Upgrading workers skills and competencies: policy strategies

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1 Federation of Greek Industries Greek General Confederation of Labour CONFERENCE LIFELONG DEVELOPMENT OF COMPETENCES AND QUALIFICATIONS OF THE WORKFORCE; ROLES AND RESPONSIBILITIES Athens May 2003 Upgrading workers skills and competencies: policy strategies Peter Tergeist Employment, Labour and Social Affairs OECD 1

2 Upgrading workers skills and competencies: policy strategies 2 Peter Tergeist Employment, Labour and Social Affairs OECD

3 Upgrading workers skills and competencies: policy strategies The bulk of the existing labour force will be in the labour market in years time Reconsideration of «employment protection» (good skills become the "best" way to protect your employment security) Rapid technological change 3 Ageing populations

4 4 Technological change and training Percentage of employees in innovating/non-innovating enterprises participating in CVT courses, by country, Sweden Finland Norway France Belgium Denmark United Kingdom Czech Republic Ireland Netherlands Luxembourg Austria Italy Germany Spain Portugal Poland Greece Hungary Non-innovating Innovating

5 Upgrading workers skills and competences: policy strategies Benefits: lower risk of unemployment (UNR for trained workers=3.9%, in case of non-trained:7.4%) better re-employment chances in case of lay-off (46% versus 31%) 5 higher earnings (trained workers enjoyed real wage growth 2.6 percent higher that nontrained).

6 Real wage growth among trained and non-trained workers, a b Austria Belgium Denmark France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain United Kingdom non-trained workers trained workers a) The nominal wage is deflated by the PPP index provided by the ECHP survey. The same results are obtained when the CPI (from Eurostat) is used as a deflator. b) for Germany, Luxembourg and the United Kingdom; for Austria and the Netherlands. Sample: Workers aged who were always employed during the period under consideration. Source: Secretariat estimates based on European Community Household Panel.

7 Costs: CVTS data indicate that training expenditures represent about 1-4% of the wage bill (from 0.8% ITA + PL to 3.6% UK). BUT this is an under-estimate (no data on cost for the individual; no data on government direct provision; no data on informal training). 7 A more realistic figure is close to double that amount (2-6% of the wage bill).

8 8 The market fails to ensure adequate investment in workers skills Not enough: Several market failures induce under-provision. Not equal: those who are already in the worst labour market position receive less training

9 9 What are (some of) the market failures? Capital-market: lack of collateral, limited insurance low employees demand Labour-market: employers monopsony power over trained workers benefits are shared, but current employers cannot internalise the benefits accruing to future employers ( poaching problem ) Training-market: non-contractibility of training low demand and low supply

10 Incidence of training, by level of education Educational attainment % Low Medium high 0

11 1 Inequalities in access to CET by education (IALS ) participation rate (%) Finland Denmark Sweden Great Britain Norway New Zealand United States Switzerland Netherlands Australia Canada Slovenia Czech Republic Italy Ireland Belgium Hungary Chile Poland Portugal less than upper secondary education upper secondary education tertiary education Note : Countries are ranked from left to right in a decreasing order of the aggregate participation rate in CET. Source : Secretariat calculations based on the International Adult Literacy Survey.

12 Incidence of training by occupation Occupation % High-skilled occupation Medium-skilled occupation Low-skilled occupation 2

13 Incidence of training, by employment status Work status 3 % Employee (no supervisory) Employee (some supervisory) Employee (great supervisory) Self-employed

14 Incidence of training, migrants versus nationals Country of birth % Native Immigrants 4

15 Effects of market failures Some employees have low demand: low-educated, older workers Comparatively low employers supply for: immigrants, women, part-time workers, temporary workers. Some firms supply little training: low-tech, small firms 5

16 How can policies address these market failures In most societies public authorities alone cannot provide the necessary financial resources for continuous education and training. As continuous training generates considerable private return, employers and employees should finance at least some of it. There is thus a case for co-financing. 6

17 One approach: Co-financing employers supply Can be used to increase aggregate training supply; also useful for older workers and low educated workers Instruments: 7 Training levy/grant schemes (e.g. France, Spain). Corporate tax deductions (e.g. NL and Austria) Pay-back clauses

18 Co-financing employers supply: problems Training levies and grants Heavy deadweight, too complex and/or costly for small firms. Corporate tax deductions If targeted: distortions (substitution of older for younger; postponement: the Dutch case). Pay back clauses: 8 Difficult monitoring by workers (who pay part of the training)

19 Other approach: Co-financing individual investment Can be used to increase training opportunities especially for women, immigrants, part-timers Instruments: Training leaves Tax arrangements Individual loans and grants Individual learning accounts Vouchers 9

20 Co-financing individuals What works and where the problems are: Training leave: Low take-up. Useful for long courses in formal education. Tax arrangements: Useful for short training (AUT). No incentive if income is very low. Individual loans and grants: Either expensive or too much risk on the individual (AUS and SWE s way). 0 Individual learning accounts and vouchers: work well for women and those who do not participate. Scale-up problem: when you move from pilots to mass-program, providers of junk training appears (UK).

21 The role of the social partners Participation in set-up of company training plans Foster a more equitable distribution of opportunities. Ensure conditions for equitable cost sharing. 1

22 2 Training incidence in firms with/without a joint CVT agreement Sweden Finland France Belgium Czech Republic Denmark Ireland Norway Luxembourg Italy United Kingdom Portugal Germany Spain Netherlands Austria Greece Poland Hungary With Without

23 Continuous Education and Training (CET) and Labour Relations Features 3 training levies and earmarked social security contributions joint governance of CET funds by social partners intensity of collective bargaining on CET national level sectoral level Australia no (abolished in no x x 1996) Austria no no xx xxx Belgium yes yes yes xxx xx Denmark no yes yes xxx xxx Finland yes (for training no xx xxx leave) France yes yes yes xxx xxx Germany no yes (few sectors yes (few xx xxx only) sectors) Hungary no no.. xx Italy yes yes yes xx x Japan no no x xx Korea yes no x xx Mexico no no.... Norway no no xx xx Poland no no.... extent of participation on CET in works council-type bodies Portugal no no x (but CET issues in x tripartite agreement) Czech no no.. x Republic Slovak no no.. x Republic Spain yes no yes xx xx Turkey no no.... United no yes (few sectors yes (few x x States only) sectors) Notes: Information on training funds and levies based on responses to OECD questionnaire. Classification by extent of collective bargaining and works council participation based on Caprile and Llorens (1998), responses to the OECD questionnaire and additional Secretariat judgement... = not available x = little activity xx = medium-level activity xxx = widespread activity

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