Lifelong Learning and Employer Provided Training

Lifelong Learning and employer provided training

By Koos van Elk, EIM Business & Policy Research, The Netherlands () and Arie Gelderblom, SEOR Erasmus University Rotterdam, The Netherlands ().

1Introduction and summary

In this paper we use the outcomes of a study, financed by DG Employment of the European Commission[1] and implemented by EIM Business & Policy Research in close cooperation with SEOR, Erasmus University Rotterdam[2]. The study provides insights into the effect of government policies to stimulate entrepreneurs and employees to take up training.

Lifelong learning has become an important focal point in social-economic and educational policy. Owing to a number of developments, some supply-driven, others demand-driven, competencies tend to become obsolete faster and faster. Technology and consumer preferences change more rapidly then they used to do whilst the process of globalisation of the economy continues. Partly in response to these developments, companies adapt their organisational structure. As a result, the job structure and the contents of jobs tend to change continuously. Workers, then, have to keep investing in human capital during their working career to remain employable. This need for investment in human capital becomes more and more important as the age of available labour increases. Older workers are more likely to have outdated skills than younger workers. Until now most workers withdraw from the labour market long before reaching the official retirement age. Given the labour shortages many EU-economies are experiencing, there is a need to increase work participation rates among people over 50 years of age. This would require considerable efforts in training.

The important role training can play for the economy is also confirmed in the empirical literature on the effects of training on wages and productivity. Most studies confirm positive effects, which can be seen in overview articles (OECD, 1999; Ok and Tergeist (2003) and OECD (2004).

However, expenditure on continuing training is still low and groups like older employees and those with lower qualifications are under-represented in training participation. Participation also differs among types of companies. De Kok (2002) for example showed that both the number of training days as well as the training support are positively related to firm size. In addition he showed that smaller firms do little in terms of training support such as initiating a proper structure and assuring the use of capabilities learned on the work floor. This is an important finding, because the effects of training are positively correlated with such training support.

A number of market imperfections explain why the combination of ‘positive effects of training’ and ‘under investments’ persists[3]. This presents a case for government policies to promote and support training for employees.

The question to be answered is what do we know about the effect of policies implemented by national governments to foster training of the employed? Do they succeed in increasing uptake of training? and which type of measure is more successful than another?

The study was limited to a specific category of lifelong learning activities: formal training of the employed. The study focused on policy instruments of national governments in the 15 EU Member States prior to 1 May 2004 (EU-15) that aim to promote the uptake of such training. The instruments considered are directly targeting employers and/ or employees, so instruments that for example target training institutes directly fall outside the scope of the study. The aim was to identify effective policy instruments in order to allow other Member States to benefit from these good examples.

2Overview of national policy measures

Many similarities exist, among the older Member States (EU-15), in the objectives with regard to promotion of training of the employed. All countries recognise the importance of a highly educated workforce that is continuously upgrading its knowledge and skills. Countries differ, however, in the policies to stimulate this. Some countries focus their attention more on initial apprenticeship systems, while others focus more on continuing training of the employed. This helps to explain why the number of instruments and the type and size of instruments varies strongly per country. In the report the main features of the policy context of EU-15 has been portrayed. As an illustration we provide four examples here:

• The Austrian government endorses the importance of lifelong learning as a factor for employability. Governmental initiatives focus on initial education and apprenticeship systems. The approach towards training of the employed is limited to a few legislative acts, which provide fiscal incentives for employers and employees. Recently the budget for such instruments has been reduced;
• The backbone of the French policy on life long learning is a levy. Enterprises only have to pay this levy if they don't invest a certain amount in training of their employees. Levies collected from employers that do not invest enough are used to subsidise other training activities;
• In Germany, the government's policy to improve competitiveness and employability is mainly focused on initial education and the apprenticeship system. In its action programme the government tries to enhance the interconnection between existing vocational education and the working environment. To this end, the federal government has launched the action programme 'Lifelong Learning for Everyone';
• In Sweden the government's incentives are largely based on preventing unemployment. Special attention is concentrated on the low qualified unemployed and employees who are put at risk of becoming unemployed. The identified instruments directly target individuals rather than their employers.

On average, six different instruments have been identified per MemberState. This varies from four or less instruments in Austria, Greece, Luxembourg and Spain to ten or more instruments in Belgium and the Netherlands. These differences do not directly reflect the attention paid to life long learning in these Member States, as it (also) reflects the way the policy is structured as illustrated above.

In total 94 policy instruments were identified in EU-15. These are classified by target group and nature of the instrument. More than three-quarter of the identified instruments provide financial incentives (n=72, see Table 1); instruments focussing on promotional activities seem to occur less often (n=18). Most of the financial incentives are “traditional” subsidies and fiscal incentives. Vouchers and learning accounts are less frequently found. The financial instruments are evenly targeted towards employers and employees.

Table 1Different types of instruments

Main type / Number of instruments
Financial incentives for employers / Fiscal incentives for employers Voucher systems
Other subsidies for employers / 8
2
27
Financial incentives for individuals / Fiscal incentives for employees Vouchers for employees
Individual learning accounts
Other subsidies for employees / 4
2
5
24
Promotional activities for employers / Information networks for employers Training policy award
Other promotional activities for employers / 3
2
2
Promotional activities for individuals / Publicity campaigns
Other promotional activities for individuals / 7
4
Don't know/no answer / 4
Total / 94

Source:EIM, SEOR 2005

About two-thirds of the identified instruments are open to all employers. Some instruments focus on starters and self-employed (4), specific sectors (4) or SMEs (19). More than half of all instruments are open to all employees. Five instruments are also open for unemployed, and three focus on self-employed individuals. Different target groups of employees can be distinguished, such as female, older or younger employees, but the most common target groups are lower educated employees and employees with a high risk of unemployment.

3Evaluations

Evaluation studies could only be identified for 34 policy instruments and only part of these studies pay attention to the main goal of the instruments: additional participation in continuing training. Often, evaluations merely compare the volume of training before and after a specific measure is introduced. However, it is doubtful to what extent changes in volume can really be attributed to the measure following such an approach. Many other factors may also influence the volume of training, for example the business cycle. When evaluations only look at the ‘take’ up of the measure other problems occur: The measure might only be used to recover part of the training costs that would have been made anyway (dead weight effect).

There are a number of options to determine the net effect, e.g. asking participants (subjective information) or using a control group approach. Only a limited number of studies tried to determine a net effect, and most of these studies were based on the subjective method. This implies that available material is rather 'thin' for robust conclusions.

In general the evidence shows that most instruments and incentives help to increase the participation in training. In the studies in which a deadweight effect is calculated, this differs from 20% to more than 50%. From several studies reviewed in the full report information on the effects of measures could be derived. A summary is shown in Table 2.

Table 2Summary of information about effect measures on volume

Type of measure / Indications of net effect of measure
Fiscal incentives for organisations / Limited; a high deadweight is more or less logical for such a measure
Subsidies for organisations / Relatively high (estimations for deadweight roughly vary from 20% to more than 50%)
Levy / Limited; a high deadweight is more or less logical for such a measure
Subsidy for employees / Moderate (deadweight of 45% in one study)
Voucher for employees / Moderate (deadweight of 55% in one study)
Learning account / Moderate (deadweight of 44% in one study)
Other knowledge transfer and publicity / Various; Investors in People Standard seems to have a relatively high net effect (deadweight 30%)

Source: EIM/SEOR, 2005

For levies as well as fiscal incentives there are hardly any comprehensive evaluations on the effects of these instruments, although such measures are often used. For a number of countries these types of measure form the backbone of their policy to stimulate training. The evaluations that are available often refer to general figures on trends in training participation as an indication of success. However, both levies and fiscal incentives tend to have a high deadweight. Therefore it is not sufficient to note that enterprises report that such instruments play a role in their policy. Generally, existing training efforts are eligible for the instrument as equal cases must receive equal treatment, however as a result they may end up subsidising programmes that would have been provided by firms in any case.

The deadweight for subsidies for organisations is often relatively small. From the studies we have found that the deadweight varies from 20% to more than 50%. A subsidy is often linked with a specific target group and hence a number of conditions have to be fulfilled for entitlement to the subsidy. By this targeting and setting of conditions, deadweight can be limited, however it also implies that the measures become more complex and administrative burdens increase.

For vouchers, learning accounts and subsidies for individuals, the available studies come to roughly comparable figures of a deadweight effect: around 50%. Still, the philosophy behind these measures is somewhat different. For example, learning accounts aim to ‘empower’ individuals by encouraging them to take responsibility in an asset-building process. What these measures have in common is that they are not very simple and demand a certain 'bureaucracy'.

In case of publicity campaigns, it is really hard to judge the effect. These measures are quite heterogeneous and difficult to compare. From the National Programme for Ageing Workers in Finland it is said that it had little impact, whereas the Investors in People Standard in the United Kingdom seems to be quite successful in terms of a limited deadweight.

4Determinants of success

Table 3 presents an indication of factors that, according to the evaluation studies considered, determine the success of individual instruments:

-Provisions that have been made to inform employers and employees about the measure,

-Orientation on SMEs as a specific target group. SMEs account for about two third of total employment while they tend to neglect the importance of training.

-Its flexibility. Attraction to Employers: there has to be a certain freedom in the choice of training courses, so that they fit their goals and strategy. A similar reasoning holds with regard to employees

-Limitation of administrative burden

-The incentives should be substantial. This refers to the extent to which the provided financial support covers the actual (direct and indirect) costs.

-Accreditation and standardisation can contribute to transparency and should guarantee an acceptable quality standard of training courses

We have to keep in mind that in the reports these determinants of success are often not linked to net effects, but to gross effects (reach of instrument), or even to satisfaction measurement among users and policy makers.

The various aspects of a policy measure that are positively associated with success do not seem to be independent. Often a trade-off will exist in real life implying that if the design of an instruments ‘scores high’ on one of the factors, another factor may be compromised. Examples are:

1.A measure with a minimum set of conditions could result in a high participation rate while the lack of conditions could influence the quality of training negatively.

2.Accreditation systems are positively related to the quality of the training itself, while it might hamper an employer or employee in choosing a training that meets his specific needs. Moreover, an accreditation system will also increase the administrative burden.

3.Attraction of training courses for employees does not have to coincide with employer interests. For example, a worker might want to follow a training course to improve prospects for attaining another job at another employer.

So, all these types of factor have to be considered in combination. In addition it is important to give attention to broader framework conditions. Here we list five more specific elements of the policy context:

The involvement of social partners seems to be an important factor in the effectiveness of several measures in a range of countries.

For some measures the success was determined by the combined efforts of various ministries (Interdepartmental coordination).

Accompanying public campaigns to stress the importance of life long learning.

Linking 'working life' with regular education. On the one hand general vocational education should match better with the requirements of working life; on the other hand regular educational institutions (schools) should also play a role in subsequent professional training.

Accreditation of training/training providers and a system with which training and learning outcomes are officially recognized. Such a system makes the results of training more visible for employers and individuals.

5The (dis-)advantages of the identified types of instruments

Tax deduction schemes & levy

Tax schemes have the advantage of building on existing institutional arrangements and bring about little additional administrative costs. Conditions are usually transparent and straightforward. However, this advantage is linked to high deadweight loss of these fiscal incentives, because targeting and conditions for additionality are limited. There is hardly any evidence about the effectiveness of fiscal measures for individuals, but we expect similar results: limited bureaucracy in combination with a high deadweight.

Relatively limited conditions and high deadweight losses are also expected to apply to levies, although there is surprisingly little robust research about the effectiveness of levies in various countries, in spite of the fact that they play a central role there in the training system. In essence it involves a reshuffling of money from companies with small investments in training to companies with larger investments and therefore it counterbalances market failures (e.g. limit 'free riders'). The major advantage of levy-schemes is therefore their ability to raise and maintain a high degree of employer-based training through self-financing. At the same time this means that levies are not very popular with smaller companies investing little in training, which perceive the levy simply as an extra tax burden.

Subsidy schemes

Generally, subsidy schemes are coupled to more extensive and detailed rules, linked to better targeting towards specific groups and rules for additionality. This results in high administrative costs for authorities, suppliers and users and a loss of flexibility to allow accommodation of user needs. The advantage is a relatively low deadweight.

Individual Learning Accounts

The Individual Learning Account is a type of instrument that only emerged in the late nineties, hence there is, as yet, little evidence on the impact in the long run. However the early signs seem to be quite positive.

In most cases ILA schemes have managed to reach middle-aged poorly qualified people of both genders. The individual learning accounts in the UK are effective in terms of a relatively low deadweight.

Vouchers

Four voucher schemes have been identified. The danger of abuse is limited, because vouchers can only be cashed-in by using services of training institutes. Another positive aspect is the accreditation system that is mostly included with this type of measure guaranteeing quality of training.

Some of the advantages are systematically described in Table 3, although results are partly tentative. Table 3 shows that in most cases there is a trade-off in advantages and disadvantages as noted before.

Table 3Advantages and disadvantages of types of measure

Reach/
volume / Net effects / Administrative burden / Public costs of measure
Tax incentives / High / Low / Limited / High
Levy / High / Low / Limited / Low
Subsidy / Low / High / High / High
ILA / Low / High / High / High
Voucher / Low / High / Limited / High
Other University for Industry, Investors in People, etc. / High (UfI) / High / ? / Low

6Good practices

Twenty-two out of the 34 measures evaluated or 65% got a positive review. For eight measures, or 24 %, the evaluation was neutral, leaving only 4 instruments or 12% with a negative assessment.

The selection of eleven good practices from nine different Member States reflects the variety of good instruments that is present within the EU-15. Six of these instruments have a relatively high reach while others are somewhat smaller. Finally a brief description of the selected good practices is provided.