In the Nation's Interest
Is More Choice Always Better?
by June 07, 2016
In economics, it is generally assumed that humans are perfectly rational actors – when presented with perfect information about an array of options, humans will make the logical decision, based on their personal preferences and objectives.
This is also what the Workforce Investment Act (WIA) assumed in the development of its training delivery system. The WIA introduced a more market-driven delivery system through the creation of Individual Training Accounts (ITAs). Reauthorized under the Workforce Innovation and Opportunity Act (WIOA), the ITAs empower adult customers to determine the training that is best for them and “purchase” it with a voucher. At their local one-stop employment and training center, job seekers can learn about eligible training providers through “consumer reports” that discuss features like performance results, cost and duration. Performance measures provided in the reports include rates of entry into unsubsidized employment, job retention, post-placement earnings, and acquired education and skill standards. Ideally, the consumer choice and transparency in provider performance should improve provider quality, improve labor market outcomes from training, reduce costs, and increase net benefits to society from training over time. The WIA placed particular emphasis on the customer’s ability to choose his or her own training program, even specifying that local workforce investment boards have a duty to ensure that consumer choice is properly maintained in the one-stop employment and training centers.
The problem is that humans are not always rational decision makers. For instance, let’s pretend that a couple needs to purchase a new car. They have a third baby on the way, so they decide it’s time to purchase a minivan that has plenty of space for all three children and a stroller. They start to research their options online, considering factors like safety ratings, price, and fuel mileage. They soon feel overwhelmed by the thousands of options before them, with the multitude of car-purchasing websites. In the end, they choose a minivan where the dealership was offering a $100 gift card to Morton’s Steakhouse (their favorite restaurant) with any car purchase, even though that minivan fell short on their desired standards for safety and fuel mileage. This is a classic example of how decisions are not always based on logic and how humans quite often make less than optimal choices.
So how has the WIA’s emphasis on customer choice panned out for individuals in need of training? Let’s take a look at a recent study to give us some insight. At the onset of the WIA, the Department of Labor commissioned Mathematica Policy Research to perform a long-term gold-standard experimental evaluation of three different ITA models: maximum choice, guided choice, and structured choice. In the experiment, about 8,000 job seekers who were eligible for training were randomly assigned to one of the three ITA models. The study followed the job seekers and tracked their outcomes six to eight years after they were initially offered training.
Each model differed in three factors: 1) ITA award structure; 2) required counseling; and 3) counselor discretion to reject the customer’s program choice. The maximum choice model had a modest, fixed value award cap of $3,500 and minimal influence by counselors – counseling was voluntary and counselors were not allowed to reject a customer’s program choice. The guided choice model also had a modest, fixed value award cap of $3,500 but customers were required to participate in counseling to help guide their training choices. However, counselors were not allowed to reject a customer’s program choice under this model. The structured choice model offered a larger ITA award, which could be customized according to job seekers’ needs. The average ITA award under this model was $4,625. The structured choice model also required that customers participate in counseling to help guide their training decisions, and furthermore allowed counselors to reject customers’ training choices.
The experimental study found that outcomes were highly positive, regardless of the participants’ model assignment. For all groups, about 61 percent of participants completed a training program and about 56 percent of participants earned a certificate or degree from a training program. The employment rate for study participants grew steadily over time, and stabilized at about 80 percent a year and a half after intake, compared to about 30 percent prior to program participation. Customers also experienced steady growth in earnings over the course of the study, with quarterly earnings starting at about $1,200 and stabilizing at about $7,200 three years after intake.
Overall, the three Individual Training Account models yielded positive results in terms of employment and earnings, establishing the ITA as an effective way to deliver employment and training services. However, the evaluation also found that one of the three models, the structured choice model, which had a more generous ITA award cap and more intensive counseling requirements, yielded far more net benefits to society in the long run. According to the study’s impact analysis:
1. Structured choice customers were significantly more likely to be employed in the occupation for which they were trained (32 percent) than guided choice customers (27 percent) and maximum choice customers (29 percent) in the last two years of follow-up;
2. Structured choice customers spent more time employed in high-wage jobs than guided choice or maximum choice customers (24 percent versus 20 percent);
3. Although there were no differences in how much customers worked, the higher wages of structured choice customers translated into higher earnings. Structured choice model participants earned about $500 more per quarter, compared to jobseekers assigned to the other two models.
The study also examined the relative benefits and costs of the three ITA models, and found that:
1. Switching from the guided choice model to the structured choice model could generate $46,600 per person in net social benefits, derived from the significant long-term outcomes earnings gains from this model;
2. Switching every jobseeker to the structured choice model could save the government $5,000 per ITA recipient, derived from the increased tax payments, which more than offset the costs of the higher ITA awards.
So, is more choice always better? Not when it comes to individual training accounts. Bottom Line: More counselor guidance and influence on decision making, along with larger ITA awards, yields more positive earnings outcomes and greater net benefits for society than smaller ITA awards that allow more customer choice. Unless special circumstances deem this model inappropriate, the DOL should push for one-stop centers to implement the structured choice model for ITAs.