We have probably had too good an opinion of human nature in forming our confederation. Experience has taught us, that men will not adopt & carry into execution, measures the best calculated for their own good without the intervention of a coercive power.

—George Washington to John Jay, August 15, 17861

Executive Summary

Experience teaches us that the resolution of contested public policies is often delayed by public officials until events force them to act. The swirl of political winds sometimes challenges long-standing policy no matter how useful or wise. Both of these axioms of public administration are revealed in the federal tug-of-war over merit staffing policy—the requirement to directly hire public servants based on their skills and qualifications—during the past thirty-year stretch of state-operated employment service (ES) and unemployment insurance (UI) programs. This report analyzes the purpose and evolution of federal–state merit staffing policy; chronicles federal decision-making, enforcement, equivocation, and turnabouts; and examines contested state actions relative to workforce development objectives. It explores government merit staffing policy in ES and UI programs from its origins in the Roosevelt administration through the Biden administration’s restoration of mandatory merit staffing, and makes observations about the future of merit staffing policy.

In this crucial political moment, this report provides policymakers with a comprehensive review of state ES and UI merit staffing policy. The idea that complex and inherently governmental decisions should be made by impartial career government employees has been critical to the success of both programs. At a time when the potential return to the White House of a past administration that—for a brief period mostly during the COVID-19 pandemic—allowed states to use non-merit staffing arrangements to delivery ES and UI services, and a Heritage Foundation presidential transition report, known as Project 2025, calls for additional roll backs in federal civil service protections,2 the in-depth analysis presented in this report examines why the various challenges to merit staffing in state ES and UI programs in recent decades occurred, persisted, did not succeed, or were overturned. The authors’ goal is to produce the first extended policy review of merit staffing in ES and UI programs in order to demystify federal policy changes. Their interest is to place this account in the public square so as to advance policy discourse.

Merit staffing ensures that when tax dollars for unemployment benefits are disbursed it is done so with impartiality and under public scrutiny. When referrals to job openings are made, merit staffing guarantees that they are performed without favoritism. Meritocracy prevents political cronies and profiteers from acting under government auspices. It shields the evenhanded delivery of public services and checks the abuse of power. The diluting of merit staffing may provide added flexibility to state governors in the administration of ES and UI programs, but also weakens the credibility of public administration. Flexibility should not be a euphemism for dismantling government protections. To assist federal policymakers, the authors believe that a rigorous evaluation should be undertaken by the U.S. Department of Labor that examines past and present state ES and UI staffing arrangements.

The authors argue that tensions persist in administering state workforce development policy and in the politics of merit staffing. Federal lawmakers should address these policy tensions, including extending the statutory merit protections in state UI programs to state ES programs. Moreover, without enhanced and reliable federal funding, state governors may be under increased pressure to abandon merit staffing and use private service providers. The authors assert that merit staffing is a federal intervention to safeguard public confidence in state-administered ES and UI programs. As a condition for receipt of federal ES and UI grants-in-aid to states, the authors conclude merit staffing has averted patronage, favoritism, and partiality, which in turn fortifies the legitimacy of state government service delivery.

Introduction

The tradition of merit staffing as a guiding principle in state government—in particular in employment service (ES) and unemployment insurance (UI) programs—is the result of nearly a century of policymaking and practice that led to the creation of today’s government workforce. The Wagner–Peyser (W–P) Act of 1933 established the ES program to improve the operation of the nation’s labor market by bringing together jobseekers and employers seeking workers through a national network of public employment offices.3 The Social Security Act (SSA) of 1935 established the UI program to provide temporary financial assistance to eligible unemployed workers. Both ES and UI programs are funded through federal grants-in-aid and administered by states. They are distinct parts of the United States public workforce system, which includes other public job training and career development programs. State ES programs provide a free public labor exchange to workers seeking first jobs, better jobs, and new jobs, and employers seeking qualified workers. State UI programs provide partial income replacement for lost wages to qualified workers who are involuntarily unemployed through no fault of their own.

Merit staffing principles are the foundation stones of good government policy. As James Madison explained in Federalist 51:

If Men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and the next place, oblige it to control itself.4

Thus, merit staffing is a Madisonian means of control by the government to control itself.

An original objective of federal ES and UI grants-in-aid to states was the formation of merit personnel systems to staff the operations of state ES and UI programs. The idea that complex and inherently governmental decisions should be made by impartial career employees has been critical to the success of both programs. Beginning with Grant Year 1934–35, states enacted companion ES laws to affiliate with the U.S. Department of Labor’s (DOL’s) newly established U.S. Employment Service (USES), designated to oversee a national system of public employment offices, and they were required to set up merit systems; similarly, as states enacted companion UI laws, they were strongly encouraged to utilize merit systems. The merger of ES and UI delivery through public employment offices fortified usage of merit-based staffing until 1939, when a specific UI merit staffing requirement was added to the SSA.5 Merit staffing of state ES programs6 was required as a condition for grants-in-aid through annual agreements, appropriation laws, Office of Personnel Management (OPM) regulations,7 and W–P Act rules and guidance.

Requiring the staffing of state-run ES and UI programs through merit personnel systems ensures fair, impartial, and accountable service delivery to job seekers, UI claimants, and employers.

Beginning in the late twentieth century, many decisions about state administration of ES and UI programs were driven by inadequate federal resources that impacted policy, operations, and performance expectations. In January 2020, the Trump administration relaxed mandatory merit staffing rules for state ES programs; three years later, under the Biden administration, the mandatory requirement was reinstated.8 As well, under a temporary provision (§ 2106) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, the merit-staffing requirement was waived for state UI programs during the 2020–21 COVID-19 pandemic. As we see it, requiring the staffing of state-run ES and UI programs through merit personnel systems ensures fair, impartial, and accountable service delivery to job seekers, UI claimants, and employers by state workforce agencies (SWAs),9 without compromising performance or efficiency.10 The political and policy tensions in merit-based delivery of services since the 1990s through Democratic and Republican administrations are a core focus of this report.

Federal Grantmaking and Merit Staffing

Under the U.S. Constitution, federalism is a system of government in which ruling power is shared between national and state governments. Until the twentieth century, the framework for governing, known as Dual Federalism, was one in which both national and state levels of government retained distinctive spheres of authority and responsibility. In the 1930s, an era of Cooperative Federalism emerged, in which the federal government worked directly with states on domestic policy matters formerly off-limits to it.

The Great Depression of the 1930s and its ensuing joblessness overwhelmed the relief capacity of states. Recovery required national solutions. The Roosevelt administration undertook a three-part economic strategy of relief, recovery, and reform to address the short- and long-term consequences of the global depression and its aftermath. The resulting policies and programs associated with the national emergency became known as the New Deal. Out of economic necessity, the Roosevelt administration accelerated the use of domestic grants-in-aid,11 including through federal-state partnerships to deliver employment services and unemployment benefits. The federal partner would provide grants-in-aid to states under broad guidance, and the states would deliver services.12

An objective of the New Dealers was to institutionalize nationwide mechanisms to rein in joblessness and financial insecurity. City political machines of the era typically engaged in spoils systems in their hiring practices. Abuses by politicians and private employment agencies contributed to the enactment of the W–P Act. Its purpose was then—and continues today—to establish a national system of public employment offices void of corruption. The legislative history of the W–P Act reveals that Congress did not address merit staffing in states; however, chief sponsor Senator Rober Wagner, writing to the secretary of labor on February 6, 1931, stated, “Without civil service, the conduct and control of the employment offices would rapidly fall into the hands of political appointees and without question result in a discredited employment service.”13 The New Deal DOL policymakers deemed meritocracy essential in appointing public employees in all states.

Under the W–P Act, states were required to meet five conditions to be affiliated with the DOL and receive grants-in-aid.14 A key condition was to use merit personnel systems to staff ES agencies.15 Speaking to an international assembly of government labor officials in September 1934, W. Frank Persons, the director of the USES, reported that the DOL decided that appointments and promotions of state staff must be of high caliber and politically impartial. Services administered by states should be delivered without favoritism. Therefore, a merit personnel system where individuals are rated objectively on education, experience, competence, and personality was the most trustworthy means to avoid patronage and partiality.16 As states adopted companion laws to conform with the federal W–P Act, the DOL withheld certification of nine states until they provided assurances that professionalism would prevail and patronage would be banned from state-administered public employment offices.17

To encourage efficient administration of state UI programs, the President’s Committee on Economic Security recommended:

Among these conditions we deem selection of personnel on a merit basis vital to success. We also recommend that as a condition, both of grants-in-aid for administration and of the allowance of any tax credits for payments made under any State unemployment compensation act, the State must have accepted the provisions of the Wagner–Peyser Act and provide for the payment of unemployment compensation through the public employment offices established under such act.18

With the enactment of the SSA, a three-person Social Security Board was set up to oversee the implementation of Social Security programs, including state UI programs. The board quickly ratified both CES recommendations; however, its merit staffing policy was not specified in federal law. Administration of UI by states was then and is today supported through federal grants-in-aid.19 Using the identical federal-state structure set up for the ES program, states operate UI programs under broad federal guidelines. For ES and UI programs, federal grants-in-aid subsidize state administration and require national standards. At the time, only nine states administered civil service systems.20 The founders of the ES and UI programs believed that partisanship, nepotism, profit motivation, and social status had no place in public administration.

The founders of the ES and UI programs believed that partisanship, nepotism, profit motivation, and social status had no place in public administration.

What Is Merit Staffing?

Enumerated merit staffing standards have never been included in either the W–P Act or SSA. The Intergovernmental Personnel Act (IPA) of 1970 authorized the Office of Personnel Management (OPM) to establish personnel standards consistent with merit principles for administering certain federal programs, including state ES and UI programs funded by the W–P Act and the SSA. The merit system standards contained in the OPM regulations21 are:

(a) Recruiting, selecting, and advancing employees on the basis of their relative ability, knowledge, and skills, including open consideration of qualified applicants for initial appointment.
(b) Providing equitable and adequate compensation.
(c) Training employees, as needed, to assure high quality performance.
(d) Retaining employees on the basis of the adequacy of their performance, correcting inadequate performance, and separating employees whose inadequate performance cannot be corrected.
(e) Assuring fair treatment of applicants and employees in all aspects of personnel administration without regard to political affiliation, race, color, national origin, sex, religious creed, age or handicap and with proper regard for their privacy and constitutional rights as citizens. This “fair treatment” principle includes compliance with the Federal equal employment opportunity and nondiscrimination laws.
(f) Assuring that employees are protected against coercion for partisan political purposes and are prohibited from using their official authority for the purpose of interfering with or affecting the result of an election or a nomination for office.

Generally, merit staff are government employees hired and promoted in career positions based upon their qualifications. They develop increased expertise, providing continuity of service delivery, and they are not subject to political turnover. Non-merit staff are employees hired for positions exempt from a merit system and serve at the pleasure of the appointing agency. They usually have no or limited fringe benefits, and employment can be temporary.

Workforce Federalism

Merit staffing is linked to the intentional differences established by Congress in the apportionment of authority for the ES, UI, and job training programs to serve jobseekers, UI claimants, and employers. This distribution of control in the American federal system between the national authority and subnational authorities in administering workforce development programs is referred to as workforce federalism.22 Essentially, it is how power for workforce development policy and service delivery is shared between levels of government. Governors are charged with the statewide administration of ES and UI programs through their SWAs. Services are delivered by merit-based career professionals of state governments (with an exemption described later in this report). The New Dealers believed it was essential that there should be state-centered management.23

As a change of course, federal job training programs adopted since the 1970s typically are structured as federal–local partnerships. Under various time-limited federal statutes,24 the administration of job training mainly has been decentralized to local areas. Job training services are operated by private and public entities. In recent decades, the politics of merit staffing have intersected with issues of workforce federalism. As this report will reveal, while Democratic administrations typically put in place and upheld merit protections, in the 1990s, the Clinton administration launched a test of non-merit ES service delivery. This test and later Republican administration relaxations of merit protections in ES and UI programs were mostly triggered by financing concerns and workload demands. Nonetheless, all ES, UI, public job training and career development programs are delivered through a state network of remote and physical offices, today called American Job Centers (AJCs), and UI call centers.

Growth of State Merit Systems

After the formation of the USES, an early task of policymakers was in setting up merit personnel systems in SWAs.25 Due in part to statutory prohibition, the U.S. Civil Service Commission turned down the USES request to create and conduct state merit examinations. Policymakers relied on USES staff26 to initiate procedures and—in states without civil service agencies and for other states who requested—administer merit examinations. Merit personnel systems were novel to many state politicians, and acceptance was incremental state-to-state. During 1934–35, the initial year of ES grants-in-aid, three alternatives were provided to states, each with an eye toward adherence to merit principles. The first merit examination administered by USES was conducted in May 1934 in the District of Columbia. In July 1934, merit examinations were conducted in Iowa, becoming the first state to implement ES merit staffing. The standard grant agreement for 1935-1936 required a merit system, and by the end of 1937, the USES held merit examinations for ES managers and interviewers in thirty-seven states and merit systems were instituted in all but two states.27

Early drafters of the original Social Security bill had urged the inclusion of a state merit system requirement, but key members of Congress who favored political patronage prevented its adoption. While the federal USES required and administered state merit examinations, the Social Security Board could not compel states adopting UI laws to use merit staffing—but it did prod its use with varied success.28 By the first half of 1938, nearly half the states paid unemployment benefits.29 The reemployment objectives of ES and UI programs became entwined. The board’s decisions to require UI claimants to register for work with state ES offices and administer benefits through those offices enhanced, at times, the mutual use of merit selection roasters and cross-training of staff. For example, some clerical staff of the ES program were also drawn from state merit systems serving the UI program. Some states requested that they administer merit protections for ES and UI staff. By mid-1938, USES extended to state ES staff the merit systems created by state UI components.30 Still, the execution and mix of merit staffing in ES and UI programs differed among states until the enactments of two federal laws in 1939, the Social Security Act Amendments and the Reorganization Act.

The Roosevelt administration and the vast majority of state UI, ES, and public assistance directors supported adding merit staffing to the SSA. Roosevelt, in his message to Congress in January 1939, lamented, “However, in some States incompetent and politically dominated personnel has been distinctly harmful. Therefore, I recommend that the States be required, as a condition for the receipt of Federal funds, to establish and maintain a merit system for the selection of personnel.”31 Also, state administrators realized high moral fiber and technical savvy were necessary for staff.32 Congress agreed, and amended the SSA to require “such methods of administration (including after January 1, 1940, methods relating to the establishment and maintenance of personnel standards on a merit basis…).”33

Under the Reorganization Act of 1939, a new Federal Security Agency was established, and within it, a Bureau of Employment Security was formed by transferring the USES out of DOL and merging it with the Social Security Board’s Bureau of Unemployment Compensation. The direct administration by the USES of state ES merit staff positions was fused with the Social Security Board’s state technical advisory service. The board decided to terminate the practice of USES holding examinations of state ES positions and combined it with state-administered merit systems serving UI agencies. Standards for Merit System of Personnel Administration were promulgated on November 1, 1939, for SWAs, requiring that merit systems include staffing for both ES and UI components.34

As the fledgling relationships of state ES-UI programs grew, merit staffing was the strongest means to meet the federal objective of professional staffing of states. Upgrading the quality of state government required merit personnel reforms to meet the competency requirements of managerial and technical staff required to deliver unbiased ES and UI programs. Maintaining institutional knowledge then and now is important because state ES and UI jobs are complicated and require years of training.

Through state merit systems, the uniformed and unrepresented jobseeker or UI claimant—Roosevelt’s “forgotten man”—would not succumb to charlatan recruiters or unscrupulous political operatives.

Likewise, merit systems protect ES and UI staff after a change of political party in state government. They instill civic virtue over self-interest in the administration of AJCs. Through state merit systems, the uniformed and unrepresented jobseeker or UI claimant—Roosevelt’s “forgotten man”—would not succumb to charlatan recruiters or unscrupulous political operatives. State employees would not be subject to patronage, adverse pressure, forced to look the other way, or trim services to advance profit margins. A merit system also barred so-called “at-will employment,” where employees may be discharged for any reason. The Roosevelt administration’s use of ES and UI grants-in-aid to promote merit staffing before and after 1939 stirred the dispersion in states of wider merit reforms. In fact, “almost 68 percent (twenty-four) of the remaining thirty-seven states established merit systems between 1936 and 1939.”35

Merit Staffing 1940s–1980s

Through five decades, merit staffing of state ES and UI staff was widely accepted, ensuring stability and service elasticity within and across states. As a result of merit protections nationwide, SWA staff earned the trust of jobseekers, UI claimants, and employers by making unbiased determinations of services. State workforce agency staff were protected from untoward influence and shielded from corruption, and ES and UI services were universally available in crowded urban and hard-to-serve rural areas.

In the summer of 1948, the General Conference of the International Labor Organizations (ILO), a United Nations organization, examined the best practices of public employment services worldwide. The conference was convened in San Francisco to establish international standards for employment services. In July, the ILO adopted the Employment Service Convention, 1948 (No. 88), which in Article 9, paragraph 1 reads: “The staff of the employment service shall be composed of public officials whose status and conditions of service are such that they are independent of changes of government and of improper external influences and, subject to the needs of the service, are assured of stability of employment.”36 The United States is not a signatory to this active ILO convention. Still, American-style merit staffing protections for ES and UI programs are widely accepted worldwide.

During this period, Congress consistently endorsed the DOL’s position to require merit staffing under the W–P Act and the SSA. When Congress transferred authority for the W–P Act from the Social Security Board back to DOL after 1945, it included the merit staffing requirement in its annual appropriations. In 1964, DOL promulgated rules that required merit staffing under the W–P Act, enabling Congress to drop the requirement from later appropriation bills. With the enactment of the IPA in 1970, duties of the secretary of labor related to personnel standards on a merit basis were transferred to OPM. The W–P Act and Title III of SSA were among the statutes transferred to OPM authority. In so doing, Congress ratified DOL’s construal of the W–P Act to require merit staffing for state ES grantees.37

Service Delivery during the Remainder of the Twentieth Century

In the latter decades of the century, two federal-government-wide task forces were convened to review methods that would improve management and reduce government costs: in the Reagan administration, the president’s Private Sector Survey on Cost Control, known as the Grace Commission, and in the Clinton administration, the vice president’s National Partnership for Reinventing Government Initiative. Both sought to introduce efficiency reforms in the public sector, with some success, using private-sector techniques and outsourcing certain government services to private entities. However, as Richard Nathan points out in The Administrative Presidency, the differences in public and private sectors must be considered in implementing an administrative approach, where values at stake in government are often much broader than managerial efficiencies or profits and losses.38

Values at stake in government are often much broader than managerial efficiencies or profits and losses.

Other observers of public and private functions39 believe that public and private management are similar in every inconsequential task, but that “public administration is unique in the public nature of its functions and in the degree of public scrutiny to which it is exposed.”40 It follows that ES and UI government services require transparency, and they must be delivered in plain view for accountability, equity, and impartiality.

The DOL subcabinet agency responsible for ES, UI, and training programs is the Employment and Training Administration (ETA). Leadership within ETA in the 1990s was dominated—as it is today—by exponents of local-based job training systems.41 Efforts were underway in the mid-1990s to revamp the Job Training Partnership Act and codify an initiative launched by Secretary Robert Reich in 1994 called the One-Stop delivery system.42 At the time, key ETA political leaders sought to improve state outcomes by introducing market competition in the delivery of state ES services. This aligned with the goals of others in ETA seeking to downgrade the USES as an autonomous agency along with the primacy of the state ES agencies. They favored decentralized control by local boards for managing ES and job training programs and funds, while states would play a critical role in planning, guidance, oversight, and technical assistance to local areas.

Government services require transparency, and they must be delivered in plain view for accountability, equity, and impartiality.

With a joint revenue stream under the Federal Unemployment Tax Act (FUTA), ES and UI are companion programs charged by federal statutes to provide statewide services. President Clinton, a former governor of Arkansas, understood the politics of central versus local control of state workforce programs. Writing to the labor committees of Congress on May 20, 1996, Clinton declared his views on workforce federalism. He endorsed local control of job training; federal job training funds allocated to local communities; approval of local job training plans by state governors; local board management of One-Stop centers; and retention by state governors of the ES programs (and by inference, the ES-UI partnerships). Clinton stated “The Wagner–Peyser Act, which establishes the public employment services, must remain the fundamental legislative charter for our nation’s public labor exchange services, ensuring the prudent use of employer-paid federal unemployment taxes.”43 Congressional actions to pass a new federal job training (“workforce development”) law were later suspended (discussed below) when DOL challenged Michigan’s reorganization plan to privatize the delivery of ES services through local workforce boards.

Reinventing Government

The Clinton administration promoted market competition in delivering certain workforce development services.44 Based upon a DOL grant solicitation to modernize state workforce systems, Massachusetts was among the first states in October 1994 to receive One-Stop implementation grants over a three-year period. The Massachusetts One-Stop grant was unique because it authorized all local workforce boards to contract out to deliver public ES and job training services.45 In early 1996, Texas asked DOL for approval to replicate the Massachusetts competitive model and decentralize the administration of ES services. Secretary Reich determined that Texas could not proceed until a federal policy review was completed, thereby deferring the issue. The next year, Colorado was allowed to decentralize the delivery of state ES services to county governments using merit staffing systems, and two years later, the DOL restated its view that merit protections must be afforded to county ES staff.

During 1997–98, Michigan attempted to revamp the delivery of ES services under a reorganization of the SWA, which included privatizing the delivery of W–P Act-funded ES services. The DOL objected and decertified the state’s ES program and withheld portions of its W–P Act grants-in-aid. Federal decision-making is never straightforward, and the Michigan clash raised policy questions within DOL and in other states. The dispute revealed viewpoints about federalism, distribution of authority, accountability for grants-in-aid programs, merit staffing, and workforce development policy. These points of view remain today as tensions in workforce federalism. Therefore, the next section fully examines federal decision-making in the Michigan dispute, teasing out persisting thorny issues.

The Michigan ES Dispute: To Privatize or Not to Privatize

Through an executive order in August 1997, Governor John Engler reorganized Michigan’s Employment Security Agency, effective February 1998. The order redesignated the Michigan agency as the Michigan Jobs Commission and devolved management of W–P Act-funded ES services to local workforce boards that oversaw federally funded training programs. Local boards were required to deliver employment services through competitive contracts to public or private agencies, and most job seekers and UI claimants were directed to use computer-assisted self-help services. According to the Michigan agency, the state plan would increase customer service and achieve cost efficiencies through competitive delivery. Michigan was advised by DOL that prior approval of a modification of the state’s ES plan of service was required before implementation.

The Clinton administration’s mixed messaging and conflicting workforce development policies were self-evident. The DOL policymaking seemed makeshift and transactional. Michigan’s reorganization elevated substantive policy matters with implications for Clinton’s declaration of workforce federalism. How did the administration’s ardor for privatizing the delivery of some public services square with maintaining a national system of public employment system?46 Does the federal government have a right to set and enforce standards in distributing grants-in-aid to states? Would raising a federal issue with Michigan derail the administration’s effort to enshrine into law the One-Stop initiative and decentralize local management of workforce development programs? Extempore policy-making had reached a crossroads. Alexis Herman, the new secretary of labor, was charged with resetting DOL’s policy polestar.47

Michigan submitted its ES plan of service modification in December 1997. The DOL advised the state not to proceed without federal approval, or risk sanctions. Such sanctions included decertification by withholding of W–P Act funds. In the view of federal policymakers, four substantial ES plan deficiencies were raised:48

  • Noncompliance with regulatory procedures: The reorganization was executed notwithstanding repeated warnings from DOL that an approved modification of the W–P Act plan of service was required.
  • Service delivery methods: Michigan restricted staff-assisted counseling, job search assistance and job referrals to veterans, disabled job seekers, and migrant and seasonal farmworkers. All job seekers and UI claimants could use self-services through a computer-assisted job bank with job-help software. The DOL asserted that such a top-heavy self-service strategy undercut the national purpose of the W–P Act to provide ES services that include both staff-assisted services and on-line self-services.
  • Administration of the work-test: The W–P Act requires the state ES agency to administer the willingness to work test. Under its proposed delivery approach, the DOL asserted that Michigan’s reorganization plan failed to specify how UI claimants would be exposed to job offers, referred to suitable jobs, and the results coordinated with the state UI component.49
  • Merit staffing: Michigan’s plan required ES services to be provided by public or private agencies. The state argued that the W–P Act did not require a merit system, and that to improve the poor performance of its ES it had a right to use the dynamism of the marketplace. Federal rules require that ES services be provided by merit-staff employees of a state government.

In-person and telephone meetings between the national DOL and the Michigan agency took place, along with an extensive exchange of letters.50 Inadvertently, Michigan’s attempt to trample on the long-standing ES-UI partnership toughened the DOL’s legal and policy spine. In January 1998, the DOL met with the staffs of Senator Edward Kennedy, Congressman Sander Levin, and Detroit Mayor Dennis Archer to discuss deficiencies in Michigan’s proposed reorganization and distinctions between it and the Massachusetts One-Stop plan. At the end of the month, Michigan resubmitted its ES plan of service without revision. Secretary Herman called Governor Engler, informing him of unresolved issues and conveying that federal requirements must be met.

In preparation of a possible failure of the dispute resolution, DOL staff inside the Frances Perkins Building51 began to develop a fallback plan that included denying Michigan’s ES grants-in-aid and other penalties. Institutional memory about decertification within DOL was nearly nonexistent. Federal policy options were researched, and memoranda were prepared to inform decision-making by DOL political and career service leaders. Before the 1990s, the DOL had recorded only two instances where ES-related sanctions had been instituted, both involving merit-staff violations. First, the Missouri agency was informed by letter on July 8, 1934, that it would be denied certification unless it ceased to assess political contributions from state ES employees.52 Second, in 1941, merit standards were enforced in Arizona until a full-time ES director was appointed. Pending compliance, the federal USES administered the Arizona ES offices.53

After five months of negotiations and repeated warnings, on February 2, 1998, Michigan informed the DOL that it was implementing its unapproved ES plan of service modification54 and filed suit against the DOL in federal district court.55 The next day, the DOL notified Michigan it had placed a hold on the state’s letter of credit at the U.S. Treasury for expenditures under the W–P Act grant and suspended the state’s One-Stop implementation grant, which was funded under W–P Act authorization.56 The DOL applied the sanctions surgically to: (1) not adversely impact the state’s job seekers and UI claimants; (2) exert public pressure on Michigan; and (3) avoid unfavorable media, such as a potential headline, “Feds Cut Funds to Serve Unemployed.” The sanction notice, in part, stated:

Payments to the State for ES grant expenditures will be made on a reimbursable basis and will require prior approval from this office, in accordance with the procedures presented below. Only expenditures in accordance with the State’s approved ES plan of service shall be eligible for reimbursement. Expenditures in support of the ES reorganization plan which violate the corrective actions imposed in my January 30 letter shall not be reimbursed. I have chosen this remedial action in order to allow the State the opportunity to continue providing authorized ES services to the citizens of Michigan.57

A Congressional Hearing

Michigan took political action, and sought congressional interventions. The House Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce convened a hearing on March 25, 1998, before the federal district court proceedings. The congressional hearing received testimony from the DOL, Michigan, Massachusetts, and Texas. Chair Peter Hoekstra opened the hearing by pointing out the contradiction between the DOL’s actions and the Clinton administration’s public policy stance. Referring to Michigan’s reorganization, Hoekstra said:

As part of this reform, Michigan focused on increased local control and accountability, expanded access to services, and a commitment to a high level of customer satisfaction. If these themes do not sound familiar, they should. The President, the Vice President, the Secretary of Labor have all repeated them frequently in pushing for reform of Federal employment and training programs. In fact, just a few weeks ago, the President called on the Senate to pass a job training reform bill which streamlines services, enhances accountability and provides flexibility from burdensome Federal job training rules.58

The hearing’s witness list was organized to reinforce that contradiction. Likewise, a partisan caste hung over the proceedings. Ranking member Patsy Mink declared:

One could argue that this is a politically charged matter in which the Republican Governor’s challenging the authority of a Democratic national administration. Support for this charge is found by the fact that two esteemed colleagues from the State of Michigan, Members of the minority party, Congressmen Sandy Levin and Bart Stupak, were denied the usual courtesy of making a statement at the beginning of these hearings. The duty of a congressional committee is to be sure that we establish a balanced record. Accordingly, Mr. Chairman, I ask unanimous consent that the balance of my time be yielded to my colleague, Congressman Bart Stupak.59

Chair Hoekstra consented; Representative Stupak provided remarks that contained: “Before the reorganization, unemployed workers could count on job counseling, job placement services, assistance preparing for interviews, and help in applying for unemployment insurance, trade adjustment assistance and other programs. Now they get access to a computer.”60

Later, Hoekstra opined the “real issue here is the preservation of merit-staffed employees rather than focusing on customer service.”61 Labor unions had backed the continuation of merit staffing in the delivery of ES services by state employees. The DOL contested Hoekstra’s assertion, indicating that the lack of merit staffing was a serious deficiency, but not the only serious one in Michigan’s reorganization.62

Neither committee members nor witnesses took issue with Clinton’s 1996 declaration of workforce federalism. Also, no mention was made of the potential ETA organizational downgrade of the USES. With federal workforce development reform stalled on Capitol Hill,63 it may have been deliberate. Under the proposed reform, some ETA career leaders were anxious about the future status of ES and UI programs, as well as the resource demands that might be placed on these programs in a highly decentralized One-Stop delivery system.64 The subcommittee hearing ended with the core issues of the Michigan dispute still up in the air. As the district court hearing date approached, ETA instructed Massachusetts to reduce the number of local boards that may solicit bids for ES services to four.

A Federal Court Decides

On February 2, 1998, Michigan filed suit against the DOL in federal district court for declaratory judgment, injunctive relief, and mandamus, based upon prior notice by DOL that if it did implement its modified ES plan of service without federal approval, it would be subject to sanction. As indicated, the next day, the DOL instituted punishment, restricting the use of W–P Act funds. A hearing was held on February 6, and on February 10, the motion for a preliminary injunction was denied. The court declared at issue was whether the DOL had the authority to impose merit staffing for state W–P Act grants-in-aid. A hearing was held on May 1, and on May 15, Judge Robert Holmes Bell ruled that the DOL’s longstanding “construction of the W–P Act to require merit staffing is a reasonable and permissible interpretation of the Act.”65 The court dismissed the lawsuit. Michigan appealed to the U.S. Court of Appeals and set in motion other hard-ball political moves.66

Federal–State Resolution Announced

Protracted negotiations between ETA and the Michigan agency continued without resolving major differences. In late June, some headway was made regarding the configuration of ES services. The deposition of merit staffing was unresolvable. Congressional sentiment leaned toward the DOL working out a resolution with Michigan; therefore, Governor Engler met with Secretary Herman in her Washington, D.C. office on July 23, and their private discussion resulted in a broad resolution framework. They also agreed to leave the unresolved operational issues to their respective departmental staffs to work out.

Following the Herman–Engler meeting, negotiations between ETA and the Michigan agency focused on achieving a state operational agreement and a later addendum. Secretary Herman and Governor Engler released a joint statement on July 31, announcing a framework for resolving the dispute. Each side could claim victory. The terms of the resolution established a transition plan through June 30, 1999, and in general, included:67

  • Merit staffing of W–P Act-funded ES services was retained, with eligibility for local competition expanded to all public agencies utilizing merit systems. Competition for delivery of W–P Act-funded ES and Trade Adjustment Assistance (TAA) programs limited to service providers of (1) merit-staffed state employees and (2) merit-staffed local government employees.68
  • The state reinstated all former state ES staff transferred to the state UI agency. Michigan agreed to work collaboratively with labor unions representing ES staff employees and other stakeholders.
  • Michigan assured that staff-assisted services, and computer-accessed services, are part of the delivery system for all job seekers utilizing W–P Act-funded ES services, employment services for veterans, and the TAA program. Michigan agreed that merit-staffed state employees would perform the willingness to work test for UI claimants.
  • DOL agreed to restore funding to Michigan for all allowable ES system and overhead expenses, along with those services delivered by merit staff employees.
  • Michigan agreed to not advance federal legislation, to suspend other legislative and policy actions, and to withdraw its appeal of federal Judge Bell’s ruling of May 15, 1998.
  • The terms of the agreement only apply to Michigan.

This press announcement contained statements from Herman and Engler, with the governor expressing the importance of compromise in American federalism. Engler said, “We are committed to developing a seamless system for workers looking for jobs, and the Secretary and I have found a way to make this work for everyone.”

It would take several months to iron out the details. Until then, the DOL sanction remained in place. High-level meetings inside the DOL and between ETA and the Michigan agency staffs resumed in crafting an operation plan, including adding Michigan to a recently authorized DOL study of alternative ES delivery systems; then again, negotiations bogged down. On September 25, Herman telephoned Engler to ask the Michigan agency leaders to adhere to the spirit of the framework announced on July 31. In the next several weeks, a final resolution was achieved. On October 14, the DOL approved Michigan’s ES plan of service and lifted the federal hold on the state’s draw-down authority for W–P Act funds. In early November, the DOL restarted Michigan’s One-Stop implementation grant.69

Evaluation of ES Delivery Systems

A study of the ES program was launched in five states just before the enactment of the Workforce Investment Act (WIA) of 1998. It was funded by DOL, and later a sixth state, Michigan, was added. The study, Evaluation of Labor Exchange Services in a One-Stop Delivery System Environment,70 was conducted by Westat, Inc. It included three states with traditional ES models and three states that conducted demonstrations of alternative ES service delivery. The study aimed to examine the effectiveness of labor exchange services (job finding, referral, and placement) in the operating environments of those six states. The methodology was based upon prior research.71 The purposive sample included traditional state merit staffing ES delivery models of Oregon, North Carolina, and Washington, and ES delivery models using alternative (nontraditional) service providers in:

  • Colorado, which had a county-based structure using state and country merit-based employees;
  • Massachusetts, which had a local-based structure in Boston, Springfield, Cambridge, and Brockton using employees of for-profit, nonprofit, and public agencies; and
  • Michigan, which had a local-based structure using merit-based public employees (such those in state, local governments, community colleges).

The DOL limited the demonstration to three states with nontraditional delivery because they covered a full range of alternative service providers. The efficacy of merit staffing itself was not tested. Nonetheless, study results could be a useful proxy for ETA policymakers to establish future guidelines. The Westat study was completed in 2004; however, ETA political leaders regarded the findings contrary to their policy preferences. It and other ETA studies were not publicly released until 2008, through the intercession of Congress and the Office of Management and Budget (OMB).72

According to the Westat study, the One-Stop concept offered much to improve service delivery by melding distinct employment and training programs with different perspectives about which participants should be served and how to serve them. However, researchers reported that overall, there was much to be achieved by retaining separate identity and funding structures. Among specific findings, ES services were cost-effective in all the study states. North Carolina had the highest job match rates and most cost-effective services because it had the greatest ratio of jobs listed to UI claimants looking for jobs.73 The use of self-services in the nontraditional states hindered the tracking of job matching. In contrast, particularly large benefits of job matching to UI claimants were reported in the three traditional states that served more of them.74 Some years later, Westat’s principal investigator extended his view:

In most states, One-Stops have state Employment Service staffs and local Workforce Investment Act staffs working together under unified management. While it was hoped that complete integration would increase effectiveness and reduce cost, there is powerful evidence … that, in the absence of high-quality performance measures, completely merging the Employment Service with Workforce Investment Act staffs leads to sharp reductions in the number of workers served, especially through direct public labor exchange placements, and in overall cost effectiveness due to substitution of high-cost services for equally effective low-cost services.75

For an in-depth breakdown of the Westat findings and a chronicle of the delayed public release of it and other ETA studies, see Stephen Wandner’s book, Solving the Reemployment Puzzle (2010).76

Merit Staffing into the Twenty-First Century

Amendments to the W–P Act were enacted in Title III of the WIA to make ES programs the service entry points for state and local One-Stop delivery systems. The WIA W–P Act regulations were finalized in August 2000. Before publication, the Michigan agency requested that the DOL “preserve the settlement agreement” in the new rules. The DOL had built into the draft final W–P Act rules reference to the ES demonstration projects; it responded affirmatively and reminded the agency of its commitment to participate in the six-state ES evaluation.77 A provision of the final W–P Act regulations formerly limited demonstration projects of alternative delivery systems to three states: Colorado, Massachusetts, and Michigan. During and after this period, the DOL rejected attempts by Florida and Texas to allow privatization of the W–P Act–funded ES programs. A subsequent ETA reorganization downgraded the USES as a separate program office,78 and later, during the George W. Bush administration, eliminated it as an autonomous division. As a result, responsibility for federal W–P Act oversight and the monitoring of state ES programs, including the three ES demonstration projects, was assigned on paper to ETA’s Office of Workforce Investment but in reality, was diminished.

Attempts at Privatization

In a major WIA field network study early in the George W. Bush administration, the Rockefeller Institute of Government reported that states varied in administering centralized control over the ES and other workforce programs.79 In Texas, Florida, and Michigan, the states devolved control of programs and One-Stop centers to local workforce boards, along with control over funding streams. For example, in September 2003, the Texas Workforce Commission (TWC) initiated the Texas approach (that replicated Florida’s structure), which “gave local boards day-to-day operational control over all ES staff.” While the state continued to have staff available to assist employers and job seekers, the TWC “redefined” downward basic labor exchange services that merit-based ES staff delivered.80 These state policies were abetted by the DOL’s preference for decentralization, and diminishing (later attempted elimination of) W–P Act ES resources to states. While each level of government has co-dependent roles in workforce federalism, the clash of governance philosophies between federal–state control and federal–local control often shadowed federal policymaking.

While each level of government has co-dependent roles in workforce federalism, the clash of governance philosophies between federal–state control and federal–local control often shadowed federal policymaking.

The FY 2004 DOL budget request was the first of various proposals to abolish the W–P Act. Through appropriation and authorization processes, congressional efforts focused on consolidating the W–P Act and WIA Adult and Dislocated Worker funding streams into a block grant to states and local areas. As a companion scheme, the Bush administration endorsed using Personal Reemployment Accounts for UI claimants. These policy proposals sought to unravel the common funding of ES and UI programs paid for by employer taxes through the FUTA. Politically, they would have increased the authority of local officials over state governors in administering ES and UI programs and distributing resources. These legislative proposals were unsuccessful.

In late December 2006, ETA political leaders issued proposed rule changes to several workforce development programs, including allowing for the contracting of W–P Act funds to private entities. The rule was drafted because Congress had not acted upon the reauthorization of WIA, and the DOL hoped to jump-start its policy agenda by instituting nonstatutory changes. ETA proposed dismantling merit staffing protections for the W–P Act-funded ES program, among other policy changes. The proposed rule stated ETA would abandon the long-standing mandatory merit-staffing of state ES programs because, in part, “variation from delivery by State merit-staffed does not negatively affect the effectiveness and efficiency of the Wagner-Peyser Act-funded Employment Service program.”81 Reflecting upon the experience of the ES demonstration projects, the proposed rule declared:

These three demonstrations were permitted as exceptions to the merit staffing regulations in order to assess the effectiveness of alternative delivery systems—specifically, whether using non-State agency employees was an effective and efficient way to deliver Wagner-Peyser services. While a formal evaluation of the three Wagner-Peyser demonstrations has not been completed, the Department believes the three demonstration states are performing successfully based on their performance outcomes and the absence of customer or stakeholder complaints.82

The Westat study had been completed. It would have been accurate to indicate that it had not been published. Of course, this fact, if made public at the time, may have begged the politically charged question, “Where’s the beef?” One factor in ETA’s determination was correct, stating that merit-staffing imposed rigidity and limited flexibility in service delivery.83 Merit protections are supposed to achieve those and other factors in the public interest. The new Congress caught wind of the DOL’s proposal and objected to rule changes until WIA was reauthorized. It viewed the proposed rule as hostile to congressional authority. Prompted by Senators Kennedy and Murray, Congress used the appropriation process in 2007 to block the use of funds by the DOL for proposing or finalizing any rule that made major changes to WIA, the W–P Act, and the TAA program.84 This prohibition was instituted for FY 2007 and subsequent years until the Obama administration, on August 5, 2009, withdrew the proposed rule from the Federal Register.85

Next, provisions in the American Recovery and Reinvestment Act of 2009 reauthorized the TAA program under the Trade Act of 1974. State workforce agencies operate the TAA program as agents of the DOL through Governor–Secretary Agreements. The TAA program provides benefits through Trade Readjustment Allowances (TRA) and employment and training services to adversely affected workers who lose their jobs due to US trade policies. The TAA program requires collaboration with state UI and ES and job training programs, and staff of ES and UI programs administer program services. From the inception of the TAA program in 1975 through 2005, those agreements required SWA merit-based staff to administer all benefits and services solely. Under the Bush administration, the agreements were modified to allow non-merit staff to operate the TAA program, except those state employees who performed functions under TAA, UI, and ES programs (excluding the three states with ES alternative delivery demonstrations) must be merit staffed. Based upon program experience, the Obama administration’s DOL in 2009 reported the four-year-old TAA policy created unaccountability and confusion for TAA recipients, and uneven service delivery in states.

On August 19, 2009, a DOL notice of proposed TAA rulemaking was published to reinstate merit staffing and likewise revise the agreements with states “to promote consistency, efficiency, accountability, and transparency in the administration of the TAA program.”86 The ETA rule makers faced numerous choices and challenges. Two were comparable to those posed in the W–P Act rulemaking: (1) the Trade Act did not explicitly address merit staffing, and (2) as ES staff administered portions of the TAA program in states, how would the final TAA rule address the three ES alternative delivery demonstrations?

The final TAA regulations issued in 2010 declared that the DOL had sufficient legal authority at section 239 of the Trade Act, absent congressional objection, to require merit staffing. Therefore, the longtime practice of requiring merit staffing by states in administering the TAA program (20 CFR § 618.890) was reinstated. States operating W–P Act-funded ES programs under demonstration status (Colorado, Massachusetts, and Michigan) were partially exempted from the TAA merit staffing requirement. Still, this exemption did not apply to the administration of TRA. Per OMB and DOL guidance, states were not prohibited from outsourcing any TAA function that was not inherently governmental in nature. The Obama administration’s DOL made its rulemaking determination based in part upon a persuasive customer-focused conclusion:

Although it is certainly possible to hold local and/or non-merit staff and their employers accountable, the attenuated lines of authority between State agencies, local entities, contactors, etc., creates a more amorphous web of relationships that can make it more difficult for adversely-affected workers to locate the source of TAA program responsibility.87

During the remainder of the Obama administration, the DOL made no further major merit staffing policy pronouncements. State ES merit staffing policy remained protected by regulation, and UI merit staffing policy remained protected by federal statute.

WIOA Strengthens ES and UI Links

On July 22, 2014, President Obama signed the Workforce Innovation and Opportunity Act (WIOA). After 2003, funding under WIA expired, and workforce development funds to states were granted annually through budget actions in appropriation laws. Congress finally reached a bipartisan accord in 2014 and renewed authorization in federal law for workforce development programs. The DOL issued final regulations on August 19, 2016, to implement WIOA under Titles I and III, which amended the W–P Act. The new law and rules upgraded the nation’s workforce development system. They offered changes to strengthen merit-based ES staff in delivering employment services, as well as the longstanding relationship between the ES and UI programs.88

Amended section 7 (a) (3), the W–P Act clarified the responsibilities of ES staff by adding “eligibility assessments” to the definition of the willingness to work test (section 305, WIOA). The amendment established, without ambiguity, that merit-based ES staff may assist the UI component in the inherently governmental duties associated with the RESEA program—as most states do not station merit-based UI staff in physical AJCs. Next, new language in section 3(c) (4), W–P Act (section 303, WIOA) enabled merit-based SWA staff to participate in career advancement activities that can lead to better assessments and services to job seekers, UI claimants, and employers. To that end, the W–P Act at section 7(b)(3) was also amended, and regulatory guidance added at 20 CFR §652.204 to allow the use of funds for career development of SWA staff.89

Trump Administration Approves ES Staffing Flexibility

In January 2020, the Trump administration overturned eighty-seven years of public administration by permitting W–P Act-funded ES services to be delivered by non-merit-based entities in all states.90 Through a revised federal rule (Wagner–Peyser Act Staffing Flexibility) at 20 CFR Part 652.215, states were allowed to use a variety of staffing models.91 Setting aside whether this was sound public policy, decentralizing the decision to governors whether or not to utilize merit principles in the staffing of public employment offices artfully sidestepped political resistance. Acknowledging that this was an unprecedented departure, the DOL adopted “an interpretation that allows States flexibility to use staffing arrangements that best suit their needs.”92 It declared, “(t)his flexibility will allow States to provide Wagner-Peyser Act services through State merit staff, other State staff, subawards to local government or private entities, a combination of these arrangements, or other allowable staffing solutions under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).”

In January 2020, the Trump administration overturned eighty-seven years of public administration by permitting W–P Act-funded ES services to be delivered by non-merit-based entities in all states.

Replying to commenters in the final rule, the DOL properly stated that neither the Westat study of labor exchange service in states93 nor a study of the Nevada Reemployment and Eligibility Assessment (REA) Initiative94 directly focused on the effectiveness of merit staffing. However, it did not dispute that those states in both studies utilizing traditional merit-based ES staffing resulted in cost-effective service interventions for UI claimants.95 Rather than support the ES-UI partnership, the DOL opted to implement a groundbreaking staffing rule to “more closely align services provided by the ES program with WIOA’s focus on serving individuals with barriers to employment.” It also rejected calls to temporarily suspend implementation of the flexible staffing policy until a present-day evaluation was conducted. The DOL elected instead to allow states nationwide “to determine the most effective, efficient, and cost-effective way to provide the services under the Wagner-Peyser Act” and conduct their own studies.96 According to DOL, during the period from 2020 to 2024, Delaware, Indiana, and Missouri implemented flexible ES staffing arrangements in addition to the three demonstration States of Colorado, Massachusetts, and Michigan.97

Trump Administration Approves UI Staffing Flexibility

In March 2020, at the onset of the COVID-19 pandemic the CARES Act was enacted to provide financial assistance directly to individuals, families, and employers. Section 2106 allowed states “temporary flexibility” in complying with the requirement of UI service delivery by state merit-staffed employees.98 The provision of emergency state staffing flexibility was included to meet the SWA staffing shortfalls associated with job losses during the COVID-19 pandemic, and resulting UI claims volume. How many states utilized this flexibility waiver is unknown. The actual number, for which purposes, and how well it worked should be the subject of in-depth study.

Without a federal flexibility waiver, states faced potential liability for their practices. In the administrative chaos of the COVID-19 pandemic, however, it is unlikely that states would have been held in jeopardy for hiring temporary non-merit staff who were not making material decisions about UI eligibility. The Continued Assistance to Unemployed Workers Act of 2020 and the American Rescue Plan Act of 2021 both renewed the temporary staffing waiver.99 The waiver of merit staffing requirements and the extensions were due in part to efforts by the National Association of State Workforce Agencies (NASWA) and states.100 The flexibility waiver in hiring non-merit UI staff expired on September 6, 2021.

Absent a deep exploration of how the practice of privatizing UI service delivery actually worked, anecdotal evidence gathered both through informal interviews of frontline UI staff by a coauthor of this report, and also reported by a California agency team (called a “strike team”), who were tasked to solve complex service delivery problems, found that non-merit staff lacked the training and accountability that merit staff possessed.101 This led to non-merit staff telling some UI claimants inaccurately what they wanted to hear by mistake or to get them off the phone or, in other instances, asking SWA UI staff so many questions that it precluded them from assisting additional claimants. In the short-run this may not be unexpected when public services are privatized; however, the long-run consequences for the SWA and UI recipients are unknown.

Biden Restoration of Mandated ES Merit Staffing

On November 24, 2023, the Biden administration issued a new final ES staffing rule largely overturning the Trump administration 2020 policy. The new rule requires states to use SWA merit staff to provide ES services, including those states that began using Trump-era ES flexibility staffing models. The original Biden rulemaking proposal applied to all states. After receiving comments about potential service disruptions from states using alternative delivery models in Colorado, Massachusetts, and Michigan, DOL conceded that although uniformity across states is optimal, services could be materially disrupted. Therefore, the final rule allows the three-decade-old ES alternative delivery models in Colorado, Massachusetts, and Michigan to continue operating, pending a national evaluation and policy review.102

The authors believe that ES and UI staff do their best to serve jobseekers, given the staff levels and tools they currently possess. In fact, one of the key arguments for reworking the Trump-era rule was the hard-earned experience of SWAs during the COVID-19 pandemic, when initial claims for all unemployment benefit programs remained at 1 million every week for over a year.103 The pandemic demonstrated the necessity of having cross-trained SWA ES staff ready to assist UI components during state disasters or national emergencies. These circumstances contributed to reinstating “the Department’s authority to require State merit ES staff,”104 along with merit-based ES protections for Migrant and Seasonal Farmworkers (MSFW).105 The Biden administration ES rule also adds accessibility features such as plain language and more gender-inclusive guidelines. Finally, the rule allows states two full years to comply with the new requirements.106

In recent years’ service and performance associated with traditional and nontraditional state ES delivery models have not been studied. However, there is some fairly recent related evidence that transferring administration of public services to private entities has led to greater error rates. For example, in 2007, Indiana privatized the provision of welfare, food stamps, and Medicaid and the error rate in payments in those programs doubled to over 13 percent.107 Therefore, next we discuss some aspects of the prospective DOL evaluation of merit-staffed and non-merit-staffed models of ES service delivery.

Research and Policy Considerations

The federal policy rationale for requiring merit staffing in SWAs is to ensure the accountability of the public ES and UI workforce to state constitutions and laws. In this way, state-based merit staffing shields ES and UI officials from political pressures, and actions contrary to the interests of jobseekers, UI claimants, and employers. It also shelters them from the whims of private entities, such as sacrificing service quality to maximize profit margins. Referring jobseekers to qualified job openings and UI fact gathering and eligibility determinations are impressively complex tasks. If AJC staff who are making decisions lack expertise, they can often make wrong decisions, which not only undermines the fairness of the programs, but also the credibility of state government.

In the twenty years that has lapsed since the Westat study of ES service delivery,108 there have been significant changes in SWA workplace methods, service delivery structures, and in the way all jobseekers search for work. A host of policy questions arise, including:

  • Is there a continued need for merit staffing of ES programs?
  • Should federal policymakers abandon merit staffing as a requirement for state ES grants-in-aid?
  • Ought the federal partner resurrect the Trump-era policies of enabling states to use whichever staffing arrangement that best suits their needs?
  • Colorado and Michigan have operated public ES systems in substate areas through decentralized merit personnel systems for the past three decades. Should federal policymakers allow all states to implement the Colorado and Michigan public ES models?
  • Are for-profit and nonprofit entities operating ES programs in Massachusetts? If so, what has been its experience?
  • What are the implications for administering state UI programs if merit staffing is not required or is made optional for ES programs?

To assist federal policymakers, the DOL’s final W–P Act rule of 2023 requires the three state ES alternative delivery demonstrations to participate in a rigorous evaluation, along with states that use merit staffing, to determine their efficacy and how they impact state ES programs. State ES operations through technology and workforce preferences, such as flexible arrangements, have shifted during the past few decades, where telework and remote services are commonplace. As well, new artificial intelligence applications may offer efficiencies or pose obstacles to the fair and impartial delivery of services. An evaluation suggesting which ES functions could be relegated to the private sector and which should remain inherently governmental could help determine future workforce policy choices.

An evaluation suggesting which ES functions could be relegated to the private sector and which should remain inherently governmental could help determine future workforce policy choices.

Some conservative policy advocacy groups argue that governors should be allowed permanent flexibility in determining whether or not to use merit standards in hiring ES and UI staff members. Flexibility in applying merit standards implies choice and discretion, a form of negative liberty. Under the federal–state partnership, the founders of the ES and UI programs chose to institute a form of positive liberty, where federal intrusion is justified to promote across states a national objective of standardizing the quality of staffing—to maintain the trustworthiness of ES service and UI benefit delivery. Under this long-standing regime, governors retain extensive freedom to hire and direct public employees statewide. Their control over state personnel is not diminished under merit staffing, but it is shielded from political or pecuniary intrusion.109 The founders of the ES and UI programs sought to promote state merit systems as the best method to ensure a professional cadre of public servants to sustain wide approval by job seekers, UI claimants, employers, and the general public. At the federal level, some researchers have argued, merit personnel systems align the public agency’s organizational culture with its statutory mission.110 This is also the case for SWAs, where merit staffing enhances workforce cohesion, mission focus, and public confidence.

As the authors see it, the forthcoming DOL study of ES merit staffing may help policymakers better understand the costs and benefits of—at least—three potential policy options. In fact, each of these three options could apply to the workforces of both state ES and UI programs (see Table 1). The first option maintains traditional state-based merit systems as a condition of federal grants-in-aid; the second option retains merit staffing but allows governors to decentralize delivery to merit-based public agencies; and the third option permits governors to use grants-in-aid in delivering services through merit-based state agencies, merit-based public agencies, private service providers, or combinations of merit-based and non-merit-based service providers.

According to DOL, the proposed ES evaluation will include an outcome or impact study and an implementation study. In addition, we suggest initiating a national survey of state ES officials, including management and frontline staff, and program participants. Evaluation findings should offer reliable outcomes and possible estimates of program impacts. If findings suggest that state ES functions may be contracted out to private entities in part or in whole, national policymakers must determine what is gained or lost in political accountability, public confidence, and in the public charter of local AJCs themselves, where multiple workforce development programs provide services. That is, what is it that makes a public employment office “public”? We contend that service delivery by government employees under merit personnel systems is essential to retaining the confidence of the general public, and the reputation of local AJCs as honest brokers. Whatever the policy upshot of the DOL’s evaluation findings, the federal partner should be the grant-in-aid’s watchdog to ensure impartial service delivery to job seekers, UI claimants, and employers.

Summing Up

Over the years, requiring merit standards for the state ES and UI workforce has been vital to securing a national workforce development system. In the functioning of American federalism, federal grants-in-aid comprise a dual policy bargain of national objectives enunciated by the federal grant-maker that travel vertically to state governments, and they are customized horizontally across states and local areas.111 An examination of the utility of present-day merit staffing could be of great benefit. As stated previously, any study of merit staffing in SWAs should include a survey of state officials, private service providers, and program participants—to add a public voice to statistical outcomes. A recent meta-review of past merit staffing studies analyzed the relationship between meritocracy and government performance. The review found that “factors such as meritocratic appointments, recruitment, tenure protection, impartiality, and professionalism are strongly associated with higher government performance and lower corruption.”112

Table 1. Merit Staffing: Selected Options for ES & UI Program Delivery
Federal Grants-in-Aid to State Workforce Agencies (SWAs) Under the Control of Governors
Option Federal Law SWA Exclusive SWA Flexible Public Sector Private Sector Delivery Model Staffing Model
1a W–P Act ES X Traditional SWA Merit Staffed
1b SSA UI X
2a W–P Act ES X X Nontraditional SWA/Public Agencies Only Merit Staffed
2b SSA UI X X
3a W–P Act ES X X X Public/ Private Agencies Merit/Non-Merit Staffed
3b SSA UI X X X

The government must operate in a fishbowl of transparency and accountability. By its nature, the private sector is insufficiently equipped to function in that space. It seems to us that merit staffing cannot be given up in one state and retained in another state without destabilizing the programs’ national objectives. Merit staffing in the past has enabled public servants—state-to-state—to act as honest, competent brokers in administering government services. The distribution of ES and UI grants-in-aid to local areas is under the aegis of state governors—more so than WIOA grants-in-aid. As such, governors have broad authority to use ES and UI resources tactically and strategically across their states as needed—to aid the jobless, support the adverse results of plant dislocations, partner with economic development, and enhance employability in their overall economies.

During the Eisenhower presidency, Senator John F. Kennedy (1958) posited that “we need career servants especially trained to meet the critical issues.”113 In the same manner, today, state governors require a workforce of highly-trained ES and UI public servants. The COVID-19 pandemic demonstrated incontestably the necessity of staff continuity and mastery of the legal and administrative requirements, which take time, dedication, and training. A merit protection system enables states to hire quality public service professionals who possess the capacity for developing expertise, and it establishes a sturdy buffer against inappropriate political and commercial pressures. Thus, by extension, merit staffing protects jobseekers who use the public workforce system, sustains the political virtue of SWAs, and ensures accountability to employers and the public writ large.

There is common-sense logic that a public employment office should be administered by “public” officials. If ES or UI program administration were privatized through service contracts, the public charter of AJCs seemingly would be assigned de facto to the private sector. To that point, an Oxfam study (2014) of more than 100 countries found that administering program services through public staffing leads to more equal access to those programs.114 Merit staffing helps guarantee that when FUTA dollars for benefits are transferred from one pocket to another pocket, it is done so with impartiality and under public scrutiny. When referrals to job openings are made, it guarantees that they are performed without favoritism. Meritocracy ensures that political cronies and profiteers cannot act under government auspices. It shields the evenhanded delivery of public services and checks the abuse of power. Allowing private entities to decide whom to serve and how, despite the fact that they are not accountable to the general public, surely can undermine service integrity and thus debase American democracy. The watering down of merit staffing of ES and UI programs may provide added flexibility to state governors, but also weakens the legitimacy of the administrative state. Flexibility should not be a euphemism for dismantling government protections.

Based upon long-established public service principles, merit staffing of ES and UI programs was reinstated during the Biden administration. A report by the Heritage Foundation,115 referred to as Project 2025, calls for revamping American public policy and government. It urges reviving the Trump-era W–P Act ES flexibility rule, and allowing nonpublic worker organizations to administer unemployment benefit programs. Tensions persist in workforce federalism and in the politics of merit staffing. Federal lawmakers should address these policy tensions, including extending the statutory merit protections in state UI programs to state ES programs. As well, without enhanced and reliable federal funding, state governors may be under increased pressure to abandon merit staffing of ES and UI programs and use private service providers.

In this report, we have sought to examine the evolution of ES and UI merit staffing policy and analyze pivotal federal decision points. We argue that merit staffing is a federal intervention to safeguard public confidence in state-administered ES and UI programs. As a condition for receipt of federal ES and UI grants-in-aid to states, merit staffing has averted patronage, favoritism and partiality, which in turn has fortified the legitimacy of state government service delivery.

Authors’ Note

Thanks to Gerri Fiala, Louis Jacobson, and Stephen Wandner for helpful comments to earlier drafts. This report is dedicated to the memories of Jacob M. Benus, James J. Hoppenjan, Nanine Meiklejohn, and Linda M. Monroe who helped shape federal policy. The authors are solely responsible for errors of fact or judgment. The views expressed in this report do not necessarily reflect those of The Century Foundation, U.S. Department of Labor or any other individual or organization.

Notes

  1. Letter from George Washington to John Jay, August 15, 1786, https://founders.archives.gov/documents/Washington/04-04-02-0199.
  2. Stephen Greenhouse, “Project 2025’s plan to gut the civil service with mass firings: ‘It’s like the bad old days of King Henry VIII,’” Guardian, September 25, 2024, https://www.theguardian.com/us-news/2024/sep/25/project-2025-trump-plan-fire-civil-service-employees.
  3. Referred to as “public employment service offices” at section 1, W–P Act, as amended, they have been known by many different names over the years, e.g., public employment offices, One-Stop centers, and American Job Centers.
  4. James Madison, Federalist 51, 1788, https://constitutioncenter.org/the-constitution/historic-document-library/detail/james-madison-federalist-no-51-1788.
  5. Section 303 (a) (1), SSA.
  6. Section 3(a), W–P Act enables DOL to establish standards of efficiency for public employment offices, such as a merit personnel system. The DOL interprets section 5(b), added to the W–P Act in 1950 to comply with the merit staffing requirement at section 303 (a) (1), SSA. In the merit-staffing dispute with Michigan of 1997 to 1998, the state contended otherwise “Transmittal of the Opinion and Order and Declaratory Judgement, State of Michigan v. Alexis M. Herman” (W.D. MI, Southern Division) File No. 5:98-CV-16, May 15, 1998, Attachment to USES Information Bulletin No. 4-98, U.S. Department of Labor, Employment and Training Administration, May 21, 1998, 9–10, https://law.justia.com/cases/federal/district-courts/FSupp2/81/840/2420800/.
  7. According to the Library of Congress’ guide to rulemaking, the terms “rules” and “regulations” have the same meaning in federal administrative law. They are used interchangeably in this report.
  8. Reinstatement was accomplished through notice-and-comment rulemaking. It is the formal process used by the federal government when making significant policy changes. It allows for the public to submit input to proposed changes. The government must then consider each comment, and explain its reasons for accepting or rejecting public input.
  9. Originally referred to as state employment security agencies, encompassing ES and UI programs.
  10. This view is based upon research results that directly shaped present-day federal UI policy. In Wisconsin, a DOL-sponsored demonstration utilized teams of merit-based ES and UI staff to test low-cost service interventions for UI claimants that included in-person eligibility reviews, personalized referrals to jobs, and job search assistance resulting in reduced unemployment spells. (See Sherry Almandsmith, Lorena Ortiz Adams, and Han Bos, “Evaluation of the Strengthening the Connections between Unemployment Insurance and the One-Stop Delivery Systems Demonstration Projects in Wisconsin,” Employment and Training Administration Occasional Paper No. 2006–11, U.S. Department of Labor, January 1, 2006, https://www.dol.gov/agencies/eta/research/publications/evaluation-strengthening-connections-between-unemployment.) These service interventions were applied to a broader Reemployment Eligibility Assessment (REA) initiative in states resulting in similar reductions. (See Jacob M. Benus, Etan Blass, Eileen Poe-Yamagata, and Ying Wang, “Reemployment and Eligibility Assessment [REA] Study: Final Report,” Employment and Training Administration Occasional Paper 2008-2, U.S. Department of Labor, 2008.) For example, in Nevada merit-based and cross-trained ES-UI teams implemented REA service interventions that significantly increased earnings per claimant and net savings from reduced UI payments (See Marios Michaelides, Eileen Poe-Yamagata, Jacob Benus, and Dharmendra Tirumalasetti, “Impact of the Reemployment and Eligibility Assessment [REA] Initiative in Nevada,” Employment and Training Administration Occasional Paper No. 2012-08, U.S. Department of Labor, 2008; Renee L. Olson, “Response to Proposed Rule Wagner-Peyser Act Staff Flexibility RN 1205AB87” [Docket No. ETA-2019-OOO4-0026], July 19, 2019.). In 2015, Congress changed the program’s name to Reemployment Services and Eligibility Assessment (RESEA), and in 2018, amendments to the SSA permanently authorized it.
  11. From 1933 to 1938, sixteen ongoing grant-in-aid programs were instituted, with social welfare exceeding highway grants by 1938. See Advisory Commission on Intergovernmental Relations, Categorical Grants: Their Role and Design (Washington, D.C.: Government Printing Office, 1978), 18, https://library.unt.edu/gpo/ACIR/Reports/policy/a-52.pdf.
  12. Frances Perkins, Roosevelt’s secretary of labor, described how Roosevelt assessed his domestic policy: “The ‘new deal’ meant that the forgotten man, the little man, the man nobody knew much about, was going to be dealt better cards to play with.’” Frances Perkins, The Roosevelt I Knew (New York: Viking, 1946), 166.
  13. Frank W. Hunger, Michael H. Dettmer, Edith Landman, Sandra M. Schraibman, and Margaret S. Hewing, “Defendants’ Memorandum in Opposition of Plaintiffs’ Motion for Summary Judgment,” State of Michigan v. Alexis M. Herman (W.D. MI, Southern Division), File No. 5:98-CV-16, March 27, 1998, 11.
  14. Initially, federal ES grants were paired with state funds on a 50–50 match until 1938, when required state funding was gradually reduced, and in 1942 eliminated. See David E. Balducchi and Christopher J. O’Leary, “The Employment Service—Unemployment Insurance Partnership: Origin, Evolution, and Revitalization,” in Unemployment Insurance Reform: Fixing a Broken System, ed. Stephen A. Wandner (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2018), 68, 73, https://doi.org/10.17848/9780880996532.ch3.
  15. The other four original conditions: states establish a state agency through law to cooperate with the USES; develop a plan of service; appropriate matching funds; and appoint an advisory council. See David E. Balducchi and Alison J. Pasternak, “Federal-State Relations in Labor Exchange Policy,” in Labor Exchange Policy in the United States, ed. David E. Balducchi, Randall W. Eberts, and Christopher J. O’Leary (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2004), 43.
  16. David E. Balducchi and Alison J. Pasternak, “Federal-State Relations in Labor Exchange Policy,” in Labor Exchange Policy in the United States, ed. David E. Balducchi, Randall W. Eberts, and Christopher J. O’Leary (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2004), 44, https://research.upjohn.org/up_press/143/.
  17. David E. Balducchi and Christopher J. O’Leary, “The Employment Service—Unemployment Insurance Partnership: Origin, Evolution, and Revitalization,” in Unemployment Insurance Reform: Fixing a Broken System, ed. Stephen A. Wandner (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2018), 70, https://doi.org/10.17848/9780880996532.ch3.
  18.  Committee on Economic Security, Report to the President of the Committee on Economic Security (Washington D.C.: Government Printing Office, 1935), 19, https://www.ssa.gov/history/reports/ces5.html.
  19. Federal UI grants provided 100 percent of state administrative costs.
  20. Raymond C. Atkinson, Louise C. Odencrantz, and Ben Deming, Public Employment Service in the United States (Chicago: Public Administration Service, 1938), 166; Albert H. Aronson, “Merit Systems under the Social Security Act,” Public Personnel Review 1, no. 1 (April 1940): 3.
  21. 5 CFR 900.603, https://www.ecfr.gov/current/title-5/chapter-I/subchapter-B/part-900/subpart-F/section-900.603.
  22. See David E. Balducchi and Alison J. Pasternak, “Federal-State Relations in Labor Exchange Policy,” in Labor Exchange Policy in the United States, ed. David E. Balducchi, Randall W. Eberts, and Christopher J. O’Leary (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2004), 33.
  23. Franklin D. Roosevelt, Address to the Advisory Council of the Committee on Economic Security, November 14, 1934, https://www.presidency.ucsb.edu/documents/address-advisory-council-the-committee-economic-security.
  24. Comprehensive Employment Training Act of 1973, Job Training Partnership Act of 1982, Workforce Investment Act of 1998, and Workforce Innovation and Opportunity Act of 2014.
  25. Raymond C. Atkinson, Louise C. Odencrantz, and Ben Deming, Public Employment Service in the United States (Chicago: Public Administration Service, 1938), 152–58.
  26. The USES working group was headed by Oliver Short, director of the National Reemployment Service (NRS) in Maryland. The NRS was a division of the USES, and acted as the recruitment arm in states for public works under the Civilian Conservation Corps and Civil Works Administration. David E. Balducchi, “Harry Truman’s Tour of Duty as Missouri Reemployment Director,” Missouri Historical Review 115, no. 3 (April 2021): 173.
  27. Albert H. Aronson, “Merit Systems under the Social Security Act,” Public Personnel Review 1, no. 1 (April 1940): 24–28.
  28. Under the original SSA, state plans for “methods of administration” excluded the selection, tenure, and compensation of personnel, but the Social Security Board could encourage them. See Albert H. Aronson, “Merit Systems under the Social Security Act,” Public Personnel Review 1, no. 1 (April 1940): 3.
  29. William Haber and Daniel H. Kruger, The Role of the United States Employment Service in a Changing Economy (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 1964), 29.
  30. Raymond C. Atkinson, Louise C. Odencrantz, and Ben Deming, Public Employment Service in the United States (Chicago: Public Administration Service, 1938), 167.
  31. Albert H. Aronson, “Merit Systems under the Social Security Act,” Public Personnel Review 1, no. 1 (April 1940): 3.
  32. Saul J. Blaustein, Unemployment Insurance in the United States: The First Half Century (Kalamazoo, Mich.: Upjohn Institute, 1993), 174.
  33. Section 303 (a) (1), SSA.
  34. Albert H. Aronson, “Merit Systems under the Social Security Act,” Public Personnel Review 1, no. 1 (April 1940): 24–28.
  35. Anirudh Ruhil and Peter Camões, “What Lies Beneath: The Political Roots of State Merit Systems,” Journal of Public Administration Research and Theory 13, no. 1 (2003): 31, 10.1093/jopart/mug006.
  36. See C088—Employment Service Convention, 1948 (No. 88), International Labour Organization, https://webapps.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:C088. Thanks to Richard McHugh for the reference to the ILO Convention; see Richard McHugh, “Comments on Proposed Rule Regarding Wagner–Peyser Act Staffing,” 20 CFR 651, 652, 653, and 658, RIN 1205-AC02 [Docket No. ETA-2022-0003], July 22, 2022.
  37. Frank W. Hunger, Michael H. Dettmer, Edith Landman, Sandra M. Schraibman, and Margaret S. Hewing, “Defendants’ Memorandum in Opposition of Plaintiffs’ Motion for Summary Judgment,” State of Michigan v. Alexis M. Herman (W.D. MI, Southern Division), File No. 5:98-CV-16, March 27, 1998, 13–14; Memorandum from Robert H. Shriver, III, to Heads of Executive Departments and Agencies, U.S. Office of Personnel Management, June 10, 2024, https://www.chcoc.gov/content/certifying-use-merit-personnel-system-required-intergovernmental-personnel-act-1970.
  38.  Richard P. Nathan, The Administrative Presidency (New York: Macmillan Publishing Company, 1983), 83.
  39. Among these are Paul Appleby, Peter Drucker, and Wallace Sayre.
  40. Melvin J. Dubnick and Barbara S. Romzek, American Public Administration (New York: Macmillan Publishing, 1991), 39–40.
  41. This observation matches that of West and Hildebrand: “The federal UI service resides in the Employment and Training Administration (and previously in the Manpower Development Administration), which mainly focuses on job training programs.” See Thomas E. West and Gerald Hildebrand, “Federal–State Relations,” in Unemployment Insurance in the United States: Analysis of Policy Issues, ed. Christopher J. O’Leary, and Stephen A. Wandner (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 1997), 589, doi: 10.17848/9780585338408.ch13.
  42. The establishment in states of a broad array of employment and training programs at single physical locations linked by computerization to form a seamless system of services for job seekers and businesses.
  43. William J. Clinton, Letter to Representative Willaim Goodling, Domestic Policy Council, Bruce Reed, and Subject Files, “Job Training,” Clinton Digital Library, May 20, 1996, 3,  https://clinton.presidentiallibraries.us/items/show/31410. Identical letters of May 20, with attachments, were sent to the Senate Committee on Labor and Human Resources and House Committee on Economic and Educational Opportunities. A date of May 6 for Clinton’s letter was cited in error in David E. Balducchi and Alison J. Pasternak, “One-Stop Statecraft: Restructuring Workforce Development Programs in the United States,” in Labour Market Policies and the Public Employment Service: Proceedings of the Prague Conference, July 2000 (Paris: Organisation for Economic Co-operation and Development, 2001), 141–67.
  44. Portions of this section draw from David E. Balducchi and Alison J. Pasternak, “One-Stop Statecraft: Restructuring Workforce Development Programs in the United States,” in Labour Market Policies and the Public Employment Service: Proceedings of the Prague Conference, July 2000 (Paris: Organisation for Economic Co-operation and Development, 2001), particularly 158–61.
  45. Nearly four years later, to avert undercutting DOL’s stance in the Michigan court case, ETA limited Massachusetts to contract out ES services to four local areas.
  46. Required under section 1, W–P Act.
  47. In September 1997, a coauthor of this report was told by Secretary Herman’s chief of staff that she had told him that the public employment service was not going to be privatized on her watch. This turned out to be so.
  48. David E. Balducchi and Alison J. Pasternak, “One-Stop Statecraft: Restructuring Workforce Development Programs in the United States,” in Labour Market Policies and the Public Employment Service: Proceedings of the Prague Conference, July 2000 (Paris: Organisation for Economic Co-operation and Development, 2001), 160.
  49. Later, an amendment to the W–P Act in Title III of WIOA of 2014, strengthened the work test by expanding the definition to include eligibility assessments, like those in the RESEA program.
  50. Interminable back and forth between Michigan and the DOL was mainly through paper documents. These documents were not conveyed via email, but often prepared in Washington, D.C. and faxed to the Chicago ETA regional office, where federal grant authority resided, and from there sent to the Michigan agency.
  51. Headquarters of the DOL in Washington, D.C.
  52. Guy Park, Governor of Missouri, to W. Frank Person, Director of USES, July 15, 1935, RG 183, Box 8, Records of W. Frank Persons, 1933–39, box 8, National Archives. In a subsequent letter to Missouri of August 24, 1934, the DOL cited its legal authority as section 3 (a) of the W–P Act to require state ES offices to be merit-staffed. Mary La Dame, USES Associate Director, to Mary Edna Cruzen, Missouri State Employment Service, August 24, 1935, RG 183, Records of Director, W. Frank Persons, 1933–39, box 7, National Archives.
  53. William Haber and Merrill G. Murray, Unemployment Insurance in the American Economy: An Historical Review and Analysis (Homewood, IL: Richard D. Irwin, 1966), 447.
  54. Michigan’s ES plan of service was resubmitted on January 30, and formally denied by DOL on February 27, 1998. See Department of Labor’s Denial of Employment Service Funds to the States. Hearing before the Subcommittee on Oversight and Investigations, Committee on Education and the Workforce, House of Representatives, 105th Congress, Second Session, Washington, D.C., Serial No. 105-87, March 25, 1998.
  55. State of Michigan v. Alexis M. Herman, No. 5:98-CV-16, U.S. Dist. Ct., W.D. Mich. 1998.
  56. David E. Balducchi and Alison J. Pasternak, “Federal-State Relations in Labor Exchange Policy,” in Labor Exchange Policy in the United States, ed. David E. Balducchi, Randall W. Eberts, and Christopher J. O’Leary (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2004), 65–67.
  57. Letter from Melvin J. Howard to Douglas E. Stites, U.S. Department of Labor, February 3, 1998.
  58. Department of Labor’s Denial of Employment Service Funds to the States. Hearing before the Subcommittee on Oversight and Investigations, Committee on Education and the Workforce, House of Representatives, 105th Congress, Second Session, Washington, D.C., Serial No. 105-87, March 25, 1998, 2.
  59. Ibid., 4. A coauthor of this report attended the subcommittee hearing. The coauthor recalls that Representative Levin, a long-time UI patron, came into the hearing room, minutes before it commenced, gazed around the room and left. Levin’s presence was unmistakably to assert symbolic authority.
  60. Ibid., 5.
  61.  Ibid., 16.
  62.  Ibid., 18.
  63. During the 1995–96 session, Congress passed workforce development bills in each chamber. A Senate–House conference failed, due in part to philosophical differences over the roles of federal, state, and local governments. See Judith Havemann, “Job Training Bill Conference Degenerates; Administration Threatens Veto as GOP, Democrats Begin to Point Fingers,” The Washington Post, July 18, 1996, A4. In 1998, a revised bill worked its way through the legislative process; it was enacted on August 7 as the Workforce Investment Act.
  64. For an explanation about anticipated resource requirements of the One-Stop delivery system and ES and UI program responses, see Stephen A. Wandner, Solving the Reemployment Puzzle: From Research to Policy (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2010), https://doi.org/10.17848/9781441680389.
  65. State of Michigan v. Alexis M. Herman, No. 5:98-CV-16, U.S. Dist. Ct., W.D. Mich. 1998.
  66. David E. Balducchi and Alison J. Pasternak, “One-Stop Statecraft: Restructuring Workforce Development Programs in the United States,” in Labour Market Policies and the Public Employment Service: Proceedings of the Prague Conference, July 2000 (Paris: Organisation for Economic Co-operation and Development, 2001), 160.
  67. “Joint Statement on Michigan Employment Service Agreement. Secretary Herman, Governor Engler Announce Resolution of Michigan Employment Service Dispute,” News Release, U.S. Department of Labor, July 31, 1998.
  68. Merit-staff employees are limited to employees of state government, local units of government, special purpose units of government, school districts, intermediate school districts, public community colleges, and public colleges and universities.
  69. David E. Balducchi and Alison J. Pasternak, “Federal-State Relations in Labor Exchange Policy,” in Labor Exchange Policy in the United States, ed. David E. Balducchi, Randall W. Eberts, and Christopher J. O’Leary (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2004), 67–68. A coauthor of this report was on the federal team that reviewed the state’s ES plan of service, drafted conditions for dispute resolution, and the state operating agreement. The next year, reflecting on the resolution of the Michigan dispute, Secretary Herman told the coauthor “That was a hard one.”
  70. Louis Jacobson, Ian Petta, Amy Shimshak, and Regina Yudd, “Evaluation of Labor Exchange in the One-Stop Delivery System Environment. Westat, Inc.,” ETA Occasional Paper No. 2004-09, U.S. Department of Labor, Employment and Training Administration, February 2004, https://www.dol.gov/sites/dolgov/files/ETA/publications/Evaluation%20of%20Labor%20Exchange%20in%20One-Stop%20Delivery%20System%20-%20Final%20Report.pdf.
  71. Louis Jacobson and Ian Petta, “Measuring the Effect of Public Labor Exchange (PLX) Referrals and Placements in Washington and Oregon,” Office of Workforce Security Occasional Paper 2000-06, U.S. Department of Labor, Employment and Training Administration, October 4, 2000, https://www.dol.gov/sites/dolgov/files/ETA/publications/owsop_2000_06.pdf.
  72. In our experience, policymakers who object to study findings often employ a tactic used in the film Casablanca, to “round up the usual suspects;” typically, the “Casablanca Commentary,” includes charging flaws in study methodology or sample size, or placing it under perpetual review. On the whole, these were the arguments used by the ETA political appointees. Neither the Congress nor OMB bought them.
  73. This high ratio was due in large part because North Carolina used state funds to hire additional merit-based ES staff, which provided evidence that the W–P Act ES program was under-funded. Increased ES funding in all states likely would boost job matching among UI claimants.
  74. Louis Jacobson, Ian Petta, Amy Shimshak, and Regina Yudd, “Evaluation of Labor Exchange in the One-Stop Delivery System Environment. Westat, Inc.,” ETA Occasional Paper No. 2004-09, U.S. Department of Labor, Employment and Training Administration, February 2004, 1, 5, https://www.dol.gov/sites/dolgov/files/ETA/publications/Evaluation%20of%20Labor%20Exchange%20in%20One-Stop%20Delivery%20System%20-%20Final%20Report.pdf.
  75. Louis Jacobson, “Strengthening One-Stop career centers: Helping more unemployed workers find jobs and build skills,” Discussion Paper 2009-01, Hamilton Project, April 1, 2009, 20, https://www.hamiltonproject.org/publication/policy-proposal/strengthening-one-stop-career-centers-helping-more-unemployed-workers-find-jobs-and-build-skills/.
  76. Stephen A. Wandner, Solving the Reemployment Puzzle: From Research to Policy (Kalamazoo, Mich.: W.E. Upjohn Institute, 2010), https://research.upjohn.org/up_press/205/.
  77. Letter from Raymond J. Uhalde to Robert T. Pendleton, U.S. Department of Labor, December 22, 1999. The DOL gave no assurance that the Michigan ES demonstration would be open-ended.
  78. Section 1, W–P Act states, in part: “the United States Employment Service shall be established and maintained within the Department of Labor.” Amendments to the W–P Act in 1982 and 1998 eliminated references to the director of the USES.
  79. Burt S. Barnow and Christopher T. King, “The Workforce Investment Act in Eight States,” ETA Occasional Paper 2005-01, U.S. Department of Labor, Employment and Training Administration, February 2005, vi-vii, https://sites.utexas.edu/raymarshallcenter/files/2008/07/2005-02-the_workforce_investment_act_in_eight_states.pdf.
  80. “Strategic State Workforce Investment Plan for Title I of the Workforce Investment Act of 1998 and the Wagner-Peyser Act Part II, July 1, 2005–June 30, 2009,” Texas Workforce Commission, 2007, 100, https://webarchive.library.unt.edu/web/20091005185306/http://www.twc.state.tx.us/boards/wia/state_plan/07stateplan2.pdf.
  81. “Workforce Investment Act Amendments: Proposed Rule,” Federal Register 71, no. 244 (December 20, 2006): 76560.
  82. Ibid.
  83. Ibid., 7560.
  84. At the time technically titled the Trade Adjustment Assistance Reform Act of 2002. Stephen A. Wandner, Solving the Reemployment Puzzle: From Research to Policy (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2010), 220, https://doi.org/10.17848/9781441680389.
  85. “Workforce Investment Act Amendments: Proposed Rule,” Federal Register 74, no. 159 (August 19, 2009): 41815–41816, https://www.govinfo.gov/app/details/FR-2009-08-19/E9-19801.
  86. “Trade Adjustment Assistance; Merit Staffing of State Administration and Allocation of Training Funds to States; Proposed Rule,” Federal Register 74, no. 149 (August 5, 2009): 39199, https://www.federalregister.gov/documents/2009/08/05/E9-18625/trade-adjustment-assistance-merit-staffing-of-state-administration-and-allocation-of-training-funds.
  87. “Trade Adjustment Assistance; Merit Staffing of State Administration and Allocation of Training Funds to States,” Federal Register 75, no. 63 (April 2, 2010): 16993, https://www.federalregister.gov/documents/2010/04/02/2010-6697/trade-adjustment-assistance-merit-staffing-of-state-administration-and-allocation-of-training-funds.
  88. “Unemployment Insurance and the Workforce Innovation and Opportunity Act,” Unemployment Insurance Program Letter No. 14-18, U.S. Department of Labor, Employment and Training Administration, August 20, 2018, 9, https://www.dol.gov/agencies/eta/advisories/unemployment-insurance-program-letter-no-14-18.
  89. “Workforce Innovation and Opportunity Act,” Federal Register 81, no. 61 (August 19, 2016): 56340, https://www.federalregister.gov/documents/2016/08/19/2016-15975/workforce-innovation-and-opportunity-act. Section 7 (a) authorizes states to use ninety percent of state’s funds for basic labor exchange services, and at section 7(b) ten percent of the state’s funds (dubbed Governor’s Reserve) for performance incentives, exemplary models of service delivery, professional and career development of SWA staff, and services for groups with special needs.
  90. In November 2019, the Trump administration’s Office of Personnel Management (OPM) relaxed merit staffing requirements for grants-in-aid programs, and allowed states to use contractors. (Memorandum from Dale Cabaniss to Heads of Executive Departments and Agencies, U.S. Office of Personnel Management, November 27, 2019, https://maximus.com/sites/default/files/images/Insights/F2C/IPA_Memo_to_States_OPM_Clarification.pdf.) For a full account of what transpired, see Stephen A. Wandner, Transforming Unemployment Insurance for the Twenty-First Century: A Comprehensive Guide to Reform (Kalamazoo, MI: W.E. Upjohn Institute for Employment Research, 2023), 217, https://doi.org/10.17848/9780880996914.
  91. “Wagner-Peyser Act Staffing Flexibility,” Federal Register 85, no. 3 (January 6, 2020): 626, https://www.federalregister.gov/documents/2020/01/06/2019-27260/wagner-peyser-act-staffing-flexibility. The American Federation of State, County and Municipal Employees (AFSCME) filed a lawsuit on February 13, 2020, seeking an injunction and declaratory judgment to stop execution of the DOL’s “Wagner-Peyser Act Staffing Flexibility” rule, dated January 6, 2020 (AFSCME, AFL-CIO v. Eugene Scalia, John P. Pallasch, U.S. Department of Labor, Case number 1:20-cv-421, U.S. District Court for the District of Columbia: February 13, 2020, https://www.afscme.org/docs/20-cv-00421.pdf). The lawsuit asserted that the DOL did not have waiver authority under WIA/WIOA for ES staffing as the W–P Act has a distinct funding stream with statewide responsibilities. The lawsuit was pending when the Biden administration took office. An agreement was reached with the DOL to stay the lawsuit pending issuance of revised W–P Act rule. Upon the DOL’s issuance on November 24, 2023, the lawsuit was dismissed as moot.
  92. “Wagner-Peyser Act Staffing Flexibility,” Federal Register 85, no. 3 (January 6, 2020): 592, https://www.federalregister.gov/documents/2020/01/06/2019-27260/wagner-peyser-act-staffing-flexibility. In October 2020, at the countdown to the presidential election, the Trump administration issued an executive order to increase flexibility in hiring and firing selected federal workers covered under a new Schedule F employment classification. Federal workers under Schedule F would be assigned to at-will jobs, without merit system protections, to increase loyalty to the president’s interests. The Trump executive order was not implemented. The Biden administration rescinded it, and issued a regulation in April 2024 to buttress merit system protections and impede any future effort to destabilize them.
  93. Louis Jacobson, Ian Petta, Amy Shimshak, and Regina Yudd, “Evaluation of Labor Exchange in the One-Stop Delivery System Environment. Westat, Inc.,” ETA Occasional Paper No. 2004-09, U.S. Department of Labor, Employment and Training Administration, February 2004, https://www.dol.gov/sites/dolgov/files/ETA/publications/Evaluation%20of%20Labor%20Exchange%20in%20One-Stop%20Delivery%20System%20-%20Final%20Report.pdf.
  94. Marios Michaelides, Eileen Poe-Yamagata, Jacob Benus, and Dharmendra Tirumalasetti, “Impact of the Reemployment and Eligibility Assessment (REA) Initiative in Nevada,” Employment and Training Administration Occasional Paper No. 2012-08, U.S. Department of Labor, January 2012, https://www.dol.gov/sites/dolgov/files/ETA/publications/ETAOP_2012_08_REA_Nevada_Follow_up_Report.pdf.
  95. Both experimental and nonexperimental evaluations of workforce development programs often use state UI wage records to measure effects on individuals’ employment and earnings.
  96. “Wagner-Peyser Act Staffing Flexibility,” Federal Register 85, no. 3 (January 6, 2020): 593–594, https://www.federalregister.gov/documents/2020/01/06/2019-27260/wagner-peyser-act-staffing-flexibility.
  97. “Wagner-Peyser Act Staffing,” Federal Register 88, no. 225 (November 24, 2023): 82715, https://www.federalregister.gov/documents/2023/11/24/2023-25372/wagner-peyser-act-staffing.
  98. “Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020—Summary of Key Unemployment Insurance (UI) Provisions and Guidance Regarding Temporary Emergency State Staffing Flexibility,” Unemployment Insurance Program Letter No. 14-20, U.S. Department of Labor, Employment and Training Administration, April 2, 2020, https://www.dol.gov/agencies/eta/advisories/unemployment-insurance-program-letter-no-14-20.
  99. “Continued Assistance for Unemployed Workers Act of 2020 (Continued Assistance Act)—Summary of Key Unemployment Insurance (UI) Provisions,” Unemployment Insurance Program Letter No. 9-21, Employment and Training Administration, December 30, 2020, https://www.dol.gov/agencies/eta/advisories/unemployment-insurance-program-letter-no-09-21.
  100. NASWA legislative priorities for 2024 continue to support staffing flexibility for ES and UI programs. “NASWA’s 2024 Legislative Priorities,” January 10, 2024, https://www.naswa.org/news/naswas-2024-legislative-priorities.
  101. Yolanda Richardson and Jennifer Pahlka, “Employment Development Department Strike Team Detailed Assessment and Recommendations,” California Employment Development Department, September 16, 2020, https://s3.documentcloud.org/documents/7215502/Assessment.pdf.
  102. “Wagner-Peyser Act Staffing,” Federal Register 88, no. 225 (November 24, 2023): 82660, 82664, https://www.federalregister.gov/documents/2023/11/24/2023-25372/wagner-peyser-act-staffing.
  103. Michele Evermore,“Economic Security Programs Supporting American Livelihood,” Statement of Michele Evermore, Deputy Director of Policy, Office of Unemployment Insurance Modernization, U.S. Department Of Labor, Before the United States House Of Representatives Select Committee on Economic Disparity and Fairness in Growth, 117th Cong., July 28, 2022, https://docs.house.gov/meetings/EF/EF00/20220728/115064/HHRG-117-EF00-Wstate-EvermoreM-20220728.PDF.
  104. “Wagner-Peyser Act Staffing,” Federal Register 88, no. 225 (November 24, 2023): 82684, https://www.federalregister.gov/documents/2023/11/24/2023-25372/wagner-peyser-act-staffing.
  105. The courts ruled in NAACP v. Brennan No. 2010-72(D.D.C) that ES was not adequately serving MSFWs. The DOL agreed to diversify its staff to adequately serve this population, but the 2020 final rule rolled back these protections as well as affirmative action requirements. The Biden administration rule not only restored these protections but added protections for ES staff, such as protection from retaliation for raising concerns, streamlining language access, adding coverage to full time students who will now not be denied services if they meet all of the other qualifying criteria, and significant new outreach plans that include hiring outreach staff and increasing record retention requirements.
  106. “Wagner-Peyser Act Staffing,” Federal Register 88, no. 225 (November 24, 2023): 82660, https://www.federalregister.gov/documents/2023/11/24/2023-25372/wagner-peyser-act-staffing.
  107. Matea Gold, Melanie Mason and Tom Hamburger, “Indiana’s bumpy road to privatization,” Los Angeles Times, June 24, 2011, https://www.latimes.com/archives/la-xpm-2011-jun-24-la-na-indiana-privatize-20110624-story.html.
  108. Louis Jacobson, Ian Petta, Amy Shimshak, and Regina Yudd, “Evaluation of Labor Exchange in the One-Stop Delivery System Environment. Westat, Inc.,” ETA Occasional Paper No. 2004-09, U.S. Department of Labor, Employment and Training Administration, February 2004, https://www.dol.gov/sites/dolgov/files/ETA/publications/Evaluation%20of%20Labor%20Exchange%20in%20One-Stop%20Delivery%20System%20-%20Final%20Report.pdf.
  109. Negative liberty consists of freedom from something, whereas positive liberty consists of the ability to do something. See Isaiah Berlin, British political theorist, in his 1958 lecture, “Two Concepts of Liberty,” available at https://berlin.wolf.ox.ac.uk/published_works/tcl/.
  110. Daniel Chenok and Donald K. Kettl, “Merit and the Changing Nature of Work,” National Academy of Public Administration, February 27, 2023, 2–6, https://napawash.org/standing-panel-blog/proposals-to-modernize-and-reinvigorate-the-federal-civil-service.
  111. Richard P. Nathan, “Preface,” in Burt S. Barnow and Christopher T. King, “The Workforce Investment Act in Eight States,” ETA Occasional Paper 2005-01, U.S. Department of Labor, Employment and Training Administration, February 2005, i, https://sites.utexas.edu/raymarshallcenter/files/2008/07/2005-02-the_workforce_investment_act_in_eight_states.pdf.
  112. Eloy Oliveira, Gordon Abner, Shinwoo Lee, Kohei Suzuki, Hyunkang Hur, and James L. Perry, “What does the evidence tell us about merit principles and government performance?” Public Administration 102, no. 2 (June 2024): 668–690, https://onlinelibrary.wiley.com/doi/epdf/10.1111/padm.12945.
  113. “Remarks of Senator John F. Kennedy, Rockefeller Public Service Awards Luncheon, Washington D.C., April 30, 1958, https://www.jfklibrary.org/archives/other-resources/john-f-kennedy-speeches/rockefeller-public-service-awards-washington-dc-19580430.
  114. “Working for the Many: Public services fight inequality,” Oxfam, April 3, 2014, https://www-cdn.oxfam.org/s3fs-public/file_attachments/bp182-public-services-fight-inequality-030414-en_1.pdf.
  115. Jonathan Berry, “Department of Labor and Related Agencies,” in Mandate for Leadership: The Conservative Promise Project 2025, Presidential Transition Project, ed. Paul Dans and Steven Groves (Washington, D.C.: The Heritage Foundation, 2023), 605–06, https://static.project2025.org/2025_MandateForLeadership_CHAPTER-18.pdf.

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