Amid persistent labor shortages and changing economic demands, many governors across the country are reinventing their approach to workforce development. But they also still feel hemmed in by what they see as an overly-restrictive federal system. 

To understand how that dynamic is playing out, researchers from Harvard University’s Project on Workforce and the National Governors Association talked to top advisors in 34 governors’ offices across the country, with an essentially even split between Democratic and Republican leadership.

“The future of workforce development depends on the ability of governors and other policymakers to adapt, innovate, and learn from each other,” the report’s authors write.

The report focuses on how governors are leveraging the authority they have under the federal Workforce Innovation and Opportunity Act (WIOA) to expand access to employment and training. Almost 60% of governors’ advisors said low labor force participation was a major factor shaping their workforce development strategies—prompting states to move beyond traditional unemployment-focused programs. 

Alabama represents one innovative approach, the report says, with Gov. Kay Ivey establishing a statewide talent marketplace and an Office of Education and Workforce Transformation to coordinate previously siloed efforts. Arkansas has similarly reorganized and elevated workforce development. And Tennessee leverages flexible federal dollars, through the Governor’s Reserve Fund, to incentivize businesses like Ford and Nissan to hire and train individuals with significant barriers to employment.

One advisor in an un-named state told researchers: “The governor firmly believes that it is not just about jobs, it is about quality jobs and jobs that provide family-sustaining wages.”

The study identifies childcare (62%) as the most frequently cited barrier to workforce participation, followed by inadequate career navigation (53%) and transportation (35%). States like Illinois are responding by incorporating wrap-around supports—including assistance with childcare, transportation, and housing—into many workforce programs.

“States understand that the challenge goes beyond training,” says Kerry McKittrick, co-director of the Project on Workforce. “They’re focused on wraparound services, but many are in the ideation phase.”

Some states also are transforming how they engage with employers. Michigan, for example, created a Talent Action Team, a “concierge-level service” that brings together local workforce agencies and community colleges to help businesses develop training and recruitment pipelines. The focus is on strategic industries, like electric vehicles, semiconductors, and tech more broadly.

Even as they get creative, though, state leaders remain frustrated both by low federal outlays and WIOA’s rigid eligibility rules and funding formula. The program, for example, restricts many funds to workers who are unemployed—making it hard to do the kinds of upskilling and reskilling of incumbent workers that is a top priority in today’s environment.  

About half of the states reported using their Governor’s Reserve Funds—a flexible 15% carveout under WIOA—to seed innovative programs. But almost two-thirds also have to use at least a portion of their flexible funds just to administer basic programs and backfill administrative costs.

“While WIOA provides governors with authority over key elements of the federally funded workforce system, it also poses constraints that have proven to inhibit innovation,” says Jack Porter, program director for workforce development and economic policy at NGA.

The researchers urge the federal government to address those concerns, especially as Congress considers the reauthorization of WIOA. An accompanying brief lays out a number of recommendations from the Project on Workforce, including prioritizing sectoral training, increasing funding for earn-and-learn programs like apprenticeships, and broadening eligibility criteria for youth and workers. And the NGA also has outlined governors’ top priorities for federal policy around workforce. 

The Kicker: Strategic changes would help, McKittrick says, but ultimately workforce funding would need to increase to meet the need in states. 

“Improving accountability and eligibility are both important,” she says. “But without significant investment, we won’t see real system transformation.”