To listen to most politicians, job training is a win-win proposition. We take workers who have lost their jobs. We give them new skills and productive training. With the extra training they receive, not only do they produce more goods and services for society, but they also earn higher wages. Higher wages means more tax revenues, and with the stream of increased tax revenues, society gets a return on its original investment that pays off for many years to come. "We can't afford not to help workers invest in job training." (Sound familiar?)

Let's take this case one step at a time. First, we analyze the worker's decision to invest in job training before and after the government makes available job training grants. Once again, we have to use our imaginations to represent the effects of this program. How exactly might this program work? To keep it simple, let's assume the government gives each worker a job training voucher. This voucher is essentially a check, written by the government, that can only be used for purchasing work-oriented education. In this simple example, the worker is free to choose the kind of education he or she wishes. The only effect of the government grant is that it helps to pay for whatever training workers believe would best help them.

Job training grants will surely cause more workers to choose to get trained. That is, there will be workers who would not have chosen job training before the government announced this program, but who now will choose to get trained with the help of the government grant. We want to choose numbers for our table that represent this scenario. For our representative case, let's consider the situation of Rosie Riveter, who loses her job in a small, West Virginia manufacturing plant that closed down due to technological change. We explain the situation in terms of her personal profit table.

We can think of Rosie as a firm. In fact, Rosie is a resource owner. She is CEO, Chairman of the Board, and sole stockholder of "Rosie's Labor Services." Now that Rosie has been displaced (released) from her old job, she has a hard decision to make. She could take her current skills, somewhat antiquated though they are, and take a job that pays $5 an hour. Or she could get some training that would allow her to upgrade her job skills. This would enable her to have a job that paid $6 per hour. Rosie calculates that earning a $1 an hour more would allow her to make about $10,000 more over the course of her expected working life. This increase in her earning power is represented by "Revenues-Before" in the table above.

Before continuing, let's reflect on the information contained in this increase in Rosie's wages. In particular, can you explain how this job training will produce additional happiness for society? Why should consumers care that Rosie has better training? They care because Rosie's better training will allow her to produce more goods and services that consumers want. The higher wages she receives is a reflection of the happiness consumers get from those additional goods and services. This follows directly from the fact that the price of labor, like the price of any input, tells us the additional happiness society gets from one more unit of that input. If job training causes Rosie's market wage to increase by $10,000, the additional goods and services which she produces generate approximately $10,000 more in happiness than she could have produced without that job training.

Now let's turn to the "Costs" side of the ledger. To get her job training, Rosie would have to enroll in classes offered by a local vocational-technical school. This school employs a number of resources in order to make job training classes available to students. For example, it occupies some old storefront property in a low-rent mall in which to hold classes. It employs a staff of instructors to teach the job training classes. And there are books, audio-visual supplies, secretaries, photocopiers, and other resources that this school has brought together in order to provide job training classes. In order to pay for all these resources, the vocational-technical school charges a tuition of $6,000. Further, there is another set of costs that need to be included. Rosie will have to go to school for two years during weekday evenings in order to attend classes. She will also need time on weekends to study for her classes. She calculates that the costs to her giving up this time is about $8,000. Thus, the total costs of obtaining job training for Rosie is $14,000.

Before the government grant, Rosie decides that the training is just not worth it. But after the government institutes the grant program, Rosie finds it pays for her to be retrained. Using the same analysis as before, we find that the job training program has lowered society's happiness. It has directed resources (Rosie's time, the job trainer, classroom space) that would have produced $14,000 of pleasure doing something else, to an activity (job training) that only produces $10,000 of pleasure for society. Society's happiness is decreased by $4,000.²

This is true despite the fact that everybody directly involved in the job training activity is delighted with the government grant program. Rosie is delighted because she is made better off by the program. The vocational-technical school is pleased because the program makes it possible for its students to take classes. The job training instructor is satisfied because the school now has money to pay him to teach classes. And the government program administrator is elated because workers are getting trained and earning higher wages after they leave school (Newspaper headline: "LABOR SECRETARY DECLARES PROGRAM A SUCCESS. 'IT WORKS,' HE SAYS."). What these participants are not considering in their praise of the program is the happiness that consumers are missing because resources were taken away from higher valued uses.

Now let's consider some objections to this analysis. Are we saying that job training is bad? Of course not. Job training can be great. It makes workers more productive. With greater productivity, workers can produce more--and better--goods and services that consumers want. The problem is that job training is no different from any other resource transfer. You want the economy to produce more job training? Then resources must be transferred away from something else. The corollary to the famous statement that there is no such thing as a free lunch, is that there is no such thing as free job training (or free anything else for that matter).

Suppose we had a government program to train everybody to earn their doctorate degree. Would that be a desirable policy? Some Ph.D.'s are clearly good for the economy. But everybody having a Ph.D.? ("Hey, Honey, I'm going to the doctor's." "Don't be smart with me, Frank. Are you going to the doctor who pumps gas down at the corner service station or are you going next door to see that cute little, redheaded Ph.D. again?") Having everybody earn their doctorate would be an incredible waste of society's resources. But then, how many Ph.D.'s is the right amount? Now that's a tough question. It requires a lot of information about the value of that education and the value of the resources needed to educate those workers. That is precisely the kind of information that markets produce. Self-interested individuals will make the right choices for society so long as the information contained in their personal profit tables isn't distorted by excessive subsidies and taxes.

How about the objection that job training is an investment for society, since higher wages mean more tax revenues later on? DANGER...DANGER...ECONOMIC FALLACY IN THE MAKING. Can you catch it? The economic fallacy once again arises because we've taken our eyes off the ball. The purpose of the economy is not to maximize the amount of tax revenues we can collect from consumers (we just wish someone would tell our politicians that!). Income taxes represent WEALTH TRANSFERS from taxpayers to the recipients of government-supplied goods and services. Every dollar transferred from Rosie's future paycheck is one dollar more of goods and services for someone else, and one dollar less for her. From the perspective of society's happiness, they cancel out.³ Thus, taxes certainly shouldn't be counted as a source of social gain, and a justification for job training.⁴