Alternative Schemes of Financing Training

Dynamic economic development requires a certain balance between employer investments in technologies and in human resources development (HRD). There are several major forces which drive employer investments in training. First among these forces is the market competition for greater productivity and lower production costs. Secondly, there is a growing pressure on employers from employees and unions who are seeking to achieve opportunities for increased wages as well as freedom and mobility in the labour market through ongoing upgrading. In addition, there is an increasing awareness by employees and unions of greater equity in both their access to continuing training and the sharing of enterprise training investments. Employee-initiated and/or social demand-driven training reflect labour market pressure. Thirdly, in such countries as Japan lifelong employment cultures have emerged. In these contexts, employer-financed continuing training has become an important and inseparable component of that employment pattern.

Obviously, both the mix and relative strengths of each of these factors is different in various countries. They range from the very conscious employer investment in human resources development and close cooperation in such matters with other social partners, on the one hand, to the employer's unwillingness to train and the need for government intervention, on the other.

In some industrialized countries, governments, employers and unions appear to be strongly committed to the notion of investing in people as a strong foundation for lasting economic and social development. These countries have succeeded in applying the concept of "joint responsibility of social partners for vocational training and employment". Accordingly, in some industrialized European countries the enterprise investment in primarily continuing training has received a strong boost in recent years. The pressure to expand training has evolved in the course of collective bargaining at the company, sector, and state levels, and has resulted in the development of special training-related clauses in their collective agreements. Following the development of these clauses, a number of sectoral and territorial training funds have been established. These are financed by employers' and sometimes by employees' contributions and administered collectively.

The collective training arrangements normally cover only part of the total country workforce and channel relatively small employers' and employees' financial contributions. Thereby, they allow essential freedom of training behaviour to the individual employer. Although employers in some countries individually invest in training that costs much more than their contributions to the training funds, the latter have the important advantage of focusing on sector training policies and on training of those employees who have been excluded from enterprise training programmes for some reason. The most exemplary voluntary training arrangements can be found in Belgium, Denmark, France, the Netherlands, and Sweden, where employers and unions have opted for the foundation of social and training funds which are administered jointly by them.²

In Belgium, for example, sectoral funds have been granted a taxing power and impose a levy on employers which is collected by the Social Security Service and forwarded to the funds. The money collected through sector agreements is utilized for the development of sector training policies as well as for trade union training. To secure more equitable access to training, an inter-industry agreement was concluded for 1991/1992. This agreement provided that 0.25 per cent of the gross wages of every enterprise be spent on financing training for disadvantaged and risk_groups and for so-called "excluded (from training) workers. Excluded workers are primarily low-skilled employees who had not received training in their firms. While training funds in some industrial sectors have been able to conduct broad training activities, the funds in some other sectors have been established solely for the administration of the compulsory 0.25 per cent contribution.

The Belgian Ministry of Employment and Labour examines collective agreements and verifies whether obligatory training and financial efforts have been fulfilled. If not, a corresponding amount of money must be paid by enterprises into the National Employment Fund. This means that, in contrast to similar funds in other countries, the Belgian scheme for financing training for disadvantaged groups is based on the so-called levy-exemption mechanism.

In Denmark, sector collective agreements, which include a training clause, cover between 700,000 and 1 million employees amongst the total Danish workforce of 2.9 million. Employers contribute a specified amount per working hour to training funds. In practice, this amount varies from 0.03 to 0.13 Danish kroner per working hour. These funds do not finance training courses directly, but provide support for the development and testing of sector training programmes. Training funds have been established by the special clause in collective agreements for metal and plastic industries, transport, retail, and other sectors. For instance, 7,000 employers in the metal sector must contribute to the sector training fund a levy of 0.07 kroner per hour. The same employer training contribution is paid in the retail sector. In addition, under the 1973 collective agreement, employers pay a contribution of 0.14 kroner per working hour into a special fund which finances the internal training system of the trade unions.

In France, there are currently 96 training funds established by collective agreements at the national level; 23 training funds operate at the regional and inter-regional level; 20 are at the departmental level, and five funds have been established by individual enterprises. Such training funds are managed by the administration councils which must consist of an equal number of representatives of employers and trade unions. Training funds have a legal personality, operate under the control of the national vocational training authorities, and are allowed to receive public subsidies, donations, and inheritances. In 1990, the French training funds either fully or partly financed the cost of 30.5 million training hours for employees, 8,000 hours of leave for individual training, and training for more than 3,000 unemployed.

In Greece, an employer financial contribution of 0.20 per cent of payroll towards vocational training has been established for the first time. This provision was contained in the National Collective Labour Agreement, which was ratified by the Parliament in 1988. Although not yet ratified, a 1991 overall collective agreement will provide for employers to contribute 0.45 per cent. A special fund has been set up at the Organization for the Employment of Labour Force (OAED) which receives employer contributions collected by the Institute for Social Insurances (IKA). This fund operates as a training cost reimbursement mechanism, and the enterprise training expenditure is eligible for full reimbursement within the limit of the amount paid in the previous year as a levy. The 1991 Agreement also envisages the opportunity for this Fund to apply a very flexible levy-exemption scheme. Under this scheme, enterprises will be allowed to finance their own training programmes, paying into the Fund the balance of their obligatory contribution, or even to have their expenses carried forward and deducted from the contribution due in the following year. However, the Greek system is not yet a success. In spite of its apparent advantages, many employers default in their payments to IKA and the training fund.

In some other countries of Europe, such as Germany, the United Kingdom, Ireland, Italy, Luxembourg, Portugal and Spain, the vast majority of collective agreements between social partners sometimes mention continuing training but do not attempt to regulate its financing. Generally, training and its financing are considered as solely an employer prerogative. However, government policies in these countries towards employer-financed training vary considerably.

For instance, the policy of the German Government consists of assistance to adult training institutions through public subsidies for equipment and personnel costs. Whenever necessary, government grants are offered to firms lacking the necessary means to strengthen their training facilities. Although there are about 1,100 various regulations on continuing training, of which 170 were issued by the Federal government and the rest by the Chambers, they primarily address training content and testing for long-term training.³

There are about 200 collective agreements which contain training clauses, but these include arrangements only for the release of employees from work for training purposes and emphasize the employee's right to paid educational leave. To date, special training funds have been established by collective agreements only in the scaffold construction and corsetry industries. Although employers finance the lion's share of the country's training costs, they do so on an individual basis.

By contrast, the Italian and Spanish Governments intervene in employer training behaviour through setting compulsory levies to be paid to the central training and employment funds. The British Government has recently dismantled the system of compulsory training levies, and continuously reminds employers that although investment in training is their responsibility it remains the employers' personal affair.

Another direction taken by government policies has been to secure employer training investment. For instance, in Belgium, the United Kingdom, France, and Spain, employers have a legal right to protect their training investment through inserting a training clause in the individual labour contract. The clause generally states that the employee will have to refund part of the training cost if he/she leaves the enterprise before a given point in time after completion of training. Normally, the requirements to refund costs are considered as valid, provided they are reasonable and proportionate to the training expenditure, the period during which the employee must stay, and/or the amount refunded. In Germany, a similar provision is applied only for collective agreements concluded in the chemical, banking, and metalworking industries.

Particularly in Europe, employee-initiated training appears to be on the rise under the pressure of growing competition in the labour markets. However, even in the countries in which social partners have managed to establish sectoral training funds, enterprise contributions often appear to be too small to finance in full the upgrading of programmes. This has resulted in employees either fully or partly financing their own training. In the Netherlands in 1991, for example, more than 40 per cent of employees underwent training at their own expense. In Italy and France, employees' co-investment in training increasingly consists primarily in training time outside of working hours, in programmes which are in the interest of the enterprises.

At the same time, in countries where collective agreements do not contain arrangements for financing training, employees have no other option but to finance their continuing education at their own cost and to seek subsidies from their employers and governments. In 1989 in Germany, for example, more than half of the employees in hotels and restaurants and almost one-fifth of employees in the construction industry had to finance their training up to DM 10,000. In the chemical industry, a proportion of employees had to pay even higher training costs. Employees in the hotel and restaurant, textiles, and metal working industries were eligible for government training subsidies, while employees' training in banking and insurance was primarily subsidized by their employers.

In some countries, cultural attitudes translate into HRD strategies. When these attitudes promote long-term investment in HRD, the results can be favourable. In Japan, for instance, legislation and government policy serve to strengthen already-existing cultural expectations, which hold firms responsible for long-term and stable employment. In Germany and France, similar traditions have developed. Perhaps not coincidentally, Japan, Germany, and France are examples of countries in which employers willingly invest in training. In Japan, publicly-financed TVET accounts for a comparatively small portion of the development of that nation's skills. Most training, whether private or public, is provided and paid for by employers and becomes an effective means of skill development. Germany is one of the industrialized nations that does not impose a compulsory training levy on employers. Yet, German employers voluntarily spend more than 4.0 per cent of their payrolls on financing apprenticeship and continuing training. France, with its average employer expenditure on training reaching 3.2 per cent of payroll, should also be mentioned as a country in which investment in training is strongly supported by employers and unions. In France, a compulsory levy has been introduced and even increased, with-the full support of employers and unions and without government pressure.

The experience of industrialized economies is proof that the length of employees' services is one of the most important conditions encouraging employer expenditure on HRD. Conceivably, employers must feel that they "own" their employees before they view investment in them as worthwhile. They must feel secure that their investment will accumulate over time and produce increasing revenues. By contrast, it is difficult to expect a high level of employer commitment to training in countries where workers tend to be recruited on a day-to-day; no-work-no-pay basis. This is often done to avoid payments into the social security programmes - as is the case in many Asian DCs. Unfortunately, attitudes regarding employment are not easily influenced by government policy. They depend upon a variety of cultural, social, and historical factors, as well as upon the stability of markets which are, as in the case of Europe and Japan, currently declining. Therefore, employer interest in long-term employment and in a corresponding investment in training can hardly lend itself to either direct regulation or inducement.

EMP/SKILLS - Skills and Employability Department