Target to pay 100% of college tuition and textbooks in bid to attract workers

By Melissa Repko of CNBC. Excerpt:

"Target said it plans to invest $200 million in the education program over the next four years. It developed the program with Guild Education, a company that manages corporate education assistance programs."

That sounds like education brokers that came up in a post from 2019, which I put below. Of course, with competition for workers and some workers still looking for jobs due to Covid and getting unemployment insurance, firms have to find new ways to get and keep them. 

But this is not totally new and there may be some interesting economics behind this.

Here is the post from 2019 "Some Companies Offer To Pay All College Expenses For Their Workers."

See Now Hiring, With Attractive New Perk: Free College Degree: Companies say benefits of a happy, better-educated staff outweigh the costs of paying for workers’ college education by Kelsey Gee of The WSJ.

Offering a good benefit in a tight labor market that leads to retention of workers reminds me of the "efficiency wage theory" that says that companies pay above market wages to lower worker turnover. This cuts hiring and training costs. Workers might also work harder so that they can keep a job that offers so many benefits.

There also might be economies of scale involved. That is when average cost falls as quantity increases (think of a factory that produces thousands of cars compared to producing only one car-the average cost is lower the more cars you produce, up to a point, since you spread the fixed cost of the factory over more cars).

If the broker firm can deliver thousands of student at once to a school, that lowers their average cost and the college might want to offer a lower tuition to get that many students so easily.

Also, if the broker acts as a single buyer or monopsony, then they can get a lower price. Monopsonies pay less than what would be the price if there was competition or many buyers in the market.

Excerpts:

"Some of America’s largest companies are proposing that a good job can lead to a free college education, reversing the norm that requires workers to get the degree before launching a career.

Walt Disney Co. DIS 3.08% , Discover Financial Services DFS 4.93% and Yum Brands Inc.’s YUM 2.60% Taco Bell are among the high-profile employers sending front-line workers back to school, often paying the cost of tuition, fees, books and other expenses upfront and in full. The companies say the benefits of a content and potentially better-trained staff outweigh the costs.

Many large employers have long offered limited tuition-assistance perks to staff, reimbursing up to the federal tax-exempt maximum of $5,250 a year—after the student successfully completes course work. For most people, though, paying out-of-pocket and then waiting for the company benefit to kick in later proved too much of a barrier, said Jon Kaplan, Discover’s vice president of training and development.

Even so, Mr. Kaplan said, with around 80% of Discover’s 7,000 call-center and field staff lacking a college degree, the company saw a good return on every dollar invested in tuition, as participating employees stayed with the firm longer and moved into more senior positions at a higher rate."

"To secure new corporate partners, Brandman pays an undisclosed fee to Guild Education, a Denver startup that brokers deals between companies and colleges."

"The cost of a bachelor’s degree from a four-year U.S. institution averages $33,000 a year, according to the Education Department. Guild said that by providing schools a large number of part-time and full-time students, it can negotiate the total price down to between $6,000 and $10,000 in some cases"

"Some companies, including Walmart, pay 100% of those costs directly to the school, according to Guild, with minimal or no expense for workers."

"Other companies, including Taco Bell, cover up to $5,000 or so a year in costs up front and negotiate deals on textbooks and other student services for employees."

"the company now offers the college benefit to all 210,000 employees, after a pilot version last year boosted retention among participants by one-third to 98%."

"In the tightest labor market in decades, Disney, Discover and other companies say covering the full cost of college can help them hold on to valuable talent that has become more expensive to attract."