Assessment and recommendations

Why adult learning is important for Korean SMEs

The Korean social and economic context makes adult learning investments particularly important for small and medium-sized enterprises (SMEs) – i.e. firms which employ less than 250 employees. SMEs are the backbone of the Korean economy: they account for nearly all firms (99.9%) and provide 80% of all business sector employment, the second highest share in the OECD after Greece.

Yet, Korean SMEs lag behind large companies when it comes to productivity and working conditions. The productivity gap between large firms and SMEs is the largest in the OECD. SMEs also offer lower wages, less job stability, and fewer career progression opportunities compared to large firms.

Adult learning – i.e. job-related adult education and training that is expected to enhance performance and productivity at work – is a key policy tool that Korea can use to close these gaps. Adult learning can help SMEs to close the productivity gap with large firms. It can help SMEs improve their productivity, while ensuring that SME workers can update their skills and improve their employment opportunities. It can strengthen position of SMEs in global value chains (GVCs) by helping them to specialise in high value-added activities (e.g. technologically advanced industries, complex business services). Adult learning is also valuable for SMEs going through changes due to company transitions, such as growth, restructuring, introduction of new technologies, or exporting for the first time.

While investing in adult learning in SMEs is already urgent today, it is likely that mega-trends such as digitalisation, population ageing, and globalisation, will make adult learning even more important in the future.

The adoption of new technologies, for example, may further increase the need for adult learning. OECD estimates show that some 44.3% of SME jobs in Korea could be partially/completely automated should new cutting-edge technologies be introduced, against 36.5% of jobs in larger firms. This suggests that many SME workers may need to retrain to adapt to these changes.

Population ageing may also increase the need for adult learning in SMEs. In Korea, the skills gaps between youth and older generations is among the highest in the OECD. Given that about 85% of older employees (ages 50-65) in Korea work for SMEs and many people start and run a small businesses upon retirement, closing the skills gaps with younger generations will be key for the competitiveness of SMEs.

Adult learning is also key to address ongoing skills imbalances. The OECD Skills for Jobs data shows that high-level cognitive skills (e.g. reasoning and verbal abilities; complex problem solving skills) are in shortage in the Korean labour market, a trend that is similar to that experienced in most other OECD countries. On the contrary, the demand for physical and manual skills (e.g. physical strengths) is found to be in line with supply, unlike what can be observed in the OECD area where the supply of these skills exceeds what is required in the labour market.

Enhancing SMEs’ training efforts

Despite the benefits of skills investments, relatively few SMEs in Korea support the acquisition of skills. In 2015, only 43% of micro (1-10 employees) and small firms (11-50 employees) provided training to their workers, against 53% of medium-sized firms (51-250 employees) and 64% of large firms (over 250 employees). The remainder of firms provided either only legally mandatory training or no training at all.

There are several reasons as to why so many SMEs in Korea do not offer training opportunities to their workers. Lack of staff resources (i.e. lack of time of employees, shortages of labour) is the most important reason for not implementing or supporting training, cited as the key training barrier by 30% of SMEs in Korea.

Fear of poaching – i.e. the fear that the worker would leave the company shortly after training – is another key barrier to training provision. This is not surprising in a context where Korean SMEs typically offer less attractive working conditions, job turnover is high, and workers are often looking for better employment opportunities elsewhere.

Financial constraints are another reason for not providing training. Many SMEs are not able to use the plethora of financial incentives available to cover training costs, either because they are not aware of these schemes, or because they do not meet eligibility criteria (e.g. enrolment in Employment Insurance; minimum training hours).

Another key issue is that managers and business owners are not always supportive of training. Low demand for high-level skills, poor perception of training quality, lack of awareness of the benefits of training, as well as poor entrepreneurship skills among managers/business owners may all contribute to a poor learning culture in SMEs.

Finally, in Korea like in other OECD countries, SMEs typically lack dedicated HR departments/staff and training facilities – which put them at a disadvantage vis-à-vis large companies when it comes to training provision. The National HRD Consortium programme (i.e. CHAMP) is partly addressing these challenges but could be further improved.

Encouraging workers in SMEs to train

Korean SME workers train much less than workers in large firms, and this gap is mainly driven by low training participation among workers in micro-firms. Indeed, Korea has the second highest training gap between workers in micro and large firms in the OECD (after Chile). Only 30% of workers in micro-firms participate to job-related formal or non-formal adult learning in a given year, compared to 52% in small firms, 63% in medium-sized firms, and 70% in large firms. Training duration also tends to be shorter for SME workers. The median hours spent on (non-formal) job-related training is 32 hours per year for SME workers, compared to 48 hours for workers in larger firms.

Many Korean SME workers who miss out on training are not able to compensate with more opportunities for informal learning at work. Only 41.5% of workers in micro-firms participate to informal learning (i.e. learning by doing, learning from colleagues, or learning new things) at least once per week – a rate that progressively increases to 51.8% in large companies. These rates place Korea at the very bottom of the OECD ranking.

There are several reasons as to why SME workers do not train. On top of receiving less training opportunities from their employers, SME workers also face additional barriers to training. Lack of time (for work or family responsibilities) is the number one training barrier in Korea. Among SME workers who wanted to participate (more) in training but did not, 63% cited lack of time as a barrier – by far the highest share in the OECD.

Another key challenge for training participation is lack of money – which is more often an issue for SME workers who generally earn lower wages than workers in larger companies. Indeed, in Korea, some 15% of SME workers who wanted to participate (more) in training did not because training was too expensive for them, compared with only 6% of workers in larger firms. Cost barriers to training persist in Korea despite the plethora of financial incentives available to SME workers – suggesting that more could be done to encourage take-up of existing programmes.

Lack of information may be another key reason for not training. Indeed, often SME workers cannot rely on the support of their employers for career advice and information on training options. Moreover, public career guidance in Korea is mainly focussed on young students, older people, and the unemployed, while services for incumbent workers are piecemeal and generally less developed. Online career guidance options exist but are scattered across different websites and sources.

Ensuring that training is of high quality and aligned to skills needs

In order for training to be effective, it needs to be of high quality and aligned to skills needs. Increasing participation alone is unlikely to have the desired impact on productivity and competitiveness if training is of low quality.

Considerable efforts have been put in place in Korea to improve and monitor training quality. The Korean Skills Quality Authority (KSQA) – established in 2015 as the national body dedicated to quality assurance in adult learning – is in charge of providing accreditation to training providers, assessing their effectiveness and quality, and detecting fraudulent practices. KSQA’s assessments and evaluations are used in many ways, notably to establish eligibility for, and level of, government financial support, provide excellence labels for best performing training providers, and inform individuals/firms about the quality of each training provider.

Despite these efforts, evidence on the quality of training provision is mixed in Korea. On the one hand, studies based on PIAAC data estimate positive returns to formal and non-formal training, amounting to 8% and 10%, respectively.1 On the other hand, workers’ perceptions of the usefulness of their training at work are disappointing: only a third of SME workers in Korea find their formal or non-formal job-related training activity very useful for their job – well below the OECD average of 53% and lower than any OECD country except for Japan.

The alignment of training content with emerging skill needs is an essential aspect of training quality. In this context, the key challenge is that Korean SMEs often lack the capacity to assess their skill needs. Indeed, about 28% of small firms, 25% of medium-sized firms, and 17% of large firms do not review the skills and competences required by employees based on the business environment and company strategy.

The recent development of National Competency Standards (NCSs) – a framework that defines the set of competencies required to perform a job or task in each industry – is an important step in helping employers and providers plan training content based on job requirements. However, there are implementation challenges. For example, there is a mismatch between NCSs and industry needs. Another key challenge is that, with technological change, the NCS framework needs frequent updates. Implementation among training providers is also difficult, as teachers and lecturers lack expertise in how to adopt NCSs; while firms and workers have little incentives to use the framework.

In Korea like in other OECD countries, digital skills are becoming increasingly important in the context of the 4^th industrial revolution. Yet, in Korea, some 72% of workers in micro-firms have low digital problem-solving skills, a rate that declines to 50% in large firms. Despite this challenge, IT-related training is the least frequently provided training in SMEs, and publicly financed training programmes related to the 4^th industrial revolution remain scant compared to demand.

Adult learning teachers also need to keep pace with new emerging skill needs and the introduction of new technologies. Most adult learning teachers feel the need to participate in refresher training, but few of them actually update their skills continuously. Recent measure to address this issue are steps in the right direction and should be continued.

Improving the governance and financing of the Korean adult learning system

In Korea, like in other OECD countries, the governance and financing of the adult learning system involve several actors. A variety of ministries, local governments and other stakeholders have responsibility over adult learning.

While the Ministry of Employment and Labor (MoEL) is the primary actor and funder of adult learning in SMEs, other ministries also play a role – including the Ministry of SMEs and Start-ups, and the Ministry of Education. With a view to promote horizontal coordination, Korea has recently updated the legal framework to prevent different ministries from implementing similar and overlapping adult learning programmes.

Recognising the important role that local actors could play in adult learning, MoEL has steadily increased the funding for local governments to implement adult learning programmes. The central government is also empowering local governance bodies (e.g. quadripartite councils) to deal with human resource development at the local level.

In recent years, the government has also been taking steps to better involve social partners in adult learning. One important initiative was the establishment of regional skills councils (RSCs) and industry skills councils (ISCs). These bodies are composed of social partners and other stakeholders and have the objective to promote training in line with industry and regional needs.

However, much remains to be done to ensure that RSCs and ISCs can successfully fulfil their roles. Some of the challenges they face revolve around the lack of experience of the personnel; the weak cooperation between RSCs and ISCs; the imbalance of responsibilities between employers’ organisations and trade unions; and the fact that RSCs and ISCs are financially dependent upon the government.

Social dialogue at firm level could also be improved further in Korea. Labour-Management Councils (LMCs) – i.e. consultative bodies that promote dialogue between a firm and its employees – could represent a valid tool for workers and firms to jointly identify training needs, regularly discuss the quality of training programmes undertaken, and explore best learning options. Despite their potential, the influence of LMCs on adult learning issues remains weak, especially in SMEs.

How the adult learning system is financed has also implications for training participation patterns in SMEs. In Korea, training programmes for employees are mainly financed through a levy-grant system paid by employers that feeds into the Employment Insurance (EI) Fund. All employers have to contribute to the EI fund, and are entitled to rebates to recover the training costs for their workers.

The Korean EI system was designed to be more favourable towards SMEs. Indeed, premium rates vary from 0.25% to 0.85% of the total taxable wage bill, with lowest rates applying to smallest firms. Moreover, when they provide training, SMEs are able to recover a higher share of the levies paid compared to large firms.

Despite the preferential support given to smaller firms, SMEs still do not use the EI system as much as large firms do. In 2018, about 30% of insured SME workers took part in employees training, compared to 55% of workers in large firms – pointing to the fact that SMEs and SME workers face additional barriers to training other than financial. Another issue is that EI coverage is still far from universal, and is particularly low among SMEs – which means that many workers and firms are still not entitled to benefit from training programmes financed through EI.

Another key challenge is that social partners have very limited responsibilities in the management of adult learning funds. This is very different from what can be observed in many OECD countries with a training levy in place – where social partners manage part of the funding through training funds (e.g. Italy) or skills councils (e.g. Sweden).

Set up complementary policies to develop a learning-friendly environment

There is only so much that adult learning can do to enhance training opportunities in SMEs. On top of improving how adult learning programmes operate and function, complementary policies need to be implemented by the government to reduce differences in working conditions between SMEs and large firms, and raise SMEs’ demand for high-level skills. While these policies fall outside the realm of adult learning, they are fundamental to ensure that SMEs are able to train their staff and SME workers have adequate access to skills development opportunities. For example, reducing differences in working conditions between SMEs and large firms can make it easier for SMEs to attract and retain talent, which in turns may reduce job turnover, decrease fear of poaching, and ultimately encourage SMEs to invest in workers’ long-term skills development. To give another example, raising SMEs’ demand for high-level skills – e.g. by encouraging technology adoption – may likely increase firms’ needs to train their workers. Korea also needs to carefully evaluate the impact that new (e.g. labour market, industrial) policies may have on training.