Five years into his administration — five years into an economy with historically high unemployment rates and a frightening portion of Americans simply giving up on the idea of work — President Obama has finally declared plans to overhaul federal job training. That’s a tall order for Vice President Biden, tapped to lead the effort.
Washington’s job training is an expensive, bureaucratic, ineffective mess. Start with the more than $18 billion spent on 47 training programs across nine agencies. Job Corps alone spends as much as $76,000 per person, often to place young people in minimum-wage jobs, according to a 2012 report by Oklahoma Sen. Tom Coburn. On top of that, the nonpartisan America Forward calculates that when all workforce-development programs are included, the price tag to taxpayers is closer to $60 billion a year. Just imagine all the political interests in congressional districts with long-term addictions to those federal contract dollars. Change won’t come easily.
The picture is even worse when you consider that the core job-training law dates to 1998. “We haven’t revamped the Workforce Investment Act [tasked with coordinating these programs] since the year Google was incorporated and hired its first employee,” says Shirley Sagawa, America Forward’s senior policy adviser.
But in the 16 years that lawmakers of both parties have mostly wasted billions in taxpayer dollars, the private sector has seeded models that actually work. CEOs at Fortune 500 companies such as J.P. Morgan and American Express single out the Boston-based Year Up, founded by IT entrepreneur Gerald Chertavian and now in 10 major cities. Contrast the privately supported Year Up and the federally funded Job Corps, and you can see why solutions rarely come from Washington.
Both programs serve young people. But Year Up entrants — ages 18 to 24 — are required to first obtain a high school diploma or GED. They then go through a six-month work boot camp, designed to teach job skills and also socialize them to a professional work environment. Their weekly stipend is docked if they show up late or fail to turn in homework. Too many infractions and they’re out. Job Corps, by contrast, advertises all the fun in its program — sewing clubs, weekly outings to the movies, and sports teams — “a fun and exciting way to meet new friends, socialize, and just relax and unwind at the end of the day,” boasted a Tulsa brochure.
Year Up has a clear mission of training graduates for jobs that not only pay decently (average: $15 an hour, or $30,000 a year, to start) but also exist in large supply — that is, financial operations and IT support. Job Corps often places graduates in jobs for which they weren’t even trained. “Culinary students at Job Corps have been placed as pest-control workers, funeral attendants, baggage porters, concierges, tour guides, and telemarketers, among other things,” notes the Coburn report.
In contrast to the fuzzy accountability of federal job training, Year Up clearly lists results: 100% of its students placed in internships and 85% employed or attending college full-time within four months of completing the program. Companies, meanwhile, are attracted to the program’s money-back guarantee.
But success stories like Year Up, which has graduated 8,000 people, are just grains in the desert sands of the 10.2 million-plus unemployed Americans. Which brings us back to Washington and the billions already being spent. The House has begun to incorporate “pay for success” standards — that is, the spigot doesn’t stay on just because a program follows the rules; it has to demonstrate results. And in the Senate, Republican Sen. Rob Portman of Ohio and Democratic Sen. Michael Bennet of Colorado have introduced the CAREER Act, creating pay-for-success pilot programs — and requiring existing programs to train for jobs that are actually in demand by industry.
We’re not going to solve the federal job-training mess overnight. But the Portman-Bennet bill is a good start, and a rare instance of both parties coming together to move this ever-fragile economy forward.
This story is from the March 17, 2014 issue of Fortune.
