Recent research: Who benefits from state workforce development grants?

States have spent millions annually on training grants aimed at upskilling workers and strengthening their business climate. But who has benefited from these investments?  

A new NBER working paper, "Do Workforce Development Programs Bridge the Skills Gap," provides a broad-based evaluation of these programs, examining 18 states with detailed firm-level data from 2010-2019. By linking grant recipients to employment records and online job postings, the researchers tracked both who received these training grants and how their hiring behaviors changed as a result.  

Although many state programs describe priorities like serving small or new businesses, targeted industries, or underdeveloped regions, the study finds that these grants concentrate among larger, established firms operating in competitive labor markets. Recipients tended to be manufacturing firms with an average of 225 workers, in operation for at least three years, and actively recruiting new workers. This pattern of favoring established firms likely reflects the administrative burden of grant management and the matching fund requirements (typically 50% of training costs) that could deter smaller firms from applying. 

The study finds that firms used the funds primarily to train in two types of skills: professional skills and production skills. Firms that trained professional workers (the majority of recipients) subsequently lowered skill requirements in future job postings, no longer requiring college degrees or extensive experience, for example. The researchers suggest firms used this type of training to acquire critical management or operational capabilities that had been constraining growth. Once these bottlenecks were resolved, the researchers found that employment grew for these firms over the next five years, primarily through more accessible positions while maintaining or improving wages.   

Firms training production workers showed different patterns. Employment grew but without parallel increases in job postings, suggesting improved retention rather than new hiring. These firms emphasized efficiency, lean manufacturing, and technology skills in their training plans, with many specifically mentioning adaptation to new equipment and automation tools. Cognitive and computer skill requirements in job postings remained consistent pre- and post-training.  

While the paper demonstrates the effectiveness of these training programs in growing employment and resolving skill gaps, the results also reveal a disconnect between stated policy goals and actual outcomes. Many state programs emphasize support for small businesses or emerging industries, but application requirements, matching funds, and reporting obligations create barriers that smaller firms may be unwilling or unable to navigate despite the potential opportunities these programs represent.