M-RCBG Associate Working Paper No. 125

Barriers to Outcomes-Oriented Contracting in Workforce Development

Jeff Lambart
Megan White



There is a growing gap between the supply of and demand for skilled labor in the United States. Potential workers are challenged to find employment for which they are qualified, and firms are challenged to find workers with the skills necessary to fill their job openings. Indeed, some estimates conclude the skills gap could cost the U.S. economy up to $160 billion annually in terms of unfilled jobs, reduced productivity, and reduced earnings.1 Addressing this skills gap requires an outcomes-oriented workforce development system that equips American workers with the skills necessary to succeed in high-demand industries. Workforce development, whether in the form of on-the-job training or formal education and training programs, is essential for increasing economic mobility and enabling U.S. firms to remain globally competitive.

The current workforce development system in the United States, however, is not prepared to meet this challenge. The system is dramatically underfunded relative to international peers, and, on the whole, does not generate the types of gains in human capital that translate to stable career pathways and meaningful earnings gains. To maximize the public value created by the dollars that are invested in workforce development, the United States must develop an accurate picture of where the system is performing well, and where it is not. Embedding robust performance management standards and processes in the workforce development system enables a data-driven understanding of how program structure and delivery may be improved to achieve better outcomes for job-seekers and employers.

Third Sector is uniquely positioned to help state and local governments transition to a workforce system that is more oriented around meaningful outcomes. Such a system focuses on medium to long-term outcomes such as measurable skills gains, earnings gains, and stable employment, and uses data and evidence to drive continuous improvement processes. This report assesses why workforce development is such a uniquely difficult policy problem, identifies the major barriers that are standing in the way of state workforce development systems being more outcomes oriented, and offers examples of how these challenges might be overcome.

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