Underinvestment in employer training: A mandate to spend?

U.S. employers and their workers underinvest in employer training. Underinvestment occurs because training generates externalities, because the tax system is biased against training investments, because turnover is high, and because most workers lack access to loans and are unable to finance general training. School‐based occupational training ameliorates the underinvestment problem somewhat, but it is not a complete answer to the problem. During the election campaign, President Clinton proposed to stimulate training by requiring employers to spend some minimum percentage of their wage bill on training or else to pay a special tax. France has had such a mandate since 1972, so the design of a U.S. training mandate is likely to benefit from a careful examination of the French program. The French have demonstrated that a training mandate is administratively and politically feasible, but their mandate is not optimally designed for U.S. implementation. The article concludes with some recommendations about structuring a U.S. mandate to spend on training.