate at which these entrepreneurs start <br />up new businesses. Benus and his colleagues at Abt Associates studied U.S. Labor Department funded <br />programs in the states of Washington and Massachusetts that provided interested unemployment <br />insurance (UI) recipients with training and assistance in developing a business plan, and a lump -sum <br />payment of their remaining UI entitlement upon achievement of certain specified business planning goals. <br />In Massachusetts, 47 percent of the treatment group entered self - employment, compared to 29 percent of <br />those in a control group; in Washington state, 52 percent of the treatment group entered self - employment, <br />compared to 27 percent of the controls. <br />A problem with programs providing business advice and training is how to achieve sufficient <br />scale to have a large impact on the local economy. Charging fees, as has been done by Pennsylvania's <br />Paris Economic Development Corporation Page 51 <br />