February 2014
John Moon: Welcome to the Federal Reserve's Economic Development podcast series. I'm John Moon with the Federal Reserve Bank of San Francisco.
Employment social enterprises have a two-fold objective of providing jobs and related training for target populations while also being a viable and sustainable business. Carla Javits and Jason Trimiew at the Roberts Enterprise Development Fund (REDF) proposed this idea that marries economic and workforce development as part of the "Big Ideas for Job Creation" project.
The project, sponsored by the Institute for Research on Labor and Employment at the University of California at Berkeley, and supported by the Annie E. Casey Foundation, was a call to academics and economic development practitioners to design job programs for cities and states that would lead to net new job creation in one to three years. Javits and Trimiew's idea, "Social Enterprise," is one of several winning ideas from the project's second round that we're featuring in this podcast series.
Today I'm speaking with Carla and Jason at REDF. Thanks to both of you for being here today.
Carla Javits: Thanks so much for having us.
Carla Javits
Jason Trimiew
Jason Trimiew: Thanks a lot.
Moon: Carla and Jason, tell us more about your big idea on employing low-income people facing multiple barriers to employment and what issues you address with it.
Javits: Existing workforce systems really focus mostly on people who are recently laid off, who need retraining, and, obviously, we know that's a big issue now a few years after the recession hit. But we also need a route into the workforce for millions of people who are at a point in their lives when they really want to work but they just can't get into the workforce. They may have histories of homelessness or incarceration, mental health [issues] or alcohol or drug addiction, young people who might have left school or become gang involved. These are people who come to a point in time—maybe they've had a child, gotten out on parole, finally have a stable place to live—when they want to go to work, but there are really few paths in for them.
Evidence has shown that those who get into a real wage-paying job for at least six months or up to a year can in many cases move ahead and leave behind joblessness, homelessness, incarceration. We know that going to work can save the public money and improve the lives of people, their families, their communities.
But most employers won't give these individuals a chance. They have a lot of people to choose from when they look at who they want to hire, and people who face these kinds of barriers or have these histories are not really the first on their list for hiring. So employment social enterprises actually provide this chance, this opportunity, through a market-oriented model that delivers jobs and support to help these particular people work and succeed while earning revenue that supplements what would otherwise be 100 percent covered by philanthropy or by government.
Moon: How does employment social enterprises' model fit within a local workforce development ecosystem? How does it fill a unique niche in helping to expand the pipeline of qualified job candidates and fostering job growth?
Trimiew: Because the model is centered on a market-facing business, the extent to which that business is successful in selling goods and services that the marketplace really demands, we see local economies able to absorb these new businesses into the whole set of businesses that are needed in communities if they are to revitalize. And so particularly because the social enterprises that are operating these businesses are often located in these low-income communities where the target populations they're seeking to employ also live, that is where we see the marriage of workforce development and local economic development.
The other aspect of this that is unique in the social enterprise context is that we are offering through social enterprise not just help for individuals to get a job through the skills like résumé writing or job searching, but we're offering a real job—a job with wages, in some cases, benefits that they currently do not receive, and a set of supports that help them stay in those jobs and then advance to then transition from social enterprise into the broader workforce. We think that makes a great contribution to the local workforce because you have a pipeline of prepared workers, both in terms of their soft skills, their experiences in certain industries, and the attitudes that we know are critical for long-term success.
Moon: What are some of the potential barriers to launching an employment social enterprise, and what conditions are most critical in determining whether an effort like this will be successful?
Javits: Some of the barriers are identifying the right businesses that require relatively low capital investment but create significant numbers of front-line jobs and can deal with a workforce that is at least partially in transition as people move on into more competitive employment, and is able to price and deliver quality goods or services so that it could be successful in the marketplace. And then finding the buyers that are willing to give these nontraditional businesses a chance as part of their own supply chain so that these businesses succeed and really grow.
I think some of the conditions that are really critical in determining success include leadership talent. I think it's important as this industry grows to attract that kind of entrepreneurial talent that also cares deeply about the social results. Also, it's important to really understand the cost structure of these businesses. And we've pioneered something that we call "double bottom-line accounting," which is really a way of understanding and unpacking the social costs of a business, and then the traditional business cost so that these businesses are able to price in the marketplace the goods and services that they sell in a way that makes sense.
Another positive condition is the right kind of capital, right sized, delivered at the right time for both start-up and growth. And some of that is really just connecting the capital that exists and educating those that deploy that capital about this sector so that they're willing to make the investments that are needed here.
I think another important condition is that these entities are resourced properly so they can create and deliver information on the business results and on the social results, both to the funders and to themselves so that they can continually improve their performance.
And then, lastly, I'd probably just cite what's really needed here are commercial entities that are willing to purchase from and hire the people who are then well prepared for these kind of front-line positions.
Moon: In your brief, you describe the real-world application of this idea in the AbilityOne Program. So can you describe that program and the related results? And then also, are there any other state or local examples of successful employment social enterprises that you can point us to?
Trimiew: The concept of nonprofit organizations running businesses to fuel the services that they provided is not new. But when you add on this component and focus in on employment, we, in many respects, still are in a nascent field.
There was legislation enacted many years ago to create a program that would allow the federal government to buy goods and services at fair market prices from a network of social enterprises focused on employing people with significant disabilities. And contractually, any services that were procured or goods that were procured by the federal government, 75 percent of all the work hours performed on those contracts had to be performed by people with disabilities. This was called the AbilityOne Program. In setting up that program, they also established an intermediary to manage this network of social enterprises all over the country and market the goods and services produced by these enterprises to the federal government.
Much of this has taken root in the Department of Defense within the federal government in terms of procurement practices and utilization of this program, but it has other customers within the federal government as well, and the goods and services that are being purchased by the federal government are varied. Everything from fleet services to uniforms for the military to food products to services on the military bases and installations. And over the life of this program, what it now amounts to is over $2 billion of annual federal procurement contracted through a network of approximately 500 to 600 social enterprises employing about 130,000 people with significant disabilities all across America. We know within the disability community that there is significant persistent unemployment, and this allows for these organizations to both employ and in some cases advance individuals through employment to the broader workforce on providing a competitive good or service to the federal government.
Now that there is significant capability built up in these enterprises all over the country, they have been able in those enterprises to pivot that capability from not just providing that service to the federal government but to compete in the commercial marketplace with companies as well. And because there's no contractual requirement with those commercial customers, it has allowed those companies to also employ people with other barriers to work—people who have been previously incarcerated, people who have been homeless.
And in terms of state and local examples, REDF has worked in the state of California with a portfolio of social enterprises, many of which were at a fairly early stage in their development. And some of the groups that we have worked with are now no longer directly supported with our resources but are sustainable and expanding. A case would be the organization Juma Ventures, which operates concessions and vending operations in ballparks and stadiums. When REDF engaged with Juma, they were just based in the Bay Area serving our local ballparks. They're now in three states.
Moon: Given that your idea really bridges efforts in both the economic and workforce development arenas, how can local economic developers and business leaders support programs such as these? What are the factors that are important that might point to a successful effort?
Javits: First, I would cite capital. There's definitely a need for capital for both the start-up and the growth of these social enterprises. And I would say there's a role for loans, for lending, for grant making, and also for innovative equity-like products that I think could fuel the growth of this sector. There's also a need for procurement, as we've discussed. We think that the big frontier here is commercial procurement, and we need more of that as well as hiring the people who are prepared by these social enterprises into competitive employment.
One thing we've thought about is that it's possible for the banks doing this procurement and hiring might be a pathway to meeting CRA [Community Reinvestment Act] requirements, and we're really interested in seeing some banks make that effort and see if, in fact, doing that could pass muster. So that's very concretely something that's really needed and how economic developers and business leaders can support the development.
Moon: This concludes our podcast. We've been speaking with Carla Javits and Jason Trimiew at REDF.
Mark your calendars for the May 2014 conference on Reinventing Older Communities, hosted by the Philadelphia Fed. The biennial conference focuses on the specific challenges facing older industrial communities.
For more podcasts on this topic and others, please visit the Atlanta Fed's website at www.frbatlanta.org. If you have any comments or questions, please e-mail us at podcast@frbatlanta.org. Thank you for listening.