An analysis of the cost-effectiveness of selected government- supported training programs

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Virginia Polytechnic Institute and State University


In certain situations, information costs and training related externalities may lead to under investment in human capital, i.e., a non-Pareto equilibrium in which marginal social return to human capital investment exceeds its marginal social cost. When this situation occurs, it may be economically sound to have the public sector make selected human capital investments.

The purpose of this thesis is to assess the comparative cost-effectiveness of two general types of publicly funded training programs: those with explicit training and employment agreements between firm representatives and training officials as characterized by State Customized Training (SCT) and those with no such agreements as characterized by the Comprehensive Employment and Training Act (CETA) programs.

The methodology was to conduct a cost-benefit analysis of the benefits to the programs' graduates and the costs to the public over various working-life scenarios and discount rates. The benefit-cost ratios were higher for SCT for every scenario tested. The conclusion reached was to the extent that SCT and CETA are representative of agreement/non-agreement types of training programs, training programs with training and employment agreements are more cost-effective than those programs without such agreements.