In the late 1940's Leo Fender, a radio repairman in Anaheim California, invented the first solid body electric guitar to be mass-produced – the Fender Telecaster. They have been played by rock stars from Jimi Hendrix to Bruce Springsteen, and Leo Fender ended up in the Rock n' Roll Hall of Fame. The company prospered and was sold to CBS in 1965, but by 1981 the company was in desperate straits – losing market share to foreign competitors and plagued by declining quality. In 1985, company managers bought the company from CBS.

At this point almost all Fender guitars were manufactured overseas. In a bid to bring production back to the U.S., company management began producing a small number of guitars in a Corona, California plant with the 60 employees remaining from the original production group. For a long time the plant struggled to achieve acceptable quality at a reasonable cost, but in 1998 the company opened a new 177,000 square-foot plant in Corona employing over 400 people.

Today, the new plant manufactures over 350 Fender guitars a day, along with Fender amplifiers. The company's dramatic resurgence is a product of many factors, but one factor always mentioned by local managers is an obscure state-funded training program, the Employment Training Panel (ETP), which provides public funding to train California workers whose jobs are threatened.

The company, which was considering moving its remaining California production to a lower-cost state or overseas, decided instead to invest in a dramatic effort to improve productivity and quality. The centerpiece of this effort was training in state-of-the art manufacturing techniques, such as total quality management and statistical process control. Through ETP, the state spent over $700,000 to underwrite much of the cost of this large-scale training program.

For over ten years, my colleagues and I have tracked the impact of the ETP program on the workers trained, the companies served, and the state’s economy as a whole. While most studies of public training programs find little positive impact our analysis show that ETP training had quite dramatic positive impacts. For example, we tracked the earnings of over 167,000 workers trained by ETP and found that their earnings grew substantially faster than workers from the same industries that did not get training. Similarly, we compared the growth of companies that received ETP training with those that did not, and found that that the employment and payroll in the ETP companies grew much more quickly. Finally, by targeting basic industries that face competition from out-of-state or overseas ETP’s investment has a multiplier effect. When companies like Fender stay in the state and grow, they buy more from local suppliers; their employees spend more in the state and generate additional economic activity.

What is the key to ETP’s success? Unlike many public programs, ETP only pays for trainees who complete training and are kept on the job for 90 days. So state investment is not wasted on trainees who drop out of training or who don’t work in a job related to training. This system makes the employer a partner with ETP. Employers pay workers while they are in training, and they will not collect a subsidy from ETP if the worker does not complete training and stay on the job. This means employers have a substantial financial stake in the training’s success, which makes employers very careful about what training they choose and who they select for training.

Ironically, despite its success, ETP had its budget for training cut in half in an 11th hour budget deal this spring. Money from its fund was diverted to support the training of welfare recipients. While this too is a valuable social goal, it does not provide an incentive for businesses to remain and grow in California.Richard W. Moore is a Professor of Management and Co-director of the Management and Organization Development Center at Cal State Northridge. He is the co-author, with Daniel R. Blake, G. Michael Phillips and Daniel McConaughy of Training That Works: Lessons from California’s Employment Training Panel Program, recently published by the W.E. Upjohn Institute for Employment Research.