Pay for Success Finance for Youth Workforce Development: Background and Issues (Virginia Pay for Success Lab)

In 2014, President Obama signed the first major update to the country’s workforce development policies in two decades. The act, titled the Workforce Innovation and Opportunity Act (WIOA), included a provision that allows states to use pay for performance strategies to implement effective programs. Concurrently, states and localities across the country have increasingly begun to demonstrate interest in Pay for Success (PFS) finance -- a novel way of implementing impactful social services programs. This past year, Social Entrepreneurship @ UVA launched the Virginia Pay for Success Lab, a research lab that conducts PFS research and analysis to support states and localities considering PFS initiatives. The Lab has researched the opportunity for states to use pay for performance, PFS, and related strategies in the context of youth workforce development programs. The Lab will publish the findings through a series of blog posts over the coming months.


Many young people across the United States graduate or drop out of high school without plans for college or other technical education. Among the states, the percentage of young adults 16 to 24 who are neither in school nor working ranges from 7.6 percent in Nebraska to 19.8 percent in Louisiana. These individuals are more likely to move into adulthood without career skills and prospects for a self-sufficient life. Many states and localities recognize this opportunity to better educate and prepare tomorrow's workforce by providing youth, generally defined as aged 16-24, with workforce development programs that have a data-driven and proven track record of success. Abt Associates and the U.S. Department of Labor each recently published research summaries on the evidence-base of youth workforce development programs showing that rigorous interventions can improve the trajectories of young people’s lives.


Through Pay for Success (PFS) finance, a government contracts with a social service provider that is responsible for providing a proven service or intervention to an at-risk population. Instead of the government paying upfront, a private or philanthropic investor provides the necessary programmatic funding. The government agrees to repay the investment with interest based upon the achievement of certain target outcomes. If the intervention does not achieve the outcomes, the government does not pay. As described by the Urban Institute, “PFS aims to drive government resources toward proven social programs that deliver better results to those in need.” Since 2012, localities have launched 12 PFS projects across the United States in areas such as early childhood education, maternal health, foster care, supportive housing, and criminal justice. 


This blog series will provide readers with an in-depth understanding of the opportunity to utilize the Pay for Success in the context of youth workforce development programs. The Lab will post regularly from early April through May on topics such as the evidence-base of youth workforce development programs, research designs for evaluating programs, the stakeholders involved with workforce development, the current funders of youth workforce programs, how governments use data to track outcomes, and how states can most effectively utilize the pay for performance provisions contained in WIOA. 

Authored by Joshua Ogburn; edited by Katherine Bailey and Morgan Snell.