5. Funding of CET and financial incentives

Two of the questions most frequently asked by policy-makers in the area of CET are i) how much investment in CET is needed to address the labour market changes brought about by digitalisation and other megatrends; and ii) who should pay for it. Unfortunately, there is no international benchmark for what constitutes a sufficient level of investment and who should make it. Comparisons with other OECD countries, especially those with high-performing CET systems, can however give some indication of the level of investment required.

In Germany as elsewhere, individuals, employers and government share the cost of CET. While it is often argued that those who benefit from CET participation should bear the costs, nuanced evidence on the benefits of CET is scarce, making it difficult to determine a fair distribution of costs in practice between adults, firms and public authorities. Benefits will also vary across target groups and for different kinds of training.

Many OECD countries utilise financial incentives for individuals and enterprises to improve the efficiency and equity of the CET system. Also in Germany, there exists a plethora of incentives at different levels of government, for different target groups and purposes. Recent legislative changes have extended financial support to individuals and enterprises, for instance through the revision of the Upgrading Training Assistance Act (Aufstiegsfortbildungsförderungsgesetz), the Skills Development Opportunities Act (Qualifizierungschancengesetz) and the Work of Tomorrow Act (Arbeit-von-Morgen-Gesetz). The results of these changes remain to be seen and should be carefully evaluated.

This chapter analyses the existing system of financial incentives and the key challenges in funding CET in Germany. It first reviews how CET is funded and how the overall level of investment compares to other OECD countries. It then discusses the financial incentives in place to encourage individuals and enterprises to take part in CET. Based on this analysis it presents recommendations for future action in this area.

The National Skills Strategy (Nationale Weiterbildungsstrategie, NWS) does not discuss the overall funding levels and logic of the system, instead focussing on identifying gaps in financial support for individuals and enterprises (BMAS et al., 2019[1]). However, it is crucial to understand who invests how much in CET in order to further develop CET in Germany. This section compares German investment in CET to that of other OECD countries and identifies the financial contributions of different stakeholders.

CET may not require the same level of funding as initial education, but it is a cost-intensive endeavour requiring sufficient resources. A small number of studies estimates the yearly investment in CET in Germany. Yet the results are not consistent between studies due to diverging definitions of CET, focus on specific sub-sectors or target groups, different data sources and distinctive approaches to modelling costs (Table 5.1). One of the most comprehensive recent studies suggests that individuals, enterprises and public bodies may invest up to EUR 36 billion per year in CET (Dohmen and Cordes, 2019[2]). This includes direct and indirect costs of participation in formal and non-formal CET.

Across the different estimates, it is apparent that investment in CET falls behind investment in initial education and training. This is not unusual in OECD comparison. Data from 2009 shows that OECD countries, for which data is available, spent around 0.9% of GDP on CET on average, while they spent 2.6% of GDP on primary education, 1.3% on upper secondary education and 1.6% on tertiary education (OECD, 2019[3]; FiBS/DIE, 2013[4]). According to data from the German statistical office referring to 2017, total investment1 in early childhood education and care (ISCED 0) was EUR 32 billion; investment in general and vocational primary, secondary and post-secondary non-tertiary education was EUR 101 billion (ISCED 1-4) and investment in tertiary education (ISCED 5-8) was EUR 42 billion (Statistisches Bundesamt, 2020[5]). Some of the categories may include investments in continuing education and training as defined in this report, for example investment in higher education that is not considered initial education.

Internationally comparable data on the funding of CET are even more limited, making it difficult to benchmark investment in Germany against that of other countries. One of the first and only known attempts to generate cross-country comparable data on funding for CET to date, was made by FiBS/DIE (FiBS/DIE, 2013[4]). The study considers investment in CET by governments, public employment services, enterprises and individuals for adults aged 25 and above, including for higher education. Given the methodological challenges of producing cross-country comparable data and the fact that the data are more than a decade old, these research findings should be treated as rough estimates only.

The study finds that, in 2009, investment in CET in Germany was equivalent to about 1.2% of GDP (Figure 5.1). This is lower than in a number of countries with comparable skill development systems, namely Austria (1.7% of GDP), Denmark (2.2% of GDP), the Netherlands (1.5% of GDP) and Switzerland (1.5% of GDP).2 The estimates suggest that highest levels of investment can be found in the Nordic countries, which are considered to have high performing CET systems (OECD, 2019[3]). For some OECD countries more recent data exist. Finland, for example, invests between EUR 5 and 6 billion per year in CET, which is equivalent to 2.2% to 2.7% of GDP and includes public and private investments (OECD, 2020[9]). There is no evidence that the gap between investment in Germany and other OECD countries has closed over the past decade.

Data on investment in specific sub-sectors of the CET system are easier to obtain. According to data from the OECD Labour Market Policy database, for example, German public investment stands at around 0.18% of GDP in training-related to Active Labour Market Policies (ALMPs). This is higher than the OECD average (0.11%), but less than half of the investment made by Austria (0.43%), Denmark, (0.39%) and Finland (0.38%) (Figure 5.2). It should be noted that these data include investments in initial education and training for jobseekers.

As in most other countries (Figure 5.1), the costs of CET are shared between individuals, enterprises and different levels of government in Germany (Figure 5.3). While enterprises are responsible for funding the in-service training of employees, individuals pay for other training, whether general or job-related in nature. Both may be eligible for financial incentives offered by the federation, federal states or the Federal Employment Agency, which cover at least part of the direct – and sometimes indirect – costs of training. Additionally, the Federal Employment Agency and the federation pay for CET for individuals receiving unemployment benefits and those receiving basic security benefits, respectively. The federation, federal states and municipalities finance CET for civil servants.

While federal states have the primary responsibility for funding CET provision, they hold significantly smaller budgets than the federation. The federation channels only some limited funding to education institutions through projects, often to support innovation and research. It also subsidises the education and training institutions of trade unions, chambers and associations. Federal states, jointly with municipalities, fund higher education and teacher training institutions, as well as schools and Adult Education Centres. Since 2019, a change in the constitution (Art. 104c GG) made it possible for the federation to financially support federal states and municipalities with providing education infrastructure.

The federation and Public Employment Services share the costs of the Institute for Employment Research (IAB). The federation funds the Federal Institute for Vocational Education and Training (BIBB), while costs for the German Institute for Adult Education (DIE) are shared between federation and federal states.

Employers and individuals each contribute around one-third of the costs of CET (32% and 34% respectively), according to data compiled by Dohmen and Cordes (2019[2]). The remainder of the direct costs are borne by the federation, federal states, and municipalities (24%), and the Federal Employment Agency (9%). The distribution of costs between key stakeholders has been relatively stable over time, except during the Great Recession, where employer investment dropped to 26% and BA investment increased to 13% (Dohmen and Cordes, 2019[2]).

While employers bear a comparatively large share of the cost of CET in Germany, their investment lags behind some other countries (Figure 5.4). Data from the Continuing Vocational Training Survey (CVTS) show that more than three in four (77%) companies with more than 10 employees fully or partly finance job-related CET for their employees in Germany. This share is slightly higher than the EU average, but substantially lower than in many other countries, including Austria, where more than 88% of companies train their staff. Additionally, evidence from the EIB Investment Survey shows that German companies’ investment in training is below average: around 8%, compared to higher shares in other large countries such as France (15%), the United Kingdom (12%) and the United States (9%) and almost 10% on average in the European Union.

Participation in CET can generate private returns for individuals depending on their individual characteristics and the type of training they engage in (Chapter 3). This prospect incentivises individuals to invest in their own CET, and such individual contributions make up a substantial share of overall investment in CET. Individuals finance 34% of direct costs of CET, which consist mainly of course and examination fees, but also include learning and working materials, travel to and from the location of learning, accommodation, meals away from home, childcare and other costs. In addition, individuals in training incur indirect costs, which include loss of various forms of income resulting from taking part in CET.

Looking at this investment on a per-capita basis, the average person spent EUR 610 on job-related CET in 2015, according to estimates by the German Federal Institute for Vocational Education and Training (BIBB). Of this amount EUR 447 (73%) were direct costs for CET and EUR 164 (27%) indirect costs in the form of foregone earnings. Thirty-eight percent of these costs were covered by employers or public funding sources, leaving the average participant with a net average investment of EUR 381 per capita (Müller and Wenzelmann, 2018[6]).

These averages hide big differences in the costs for different kinds of CET and the investments made by different groups of the population. As discussed in Chapter 2, participation in training is not equally distributed, and investment reflects this imbalance. Some groups in the workforce are significantly under-represented, notably individuals with lower skill levels and lower incomes. This reflects liquidity constraints, along with a lack of information, ill-appreciation of the benefits of training and uncertainty around the returns of participation in CET (Brunello and De Paola, 2004[10]; OECD, 2017[11])

Different levels of government in Germany employ a range of instruments to improve the efficiency and equity of CET access and provision. Incentives aim to broaden access, to reach individuals who are less likely to train on their own initiative or who could otherwise not afford the costs (BIBB, 2020[12]). They also aim to increase efficiency of CET provision in a rapidly changing labour market, for example by incentivising upskilling in the context of increasing demand for higher-level skills. The following sub-chapter reviews the specific types of financial incentives for CET available to individuals in Germany.

The financial incentives landscape in Germany is a mosaic of support schemes, which lacks a co-ordinated and systematic approach across the territory.3 The federation, the federal states and the Federal Employment Agency (BA) run a large and growing number of schemes, which cover the direct and/ or indirect costs of CET participation for individuals. They use different instruments to deliver support, including allowances, loans, premiums, scholarships, tax incentives and vouchers (see Box 5.1). Rather than being based on a systematic approach, different incentives seem to have mostly developed along historical path-dependencies.

Incentives focus on specific target groups, often narrowly defined. Eligibility for support depends on an individual’s employment situation, qualification, income, age, size of the company (if employed) and/ or migrant-background status. Only a small number of schemes, such as financial support in the context of training-related ALMPs or the advancement stipend (Aufstiegs-Bafoeg) benefit a sizeable number of individuals (see tables below). While this large and increasing variety of schemes enables a targeted approach for groups with different support needs, its complexity is challenging from a user perspective. Many individuals do not know that they are eligible for financial support.

The lack in universalism of the funding landscape also risks support gaps for some groups. For example, there is a funding gap for individuals with obsolete skills and/or qualifications who would like to take part in training on their own initiative independently of their workplace, as well as for those working in sectors undergoing structural change. These groups are primarily targeted through their employer in the context of the Skills Development Opportunities Act (Qualifizierungschancengesetz, i.e. SGB III § 82, see next sub-chapter).

At the federal level alone, there are 11 financial incentive schemes targeted at individuals: a tax incentive, vouchers, scholarships, a premium, allowances and loans. Most of these incentives have narrowly defined target groups, such as the unemployed and low-income workers (vouchers) or high-performers in initial vocational education (scholarships), exceptions being the tax incentive and the loan.

Most of the available incentives cover only the direct costs of participation. Support to cover the indirect costs of learning exists for unemployed individuals, individuals pursuing vocational upskilling (Aufstiegs-BAföG) and talented individuals with IVET degrees pursuing higher education or other courses (Aufstiegsstipendium, Weiterbildungsstipendium). Scholarships and premiums may also be used to cover indirect costs, as they are lump sum payments not tied to specific expenses.

The most used financial incentive to support CET participation in Germany is a tax incentive, which has 1.8 million beneficiaries per year (Dohmen and Cordes, 2019[13]).4 Direct costs of job-related CET can be deducted as promotional expenses (Werbungskosten, Aufwendungen für die Aus- und Fortbildung), thereby lowering an individual’s taxable income. Deductible costs generally include course costs, travel costs, materials and the workspace used for the CET activities. Individuals with higher incomes benefit most from the tax deductible, due to the progressive tax rate (BIBB, 2020[14]).

An education loan (Bildungskredit) at preferential rates is available for adults under 35 years of age. It is administered by the Kreditanstalt für Wiederaufbau (KfW), a state-owned development bank. The loan provides relatively modest support, i.e. EUR 300 per month for 24 months (Table 5.2). This incentive is not limited to fund CET, but can also be used for initial education and training. There is a range of other instruments that are aimed at young people in initial education or training, such as a Student Loan by the KfW or certain aspects of the needs-based BAföG (Bundesausbildungsförderungsgesetz) financial state support, which in certain cases are also available to adults at a later stage of their lives.

Vouchers are available for the unemployed, those threatened by unemployment and low-income workers (Table 5.3). Vouchers for unemployed individuals (Aktivierungs- und Vermittlungsgutschein, Bildungsgutschein) cover 100% of course costs and, depending on individual circumstance, other direct costs, such as travel or accommodation expenses. In 2019, 1.39 million individuals received such a voucher from the Federal Employment Agency (BA). Low-income workers can receive relatively modest financial support in the form of the Education Grant (Bildungsprämie), which is a EUR 500 voucher that they can use to support participation in non-formal job-related CET. The Education Grant is provided by the Federal Ministry of Education and Research (BMBF).

Two allowances provide regular payments towards the direct and in-direct costs of learning for adults pursuing vocational CET (Aufstiegs-BAföG) and young adults without initial vocational degree and/or in low-skilled jobs (Zukunftsstarter) (Table 5.4). In 2018, 167 000 individuals benefited from the Aufstiegs-BAföG allowance. It covers 50% of direct costs of CET via a subsidy, while the other 50% can be covered by a loan. Depending on financial need, indirect costs for participation in full-time CET are covered at a rate of up to EUR 892 per month for single individuals, with additional allowances for married or partnered individuals and those with children (Box 5.2).

Two nationwide scholarship programmes support high-performing individuals in pursuing CET (Table 5.5). Both target individuals with initial vocational degrees to encourage them to take up academic studies (Aufstiegsstipendium) and formal/non-formal further vocational CET (Weiterbildungsstipendium). The latter scheme is one of the few that can be used to cover costs of non-formal trainings, such as language courses and shorter IT courses. However, access is limited to young adults below the age of 25. Both scholarship schemes reach a small number of individuals, with approximately 7 000 scholarships awarded each year.

Finally, a CET premium (Weiterbildungsprämie) is available for unemployed individuals taking part in formal CET using the Education Premium (Bildungsgutschein). Premiums are paid by the Federal Employment Agency (BA) to individuals who have successfully completed interim or final exams of formal CET courses. Evidence suggests that such lump-sum payments may be a less effective incentive than regular payments. A pilot to test the relative effectiveness of regular payments is ongoing in Bremen in the context of the ESF operational programme (see Chapter 6) (Table 5.6).

In addition to these incentives offered at national level, the majority of federal states runs their own financial incentive programmes for individuals according to specific regional needs. Those whose place of residence or workplace lies within the federal state are eligible. Differences in the scope and generosity of financial incentives offered by federal states may create inequalities of access to financial support across the German territory.

There are two kinds of financial incentives offered by the federal states: voucher programmes (Table 5.7) and premium programmes (Table 5.8), which are usually co-financed by the European Social Fund (ESF). Federal state incentives often target groups that are not covered by programmes funded by the federation. This is due to a co-ordination process between federal government and federal states to ensure the coherence of ESF funded support. While this mosaic of measures is not straightforward from a user perspective, the different programmes complement each other in principle.

Recipients of the voucher can either be individuals directly or education and training institutions. Depending on the Land and the individual’s situation, these subsidies can cover between 50% and 90% of direct costs for training and examination. Most subsidies are limited to job-related CET, although the definition of job-related is broad for most programmes. Different federal states use different terminology to describe their offers, typically cheques, bonus or premiums, which may be confusing from a user perspective.

Premium programmes called Prämie or Bonus can be paid to graduates of vocational upskilling qualifications (see Chapter 3). They are paid as a recognition bonus for successful graduates and, as such, are not designed to subsidise the direct or indirect costs of training (although they might be used by individuals for this purpose). Payments vary between EUR 1 000 and EUR 4 000 (Table 5.8).

In addition to these publicly funded programmes, there is a range of collective agreements or agreements at company level that contain financial incentives for individuals.

Individual financial incentives are critical to incentivise participation in CET. However, a lack of financial incentives it is not the greatest obstacle to participation according to data from the Survey of Adult Skills (PIAAC) (Figure 5.5). Only 9% of adults in Germany consider cost the main obstacle to participation in CET, compared with 15% across OECD countries. Instead, the greatest obstacle to participation in Germany is shortage of time due to work (33%) or family responsibilities (15%). Adults in Germany perceive shortage of time due to work-related reasons a larger obstacle than adults in other OECD countries (33% vs. 29%). In practice, money and time are two sides of the same coin. Hence, financial incentives will fail to achieve their objective of increasing participation if they are not complemented by making time available for participation in CET.

Education and training leave is regulated at the Länder level, and all but two federal states have regulations on education and training leave (Bildungsurlaub). Entitlements are similar across federal states, allowing for 5 days of CET leave per individual per year or 10 days in two years. In some federal states (e.g. Brandenburg) employees have the option to cumulate future leave entitlements to take part in longer CET courses, subject to written agreement of their employer. In all federal states that regulate education and training leave, employers are obliged to continue paying the individual’s salary; in few of them, employers can request government support to cover part of these costs. Direct costs of CET participation are not covered by education and training leave regulation.

An average of 5 days of paid training leave per year is sufficient for shorter non-formal CET opportunities, but not enough for more time-intensive non-formal or formal learning opportunities. For these opportunities individuals have to make significant individual and time investments on their own account. As described above, opportunities to cover this shortfall through financial incentives that cover the indirect costs of training are limited. Further, there may be support gaps in those federal states that currently do not have paid education and training leave regulations. The NWS includes a commitment of the federal states to assess the possibility of introducing the right to publicly funded education and training leave, as well as to assess how take-up of the existing leave policies could be increased.

In addition to the federal states’ arrangements for education and training, a number of collective agreements regulate educational leave for different sectors. In Bavaria, for example, where there is no general right to education and training leave, employees in the metal and electrical industries have the right to unpaid educational leave of two weeks per year (DGB Bayern, n.d.[21]). Employers are encouraged to continue paying wages in this time. The trade union may reimburse course costs, costs for accommodation and travel, as well as any foregone earnings that are not covered by the employer. Another example is the agreement in the railroad and transport sector, which gives individuals access to time savings accounts (Langzeitkonten). These can be used to take paid educational leave (EVG, 2018[22]). For longer training, such as university study programmes, education part-time (Bildungsteilzeit) is possible for employees that are covered by certain collective agreements (IG Metall, n.d.[23]).

In sum, there is a large number of incentives in Germany, while at the same time there is a funding gap for individuals with obsolete skills and/or qualifications, as well as for those working in sectors undergoing structural change.

Companies invest significantly in the skills of their employees, with the goal of increasing productivity, maintaining competitiveness and fostering innovation. According to PIAAC data, between 36% and 89% of job-related CET is financially supported by employers in OECD countries (OECD, 2019[3]). There is a positive correlation between the extent of employer-supported training and overall participation rates (Desjardins, 2020[24]), as individual or government co-funding only partially makes up for employer resources when missing. However, there are large differences between enterprises of different sizes when it comes to the provision of training to their employees (Figure 5.6).

In Germany, 64% of employees in large enterprises take part in employer-supported training, whereas the figure for employees in micro-enterprises is only 33%. By international comparison, Germany has a particularly large participation gap between employees in large and medium-sized enterprises (64% and 53% respectively). By contrast, Finnish employees in large and medium-sized enterprises have the same probability of receiving training support from their employer (74%).

Underinvestment in training can occur in individual firms due to financial constraints, concerns about employee poaching and staff turn-over, as well as low expected marginal benefits, among other reasons (Brunello et al., 2020[25]). There is an argument for the state to support enterprises, where current training provision of training is inefficient or where it produces inequalities (Bassanini et al., 2005[26]). This section reviews the financial incentives for CET available to companies in Germany.

In Germany, enterprises can benefit from federal subsidies to cover direct and indirect training costs under the Skills Development Opportunities Act (Qualifizierungschancengesetz), which came into effect on 1.1.2019. From October 2020, the Work of Tomorrow Act (Arbeit-von-morgen-Gesetz) increases these subsidies for enterprises specifically affected by structural change. Both laws subsume and expand the provisions on the long-standing WeGebAU programme which provided subsidies to small and medium enterprises (SMEs) and to train older adults and those with low skills from 2006-18. The federal subsidy is aimed at employees whose occupational activities are at risk of being replaced by technology or otherwise affected by structural change; the subsidy aims to help them adapt and develop their professional skills in order to better meet these challenges. Financial support can be granted for certified training lasting more than 120 hours.

In 2019, public spending on company subsidies under the Skills Development Opportunities Act was EUR 430 million. It is estimated that the expansion of the measure through the Work of Tomorrow Act will raise this figure by EUR 52 million per year (Bundesregierung, 2020[27]; Bundesregierung, 2020[28]). Overall, the changes brought by the acts, which are not limited to company subsidies, are estimated to amount to approximately EUR 1 billion per year (Bundesregierung, 2018[29]; Bundesregierung, 2020[28]). By way of comparison, it is worth noting that Federal Employment Agency and Job Centers spent more than EUR 3 billion on support for CET in 2019.

Under the Skills Development Opportunities and Work of Tomorrow Acts, training costs are subsidised. Depending on firm size, type of training, worker characteristics, social dialogue and the share of employers in need of skills adjustment, companies can apply for financial support that cover 15-100% of the direct and indirect costs of CET for their employees. Micro-enterprises with less than ten employees have their share of the training costs fully covered, while large companies with more than 2 500 employees can receive subsidies up to 15% of training costs. Older workers (45+) and people with disabilities in SMEs have their training costs fully covered, as do low-qualified workers taking part in training leading to a qualification. Higher subsidies are granted when more than 20% of employees in an enterprise require re-training or when the enterprise has a collective agreement.

In addition to training costs, the subsidy can cover up to 100% of wage costs (indirect costs), with the subsidy rate depending on firm size, type of training and the workers’ qualification levels. A graphical representation of this framework can be found in Figure 5.7 below. While it is understandable that smaller companies, companies particularly affected by structural change and those engaging in social dialogue should receive further support, the changes introduced by the Work of Tomorrow Act seem to have added complexity to the administration of financial incentives available to enterprises.

Beyond this financial incentive, a specialised programme for the road haulage industry subsidises the direct costs of shorter courses, seminars and training for the sector (Programm zur Förderung der Aus- und Weiterbildung, Qualifizierung und Beschäftigung in Unternehmen des Güterkraftverkehrs). Public expenditure for this programme is relatively small, typically between EUR 25 and 30 million per year. This includes costs for initial education and training of road haulage staff (Bundesregierung, 2018[31]).

The vast majority of federal states – 13 out of 16 – has financial incentive schemes of varying generosity or companies operating in their territory (Table 5.11). Most of these incentives precede the Skills Development Opportunities Act. Incentives at federal state level close some funding gaps that exist at federal level. Federal states tend to support a broad range of CET opportunities, with no lower limit on their duration. In contrast, the Skills Development Opportunities Act only finances CET opportunities with a minimum duration of 120 hours, conveying skills that go beyond short-term job- or company-specific skills and are subject to a needs assessment of the employee.

The vast majority of federal state incentives comes in the form of subsidies or vouchers for companies. These instruments subsidise between 50% and 100% of direct and, more rarely, indirect costs, depending on company or individual characteristics. Some federal states incentivise structural investments, such as investments in organisational and HR development. Two federal states provide company support in the forms of loans, the instruments Financing of CET 4.0 in Baden-Wuerttemberg and Aus- und Weiterbildungskredit in Rhineland-Palatinate.

All financial incentives for enterprises at the federal state level are co-funded by the European Social Fund (ESF) in the case of subsidies and vouchers, or the European Investment Bank (EIB) in the case of loans. This poses questions about the sustainability of funding beyond the 2014-20 funding period.

National and international data on overall investment in CET are scarce. The available data suggest that investment in Germany seems to lag behind high-performing CET systems in other OECD countries. Compared to investment in other areas of the education and training system, investment in CET also seems insufficient to address ongoing and future skill challenges arising from the megatrends of digitalisation, globalisation, demographic change, and the transition to a low-carbon economy.

Individuals and enterprises fund the majority of these investments, which aligns well with incentives, since both groups benefit from CET participation in the form of wage returns, increased employability, increased productivity and innovation. However, there is a case for stronger public investment in CET, considering the unequal access to CET opportunities for different target groups and across regions, and the substantial benefits of CET for economies and societies as a whole. Public investment is critical in the context of the economic fall-out from the COVID-19 pandemic, which is putting private spending under pressure.

Germany incentivises participation in CET using a range of instruments targeted at individuals and companies. Each federal state, the federal administration, and different departments within it offer incentives, often for very specific target groups. While this allows for approaches tailored to different target groups and regional needs, the overall incentive landscape lacks coherence, strategy and transparency from a user perspective. Positive developments in the incentives landscape are the recent Skills Development Opportunities Act (Qualifizierungschancengesetz) and the Work of Tomorrow Act (Arbeit-von-Morgen-Gesetz), which introduce a single incentive for enterprises encompassing all target groups, with progressive funding for enterprises and individuals with greater support needs. Results of these reforms remain to be seen and should be carefully evaluated.

Some important gaps remain in the funding landscape, for example for employed individuals with obsolete skillsets who want to take part in training on their own initiative, or participation in longer non-formal learning opportunities on an individual’s initiative. More generally, while several instruments incentivise vocational upskilling, there are no specific incentives for the take-up of CET to train for shortage occupations.

Money and time are two sides of the same coin. Data from the Survey of Adult Skills (PIAAC) show that lack of time for work-related reasons is a bigger obstacle to CET participation than financial barriers. Currently, Germany has no nation-wide legislation on education and training leave. Most federal states have their own legislation, which on average enables individuals to take five days of education and training leave per year. While this may be sufficient for shorter non-formal training courses, it does not enable the take-up of longer CET opportunities, including the kind of substantial occupational retraining that may be needed in the context of digitalisation and structural change.

Greater usability and fairness will only be achieved through fundamentally restructuring the current financial incentives landscape for individuals, significantly reducing complexity. The present landscape is too heterogeneous and difficult to navigate for individuals, limiting its overall effectiveness to address financial barriers to training. Its main shortcomings are:

  1. 1. Complexity and lack of a systematic approach: There are 11 different financial incentives for individuals’ CET participation at national level, alongside many more incentives run by the federal states. Different incentives provide funding for different target groups and/or different types of CET. Observers have highlighted that the existing landscape of incentives lacks coherence and co-ordination, and does not amount to a systematic approach (Cordes, 2020[32]; Dohmen and Cordes, 2019[13]).

  2. 2. Focus on formal CET: Many of the incentives focus on supporting participation in formal CET, but this makes up only a small share of overall CET (BIBB, 2020[14]). A major gap is the inconsistent availability of financial support during shorter non-formal CET across the German territory. This particularly affects individuals who may have had negative experiences with formal education, and for whom non-formal learning opportunities can be a stepping-stone towards formal learning.

  3. 3. Funding gaps: Given the lack of a systematic approach, a number of important target groups fall through the net. Most notably, individuals taking part in CET on their own initiative – rather than via the BA in case of unemployment or via their employer in case of employment – have limited opportunities to cover the indirect costs of training participation. Further, those wanting to participate in part-time CET lack financial support, if not eligible for subsidies for high performers. Individuals whose jobs are at risk due to technological change or skills obsolescence are not eligible for any financial incentive that would allow them to cover their subsistence costs when they participate in reskilling of their own accord.

  4. 4. Regressive incentives: The strong reliance on tax incentives to incentivise CET is problematic, as the government’s share in the co-financing scheme increases with taxable income due to the progressive tax rate, which means that people with higher incomes benefit more from the tax incentive than those with lower incomes (Dohmen, 2017[33]).

In the context of these challenges, Germany should consider subsuming the various national instruments targeted at individuals into a single incentive system that covers direct and indirect costs of CET (see also recommendation on education and training leave below).5 Any such instrument should continue to take into account the varying circumstances of individuals and be structured in a progressive way, providing greater incentives to those with greater financial and training needs. It should also close existing funding gaps and increase inclusiveness concerning the type of CET covered and the target groups eligible. The instrument could take the shape a streamlined and differentiated voucher and allowance, similar to the incentives offered to employers in the context of the Skills Development Opportunities Act. Alternatively, it could be implemented in the form of an individual learning account, where rights to training are accumulated over time:

  • A streamlined voucher and allowance would integrate existing schemes into a single incentive covering both the direct and indirect costs of different types of non-formal and formal CET. Such an incentive could provide a streamlined ‘frontend’ from a user perspective, i.e. individuals would apply for a single incentive in a single place, while the ‘backend’ would bring together various existing incentives. This would mean that funding can continue to be provided by different sources, i.e. different federal ministries and the federal states, but that individuals would obtain one transparent financial support offer. In contrast to the ILA, where individuals accumulate entitlements over time, this incentive would be an on-demand subsidy to CET participation. Many schemes that are labelled ILAs across OECD countries actually operate as streamlined voucher schemes (OECD, 2019[34]). In fact, Germany already implements a similarly streamlined approach for enterprise incentives under the Skills Development Opportunities Act. As in the case of the enterprise incentive, Germany should consider developing a progressive single incentive system for individuals. This would offer progressively greater incentives depending on i) financial need, ii) training need, iii) the type of CET opportunity pursued. Such differentiation must be carefully balanced with the need to keep the incentive as simple as possible, to maximise usability and take-up of the scheme. Any such instrument must be accompanied by promotion and guidance measures. Subsidies to indirect costs (i.e. subsistence costs) could be regulated by education and training leave legislation.

  • Individual learning accounts (ILA) are accounts in which individuals accumulate training rights over time. Training resources are only mobilised when training is undertaken. They allow individuals to acquire and accumulate training rights independent of their employment status and employer. Rights are also portable between different employers and employment statuses, such as employment, unemployment and inactivity. Individual learning accounts cover only the direct costs of learning and must be implemented alongside other measures that cover indirect costs, e.g. wage replacements paid in the context of education and training leave (see below). In the past years, ILAs have gained traction in discussions on the future of work, the shift to new business models and the increase in non-standard jobs in some countries (OECD, 2019[35]). However, ILAs are not new; they were first discussed at the end of the 1990s and several countries have experimented with ILAs since then. Currently, the best-known example of an individual learning account is the French Personal Training Account (Compte Personnel de Formation, CPF). In designing a single incentive system, Germany should take into account the learnings from France and other countries, in particular the need for accompanying guidance measures to ensure participation of underrepresented groups, and for sound quality assurance mechanisms (see also Chapter 3) (Box 5.3).

In order to be effective, any improvements in the financial incentive system for individuals should be accompanied by arrangements for paid education and training leave. Currently, there is no nation-wide entitlement to education and training leave in Germany. At the federal state level, leave entitlements are five days per year on average, although two federal states have no such entitlement. Germany should consider introducing a nation-wide paid education and training leave policy.

Any leave policy should i) apply to both part- and full-time training; ii) substantially expand or complement the current leave entitlements of 5 days on average; iii) carefully define which CET opportunities are covered by the leave policy, taking into account which skills and occupations are currently in demand in the labour market; iv) establish financial instruments to replace foregone earnings. Evidence from existing policies at federal state level suggests that take-up is low – around 1% of those entitled – and is primarily used by medium or high-skilled individuals (F-bb, 2019[38]). This highlights the need for accompanying promotion and career guidance measures to maximise take-up and inclusiveness.

Many OECD countries have nationally regulated education and leave policies (OECD, 2019[3]). Many but not all countries provide compensation for foregone earnings either directly to learners or to employers. Norway has the longest defined education and training leave across OECD countries. There, employees are entitled to up to three years of unpaid educational leave when they have worked more than three years and been with their employer more than two years. This is followed by Austria, where employees are entitled to one year of paid educational leave every four years. A number of other countries, including Estonia, Finland and Lithuania, allow individuals to take up to 30 days of leave per year.

Germany is currently assessing the feasibility of an education and training leave in the context of the NWS. It should take into account lessons from education and training leave policies in other countries, most notably Austria (Box 5.4).

While federal states are primarily responsible for funding CET provision, they hold significantly smaller budgets than the federation. Since 2011, the Debt Break (Schuldenbremse) has prohibited the take-up of new debt for federal states (Art. 109 Abs. 3 GG), putting federal state budgets under increased pressure. At the same time, the 2006 constitutional reform sharpened the split of responsibilities between the federation and the federal states, effectively prohibiting large-scale federal investments in CET in federal states.

It is perhaps unsurprising then that the BMAS has increasingly channelled funding for CET through the BA, a federal agency with agencies across the territory and within the responsibility of the BMAS. The new and expanded role of the BA in providing career guidance for all adults illustrates this point. Federal funding can be directly channelled towards this objective, circumventing existing career-guidance structures in some federal states. On the BMBF side, funding for CET is largely short-term and project-based, with federal funds frequently made available in the form of competitions to develop model approaches (Wettbewerbe).

To make significant progress in CET and increase the efficiency of the funding system, Germany should consider greater Bund-Länder collaboration in the funding and implementation of CET (see also Chapter 3). Germany should consider:

  • Using the funding model established by the Education Chains Initiative to set up Bund-Länder initiatives on career guidance and the up-skilling of low-skilled adults. A precedent for federal investment in education is the Education-Chains Initiative (Initiative Bildungsketten), whereby the federation, the BA and individual federal states co-fund initiatives that support the school-to-work transitions of young people. Some of these initiatives are co-financed with funds from the European Social Fund (ESF). This collaboration is enabled by administrative agreements between the federation, the BA and individual federal states. In the context of the NWS, the federation and federal states have committed to examining whether this approach can be used for financial collaboration in the area of CET (BMAS et al., 2019[1]). While it is necessary to scrutinise the technical feasibility of such an approach, the federation and federal states must also discuss for what common purpose it will be used. Building on the evidence presented in this report, Germany should consider using such administrative arrangements to finance nationwide infrastructure for career guidance (see also Chapter 4) and a nationwide initiative to up-skill adults with no or obsolete qualifications (see also Chapter 6). Austria, with similar federalism challenges, has been running Bund-Länder initiatives on both topics for close to a decade (Box 5.5).

  • Using the funding model established by the Digital Pact for Schools to explore the implementation of a Digital Pact for CET: A 2019 amendment of the German constitution widened the scope for the federation to grant financial assistance to the Länder in the field of education. It allows federal support for important nationwide investments, as well as for increasing the efficiency of the municipal education infrastructure (Art. 104c GG). With the Digital Pact for Schools (DigitalPakt Schule), Germany has set a precedent for such investment: More than EUR 5 billion of federal funding has been made available to improve digital infrastructure, online learning platforms and CET for teaching staff to develop their digital skills. Eligibility is not limited to general schools providing initial education, but also includes different types of vocational schools providing vocational education at an upper secondary level. Germany should consider a Digital Pact for CET (Digitalpakt Weiterbildung) along the same lines, but with important alterations. Importantly, since many CET providers are private non- or for-profit organisations as opposed to the public schools targeted through the Digital Pact Schools, it needs to be assessed how funding can be channelled to private providers who are operating in competition with each other. One starting point for such assessment could be to explore the option of providing financial support for the improvement of digital infrastructure, online learning platforms and CET for teachers and trainers to providers of publicly-financed CET courses. Support could further be restricted to smaller and/or non-profit providers, to avoid deadweight losses. More widely, there are lessons to be learnt from the implementation of the Digital Pact for Schools, particularly around supporting education and training institutions in accessing the available funding to facilitate rapid take-up (Box 5.6).

The implementation of the recommendations described above will likely require additional funding.6 The extension of education and training leave from currently five days per year, for example, will entail the replacement of a larger amount of foregone earnings as is currently the case. Increased funding will be necessary to support the extended leave. Equally, a single incentive system for individuals may require more overall funding than currently the case, as it would close current funding gaps. What is more, many of the recommendations described in the remainder of this report will not be feasible to implement with the current level of funding (e.g. further developing career guidance, improving financial incentives for low-skilled adults).

Available data are poor on current funding and further research on the overlaps, gaps and allocation of funding will be needed. It is almost certain, however, that all three key stakeholders – individuals, enterprises and the state – must increase investment in CET and encourage the take-up of such investment, in order to keep up with the transformation of the German labour market and close the gap with other countries whose CET systems are better funded and performing. Surprisingly, the overall funding envelope for CET is rarely the subject to debate. In the NWS, for example, Action Area Two aims to improve the existing incentive system, without addressing the need to increase the overall level of investment in CET from all actors involved.

Further, the COVID-19 pandemic and impending economic crisis will likely have an impact on investment in CET. During times of economic downturn, individuals and employers may have financial constraints that hinder investment in CET (Bassanini et al., 2005[26]; Brunello et al., 2020[25]; Brunello, 2009[47]). However, at the same time there is a need for additional investment in human capital, due to the restructuring and cleansing effects of recessions. In the Great Recession, investments by German employers and individuals decreased, while investment by the state – in particular the BA – notably increased (Dohmen and Cordes, 2019[2]).

Thus, Germany should again consider increasing public investment in the short term, through expanding the direct funding of CET programmes, as well as increasing financial incentives for individuals and enterprises. The Work of Tomorrow Act (Arbeit-Von-Morgen Gesetz) is a step in the right direction. It expands financial incentives for enterprises especially affected by structural change, simplifies application procedures and lowers the minimum duration of supported CET courses. It increases CET for those at risk of unemployment in the context of transfer societies (Transfergesellschaft) and establishes a right for adults to receive financial support when studying towards an initial vocational degree. Finally, it increases the standard rates paid to CET providers, in order to ensure higher quality. Overall, the changes brought by the Skills Development Opportunities Act (Qualifizierungschancengesetz) and the Work of Tomorrow Act (Arbeit-von-Morgen-Gesetz) are estimated to amount to approximately EUR 1 billion per year, which is a significant increase from the baseline (Bundesregierung, 2018[29]; Bundesregierung, 2020[28]).

In the medium term, Germany should consider opening additional funding streams. Based on national considerations and international best practice, two key options to do so are i) the introduction of Employment Insurance and i) (sectoral) training funds that encourage employers to ring-fence money for training:

  • Employment Insurance: The German Federal Employment Agency (BA) should speed up their transformation into an agency that caters to the needs of employed and unemployed individuals alike. This would include a greater focus on managing job-to-job transitions and preventing unemployment through reskilling and upskilling measures, in particular in the context of the COVID-19 pandemic. How to finance such an expanded mandate of the BA has been discussed ever since the idea for Employment Insurance entered the public debate more than a decade ago (Schmid, 2008[48]). Most commentators suggest that individuals, employers and the government should finance this new insurance on a parity basis. Individuals and employers would each contribute 25% through levies deducted from gross pay roll, while the remaining 50% would be covered by a tax-financed grant from the federal government (Pothmer et al., 2019[49]; Hans et al., 2017[50]). It has been suggested that 0.5% of gross payroll could be an appropriate contribution for both individuals and employers, giving a total budget for Employment Insurance of 2% of gross payroll. In comparison, contributions to the Unemployment Insurance are currently 1.2% each for individual and employers. While some commentators suggest that Employment Insurance should be established as a sixth branch of the German social security system7 (Pothmer et al., 2019[49]), funds could alternatively be collected and channelled through a transformed and renamed Unemployment Insurance. It is difficult to point to good practices of other OECD countries regarding Employment Insurance, due to differences in design of social security systems and the fact that many systems still follow the logic of Unemployment Insurance. What is clear is that several OECD countries have moved towards providing more services for the employed through their public employment services and funded through Unemployment Insurance, notably Austria and Estonia. By comparison, Austria currently has significantly higher employee and employer contributions than Germany. Employers pay a levy of 3% of gross pay roll, while individuals pay up to 3% depending on gross income.

  • Training funds provide dedicated finance for skill development at work outside of government budget channels (Johanson, 2009[51]). They collectivise and pool resources for training, redistribute resources between companies of different sizes and increase the volume of enterprise training by encouraging firms to set aside resources for the future training of their employees (OECD, 2019[3]). Funds are typically run by social partners in specific sectors, which finance training out of a pooled fund of training levies. As such, they can be designed in a more flexible way and closer to the firms’ needs in a specific sector or geographical region. Such funds already exist in Germany in specific sectors, notably construction, textiles and agriculture. Over the past decades, expanding the use of such funds to other sectors has been frequently discussed, but to no effect (Moraal and Berger, 2013[52]; Bosch, 2010[53]; Deutscher Bundestag (Wissenschaftliche Dienste), 2010[54]; Deutscher Bundestag, 2004[55]). Many OECD countries have had successful training funds in place for decades, including Denmark, France, Italy, the Netherlands and the United Kingdom (OECD, 2019[3]; OECD, 2019[56]). Funds differ with regards to their governance, design, the scope of eligible training programmes and the size of employer contributions. In some countries, such as Belgium, levies are as low as 0.1% of gross pay roll, while some sectors in the United Kingdom have a levy-rate as high as 2.5%. Germany should consider incentivising social partners to develop such funds at a sectoral level, for example by co-financing contributions for an initial period. A similar approach was taken in the Netherlands between 2013 and 2016, where the government stimulated investment in skill development by inserting 50% co-funding for training funds to develop sectoral plans to improve sectoral and regional labour markets (OECD, 2020[39]). The experience of other countries relating to the design and running of such funds must be taken into account.

In addition, it should be noted that the availability and accessibility of high-quality CET will lead to employers and employees being more willing to contribute to the funding. Therefore, the implementation of the other recommendations made throughout this report is expected to positively affect funding levels for CET in Germany.


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[8] Thiele, M., F. Behringer and G. Schönfeld (2016), “Direkte Kosten der non-formalen Weiterbildung für die Individuen”, in Bilger, F. et al. (eds.), Ergebnisse des Adult Education Survey (AES), WBV Media, Bielefeld.

[40] Titelbach, R. (2016), Bildungskarenz und Bildungsteilzeit in Österreich, Workshop ’Bildung, Qualifizierung und Weiterbildung"17.02.2016 Berlin.


← 1. Education budget 2016 with consideration of payment transactions between the local authorities (Initial Funds): Total is EUR 201.6 billion, federal government share: 10.5%, Länder share: 52.7%, municipalities share: 16.4%, private sector share (private households, companies, private non-profit organisations): 20.1%, foreign countries share: 0.3%.

← 2. Austria, Denmark, Germany, the Netherlands and Denmark have been described as collective skill development systems, characterised by high public commitment to vocational training and high involvement of firms in initial vocational training. This stands in contrast to statist skill formation systems (e.g. FRA and SWE), liberal skill formation systems (IRE, USA) and segmentalist skill formation systems (e.g. JPN) (Busemeyer and Trampusch, 2012[57]).

← 3. ESF-financed schemes undergo a co-ordination process between federal government and federal states, which is described as challenging by some stakeholders. ESF-funded schemes contribute to the great diversity of financial incentives in Germany.

← 4. Data refer to 2010.

← 5. Should the creation of a single incentive system not be feasible in the short to medium term, Germany should consider grouping and consolidating existing financial incentives into two to three major instruments. This is particularly interesting for instruments that already work in similar ways, e.g. voucher or premium programmes.

Alongside the unemployment insurance, health insurance, long-term care insurance, pension insurance and accident insurance.

← 6. This report does not take a purely input-based approach to the issue of effect.

← 7. Alongside the unemployment insurance, health insurance, long-term care insurance, pension insurance and accident insurance

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