Chapter 5. Financing adult learning

In order to ensure that adult learning systems are inclusive, well-aligned with skills needs, and have a high impact, it is important that they receive adequate and sustainable funding. This chapter explores the role of government, employers, and individuals in financing adult learning, and highlights key policy options to build a “healthy” mix of involvement.

    

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

5.1. The challenges of adult learning financing

A good financing model for adult learning needs to combine adequacy with equity. On the one hand, adult learning systems need to be adequately financed in order to function well. Although there is no benchmark for a sufficient level of spending, it is clear that adult learning receives less funding compared with other education areas. While ensuring adequate funding for adult learning is a key policy challenge today, arguably it will become even more pressing in the future. As the demand for adult learning is likely to increase in the context of the mega-trends (see Chapter 1), the financial resources devoted to adult learning programmes will need to be adjusted.

On other hand, there needs to be an equitable sharing of the financing of adult learning in line with ability to pay and the benefits that accrue to individuals, firms and society. This requires a ‘healthy mix’ of co-financing by government, employers and individuals.

Another key challenge going forward will be to improve data collection on financing of adult learning, which is extremely scant at the moment. Factors contributing to this lack of data include: the financing of adult learning by a range of actors; there are no official statistics on adult learning financing as such; accounting practices vary between countries; and there is no commonly agreed definition of adult learning. While some countries have taken good steps to collect systematic information on public spending on adult learning, and some have started to conduct ad-hoc studies to shed light on who pays for adult learning,1 overall efforts have been scattered, irregular, and rarely coordinated at the international level.

5.2. Financing adult learning – results from the PAL dashboard

The OECD PAL dashboard reflects the importance of adequately and equitably financing adult learning, and features comparable indicators of financing at the individual, employer and government levels. The indicators that are included assess the degree to which investments are made by different actors, and to what extent the costs of training constitute a limiting factor to employers’ provision and individuals’ participation (see Table 5.1 for the list of the full set of indicators).

Table 5.1. Financing – PAL indicators

Financing

Individuals

Employers

Government

Individuals spending

% of participants who paid for taking part in non-formal learning activities (fully or partially)

Employer-sponsored training

% of participants who have received funding from their employer for at least one learning activity

Government spending per unemployed

Public expenditure on ALMPs training per unemployed-year, % of GDP per head

Financial barriers to training participation

% of adults who wanted to participate (more) in training, but did not because too expensive

Employers spending

Investment in training of employees, % of total investments

Government spending per participant

Public expenditure on ALMPs training per participant-year, % of GDP per head

Employers investment

Investment in non-formal training, % of GVA

Government investments towards individual’s training

% of participants in formal and non-formal job-related training for whom training was fully or partially paid for by public institutions

Financial barrier to training provision

% of enterprises stating that high costs of continuing vocational training courses was a limiting factor on provision or a reason for non-provision

Government investments towards firm’s training provision

% of training enterprises that benefitted from government subsidies and/or tax incentives to provide CVT

Note: See Annex B for details on the data sources used for each indicator.

The OECD PAL dashboard suggests that there are large differences between countries with regards to financing adult learning (Figure 5.1). Across the different dimensions of financing (individuals, employers, government), Japan scores best among OECD countries, followed by Korea, Luxembourg, Austria and Denmark. The weakest overall performance concerning financing is observed in Latvia, followed by Portugal and Slovenia. Performance on the different individual indicators is described in the following subsections.

Figure 5.1. Results of the Financing dimension
Financing index (0-1)
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Note: The index ranges between 0 (least adequate financing) and 1 (most adequate financing). Turkey and Chile were excluded due to missing data.

Source: See Annex B and C for details on data sources and methodology.

5.2.1. Individuals

In the absence of internationally comparable data on how much individuals spend on adult learning programmes (e.g. through tuition fees), some indicators can be used as a proxy. In the PAL dashboard these include: i) the extent to which participants contribute to training costs; and ii) the extent to which individuals see the cost of training as a major barrier to participation.

The dashboard shows the percentage of participants who paid (fully or partially) for taking part in non-formal learning activities, using Adult Education Survey data available for European OECD countries. On average, 21% of participants contributed financially to their training, with the rates being highest in Southern European countries – Greece (44%), Italy (28%), and Spain (26%) – and lowest in Nordic European countries – Norway (10%), Sweden (12%). Although this indicator does not say much about the level of the contribution (i.e. whether individuals covered the totality or only a share of the training costs), it still gives an indication of what portion of participants bear at least some of the burden of adult learning costs.

Many individuals find it difficult to pay for adult learning, and may therefore decide not to train altogether. As shown in Chapter 2, the cost of learning represents a key barrier to participation, especially for disadvantaged groups in the labour market. The dashboard shows the percentage of individuals who wanted to participate in (more) training, but did not because it was too expensive – drawing on the PIAAC survey. On average this share accounts for 16% of adults in OECD countries, although with a wide variation across countries ranging from over 30% in Greece to less than 10% in Belgium, Finland, Germany, Japan, Norway and Turkey (Figure 5.2).

As expected, in some countries the two indicators go in the same direction. In Greece for example, a high share of adults who contribute to their training costs is accompanied by a high share of adults who report training costs as a key barrier to participation. Conversely, in Norway, the shares of adults in both dimensions are low. In other countries such as Turkey, the two indicators do not point in the same direction.

There may be various factors behind these large cross-countries differences. Whether participants cover (part of) the cost of training, and/or whether the high cost of training is a barrier to (more) training, may depend on, for instance, the availability and generosity of financial incentives (e.g. loans, tax incentives, subsidies, education or training leave, time accounts) (OECD, 2017[1]) (see section 5.3.1). Differences may also reflect the extent to which training is publicly provided, or paid by firms, and thus whether participants are expected to pay tuition fees, as well as the size of these fees. When financial incentives are not available, and/or when individuals are mostly responsible for training costs, the indicators may also reflect individuals’ liquidity constraints to pay for training.

Figure 5.2. Individuals’ investments in adult learning
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Note: Data on individual spending refers to non-formal learning only; data on financial barriers refers to formal or non-formal job-related adult learning. For data on financial barriers: Belgium refers to Flanders only, United Kingdom to England and Northern Ireland.

Source: Adult Education Survey (2016) and WRTAL (2016/17) (Panel A); PIAAC (2012, 2015) (Panel B).

5.2.2. Employers

The PAL dashboard assesses employers’ investments in training by looking at four main aspects of financing: i) the extent to which firms sponsor workers’ training; ii) the extent to which firms’ investments go to training; iii) the extent of firms’ investments in training as a share of Gross Value Added (GVA); and iv) the extent to which firms see the high cost of training as a major barrier to providing training.

One way to assess firms’ financial involvement in workers’ training, is to look at the extent to which they financially contribute to the cost of training. As in the case of individuals, this does not say much about the generosity of their contributions, yet provides an indication of the incidence of firms paying (totally or partially) for the training of their workforce. To assess this, the dashboard shows the share of training participants who have received funding by their employer for at least one (formal or non-formal) learning activity, using data from the PIAAC survey. On average across the OECD countries participating in PIAAC, 77% of participants received funding from their employer for at least one learning activity, with low shares in Greece (36%) and Turkey (49%) and high shares in countries like Denmark (87.7%), France (88%) and the Netherlands (88.6%) (Figure 5.3).

The resources that firms invest in training relative to other areas of investments provides another indicator of the extent of their financial involvement in workers’ training.2 It indicates the relative importance that firms attribute to training their workforce (an intangible investment), as opposed to, for example, investing in infrastructure or machines (tangible investments). The dashboard includes an indicator of firms’ investment in training (expressed as a share of total investments), using the EIB Investment survey available for European countries. In 2016, training represented 9.7% of total firms’ investments on average across European OECD countries, with shares as high as 16% in France and Luxembourg, but less than 6% in the Czech Republic, Hungary, and Slovenia (Figure 5.3).

The dashboard also includes information on total employer investment in non-formal training as a percentage of gross value added (GVA) for the years 2011-12, based on the estimates of Squicciarini, Marcoli and Horvát (2015[2]). Estimates suggest that total investment in non-formal training corresponds to 2.8% of gross value added (GVA) on average across the 22 OECD countries with available data. Notable differences in countries’ investment in training emerge, with Australia, Canada, Korea, the Netherlands and the United States exhibiting substantially more investments, and Italy, France, and the Slovak Republic being at the bottom end of the range (Figure 5.3).

High costs of adult learning provision can be a barrier for employers, especially in countries where courses are mainly provided by private training providers and are not financed by the government; and/or in countries where financial incentives for firms (e.g. training levies; subsidies; tax incentives; loans) (OECD, 2017[1]) are scant or not very generous. The dashboard shows the share of companies stating that high costs of CVT courses was a factor limiting provision or a reason for non-provision. On average across countries, a third of firms report high costs as a limiting factor. As shown in Figure 5.3, the average hides some substantial cross-country differences: high costs seem to be a substantial barrier in countries like Lithuania (63%), New Zealand (58.7) and France (51%), while, a relatively low share of firms in the Czech Republic (9%), Italy (13%) and Luxembourg (14.6%) consider high costs to be an obstacle.

Figure 5.3. Employers’ investments in adult learning
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Note: Data on employer spending refers to formal or non-formal job-related adult learning. Data on financial barriers only refers to enterprises with at least ten employees. Belgium refers to Flanders only, United Kingdom to England and Northern Ireland.

Source: PIAAC (2012, 2015) (Panel A); EIB Investment survey (2016) (Panel B); estimates from Squicciarini, Marcoli and Horvát (2015[3]) (Panel C); CVTS (2015) and Business Operations Survey (2016) for New Zealand (Panel D).

To fully understand these patterns, it would be necessary to dig deeper into individual countries’ contexts, considering a range of aspects such as the existence and generosity of financial incentives targeted to employers, including training levies / funds, subsidies or tax incentives, and the availability of free training programmes for the employed. While a discussion of these schemes is provided in the last sections of this chapter, detailed country-level analysis goes beyond the scope of this report.

5.2.3. The government

Given the lack of recent, comprehensive and internationally comparable data on public spending on adult learning, the PAL dashboard assesses public investment in training by including three main components of overall expenditures: i) public expenditure on ALMP training; ii) government investments towards individuals’ training; and iii) government investments towards firms’ training provision.

The dashboard shows public expenditure on ALMP training per unemployed (as percentage of GDP per head), drawing on OECD and Eurostat information. This indicator gives an overview of governments’ spending on ALMP training relative to the size of the unemployed population. Figure 5.4 shows that on average OECD countries spend 3.8% of GDP per head on ALMP training for each unemployed person, ranging from a high of 18.9% in Denmark to lows of less than 1% in countries such as Australia, the Czech Republic, Greece, Japan, Poland and Slovenia. The dashboard also shows public expenditure on ALMP training per participant (expressed relative to GDP per head). This indicator, unlike the previous one, gives an indication of the intensity of financial efforts for each participant. Expenditure per participant accounts for 33% of GDP per head on average, and is highest in Poland (85.6%), Greece (76.5%) and Denmark (55.4%), and lowest (less than 10%) in Hungary and Israel (see Figure 5.4).3

On top of reflecting governments’ investment in ALMP training – these two indicators are also likely to reflect other factors. For instance, they are likely to hide differences in how training policies are designed, such as the degree of targeting to vulnerable groups, as well as training intensity. For instance, a country that restricts training provision to hard-to-place jobseekers, may have lower overall spending per unemployed, but higher spending per participant, everything else held equal.

Figure 5.4. Government spending on ALMP training, 2015
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Note: Data on expenditure per participant-year refer to five-year averages.

Source: OECD and Eurostat information.

Spending on ALMP training does not provide a full picture of governments’ investments in adult learning. Indeed, governments may put significant financial resources into other types of training delivered outside of active labour market programmes, and which may benefit other population groups beyond the unemployed/jobseekers population. For example, public resources may be used to provide training free of charge, or could be used to pay for subsidies, tax incentives, grants, and other types of financial incentives for individuals and/or employers.

Therefore, the dashboard includes, as an indicator of public support provided to individuals for training, the percentage of participants in training for whom training was fully or partially paid for by public institutions. On average across the OECD, only 6.8% of training participants received public support, ranging from less than 3% in the Netherlands, Hungary, Portugal, Greece, the Czech Republic and Sweden to over 15% in Turkey and Denmark (Figure 5.5).

Figure 5.5. Government investments towards individual’s training
% of participants in formal and non-formal training whose training was fully or partially paid for by public institutions
picture

Source: AES (2016).

On the side of public support provided to firms for training purposes, the dashboard also includes the percentage of training enterprises that benefited from government subsidies and/or tax incentives to provide CVT. On average across the OECD, only 8.7% of training enterprises receive such support, but with considerable variation across countries. Spain is an outlier, with 73.6% of training firms receive government support. For other OECD countries, rates span from to 21.3% in Luxembourg, to less than 1% in countries like Lithuania, Ireland, Italy, Portugal, Poland and Sweden (Figure 5.6).

Figure 5.6. Government investments towards firm’s training provision
% of training enterprises that benefitted from government subsidies and/or tax incentives to provide CVT
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Note: Refers to firms with at least ten employees.

Source: CVTS (2015).

5.3. Policies to foster financial investments in adult learning

Adult learning typically receives less funding compared to other education areas. An attempt to obtain internationally comparable adult learning spending data across a number of OECD countries shows that expenditures on the different stages of initial education (e.g. primary, secondary, or tertiary education) as percentage of GDP are typically higher than expenditures on adult learning (Figure 5.7).4 In 2009, adult learning spending accounted for 0.9% of GDP on average across OECD countries with available data, while it accounted for 2.6% of GDP for primary education, 1.3% for upper secondary education, and 1.6% for tertiary education.

Figure 5.7. Expenditures by type of education
Percentage of GDP
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Note: Data refer to 2009. In this Figure, estimates for the United States are dropped from the original data source.

Source: FiBS and DIE (2013[4]).

On top of ensuring adequate funding, one difficult question countries need to respond to is who should pay for adult learning. Indeed, more than other areas of education (e.g. initial education), adult learning is financed by a number of different actors, including the government, employers, and individuals – also reflecting the fact that each of these actors benefit from adult learning investments to some degree.

Available estimates for selected OECD countries (2009) show that the state on average bears the smallest share of the financial burden (22.1% of total spending on adult learning on average), followed by individuals (24.7%) and the largest share of adult learning costs rests with employers (44.7%) (Figure 5.8) (FiBS and DIE, 2013[4]). The mix of funding varies considerably across countries: public contributions range from between 2% in Canada to 78% in Australia; individuals’ between 8% in Australia to 44% in Switzerland; and employers’ between 6% in Australia to 61% in the Netherlands. Interestingly, employers pay the largest share in most of the OECD countries considered; the public purse pays the largest share only in Australia and Norway; while in none of the countries analysed individuals pay the largest share of the cost.

It has not be noted, however, that although the data collected by FiBS and DIE (2013[4]) – and presented in Figure 5.7 and Figure 5.8 – represent the most recent attempt to collect internationally comparable data on adult learning spending, they are quite obsolete today and therefore have to be taken with caution.

Figure 5.8. Distribution of funding for adult learning by financer
Distribution of funding for adult learning by financer % of total spending on adult learning
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Note: Data refer to 2009. Data includes adults aged 25+ and excludes participants in higher education. In this Figure, estimates for the United States are dropped from the original data source.

Source: FiBS and DIE (2013[4]).

Looking at past trends, while evidence from UNESCO shows that very few governments report reducing spending on adult learning (Annex D), anecdotal evidence suggests that governments’ financing of adult learning shrank in some OECD countries in the context of the crisis. In Italy, for example, public resources for continuous vocational training administered by regions have been suspended (OECD, forthcoming[5]). In Finland, adult learning providers have experienced cuts in public budgets, and the focus has shifted towards VET (EAEA, 2014[6]). In Latvia, according to the Law on Education, planned state budget support for adult education was postponed until 2022 due to state budget restrictions.

In the context of tight government budgets, countries are turning to external funds to finance adult learning. Some European countries rely heavily upon funding from the European Commission, including the European Social Fund (ESF) and Erasmus+, to finance adult learning. For example, about 57% of Slovenia’s total expenditure on adult learning is financed by the ESF (OECD, 2018[7]). Similarly, in Portugal, EU funding represents about 40% of the Ministry of Education’s budget and the budget of the Public Employment Service for adult education and training (OECD, 2018[8]). While the ESF, and other external funds are important to ensure that adult learning is adequately financed, especially in the context of constrained government budgets, they come with challenges. For instance: project-based funding is temporary by nature, which can undermine the financial sustainability of adult learning systems; and procedures for accessing external funds can be complex and time-consuming, which can result in gaps in adult learning provision and can absorb a significant amount of human and financial resources which could otherwise be available for training (FinALE, 2018[9]) (Kozyra, Motschilnig and Ebner, 2017[10]).

Within this context of public budget cuts and reliance on external funding, there is a need to engage employers and individuals further in sharing the burden of adult learning financing, so as to ensure that there is sufficient, equitable and sustainable investment in adult learning.

Governments across the OECD use a range of financial incentives to reduce the financial burden on the individual and employers, encourage them to participate and contribute to adult learning, and reduce under-investments. Financial incentives can encourage individuals and employers to financially contribute to adult learning, by: i) reducing the direct cost of learning (e.g. tax incentives; subsidies); ii) decreasing opportunity costs of learning (e.g. paid training leave; allowances for the unemployed; job rotation); iii) tackling temporary liquidity constraints e.g. loans;); and (iv) encouraging individuals/firms to set aside resources for future training (e.g. training savings and asset building mechanisms; levies/funds). Table 5.2 – which partly draws on the framework developed by OECD (2017[1]) – highlights some of the financial incentives available for adult learning.

With some exceptions (i.e. where governments cover the totality of the cost), most financial incentive schemes have a co-financing element where employers and individuals are required to contribute to a part of the cost. To reduce deadweight losses, and ensure that those who cannot pay for training are not left behind, these financial incentives are often targeted at those who need most support (see Chapter 2).

While financial incentives for individuals/firms exist for all education areas beyond compulsory schooling (e.g. post-secondary VET, higher education), they are particularly important in adult learning. Indeed, adult learning is more often delivered by private training providers and less often provided free of charge (OECD, 2017[1]). This suggests that financial incentives play a more important role in countries where free provision by governments is more limited. Moreover, opportunity costs are typically higher for adults, who are more likely to have dependants, compared with younger people in initial education – further highlighting the importance of having in place effective financial incentives in adult learning.

The reminder of this chapter looks at existing financial incentives for individuals and employers adopted in OECD and partner countries to encourage individuals and firms to share the cost of adult learning.

Table 5.2. Financial incentives for individuals and employers

Individuals

Employers

Reduce cost of training

• Subsidies

• Tax incentives

• Subsidies

• Tax incentives

Decrease opportunity cost of training

• Paid training leave

• Allowance for unemployed/job seekers

• Job rotation

Tackle temporary liquidity constraints

• Loans

• Loans

Set resources aside for future training

• Savings and asset building mechanisms

• Training levy/fund

Source: OECD (2017[1]).

5.3.1. Financial incentives for individuals

Individuals can benefit greatly from investing in adult learning, e.g. through higher incomes and better employability, lower unemployment risk, higher general well-being and health and greater social inclusion (OECD, 2005[11]; 2017[12]). Despite these potential benefits, individuals may face financial barriers to participation, which may lead to under-investments. Indeed, the direct costs of learning, such as tuition fees and learning materials, may be unaffordable for certain individuals, especially low-income earners or the unemployed.

In this context, some OECD countries have put in place measures to reduce the direct cost of training, including subsidies or tax incentives. In these schemes, the government typically contributes to (a share of) the cost (through direct payments, in the case of subsidies; or forgone revenues in the case of tax incentives), while individuals may be required to co-finance adult learning in order to participate. Often, the generosity of the subsidy or tax incentive depends on individuals’ ability to pay – and therefore it may vary according to employment status and/or incomes.

  • Subsidies: They exist in many OECD countries and can be designed so that the share of cost covered depends on trainees’ ability to pay. In Austria, for example, the allowance Beihilfe zu den Kurs- und Kursnebenkosten covers course costs, but the amount covered varies between 50 to 100% of the cost depending on employment status and income.

  • Tax incentives: In the context of adult learning, tax incentives can come in various forms such as tax allowances (i.e. deductions from taxable income) and tax credits (sums deducted from the tax due). In Latvia, workers are entitled to deductions from taxable incomes for education expenditures, including professional education and training at work (with a cap at EUR 215 per year per household). In Switzerland, the costs of training are deductible up to CHF 12 000 by law. In Italy, a personal Income Tax Relief for Expenditures on Education and Training (PIT) equal to 19% can be deducted until a maximum amount of around EUR 6 000.

Even if the programme is free of charge or subsidised, attending training may imply additional costs, including costs for transportation, accommodation, or expenses for the care of children or any other dependants. To address this challenge, some OECD countries have put in place subsidies and tax incentives to cover these additional costs. For example, in the Slovak Republic, jobseekers attending certain training programmes (Kompas + and Repas+) are givena travel and subsistence allowance intended to cover part of the cost of participating in the retraining course (EUR 4.64 per day of attendance). In Finland, unemployed people who participate in vocational training receive unemployment insurance and an expense allowance. In Argentina, adults receive social transfer payments when they participate in Hacemos Futuro, a programme that provides training (including formal primary and secondary education) to low-qualified adults.

In addition to the direct costs of learning, individuals may face opportunity costs, e.g. in the forms of foregone wages during learning periods, which may discourage participation and lead to under-investments in adult learning. To address this challenge, some OECD countries have put in place mechanisms to compensate wages of workers while in training, for example during training leave, although the generosity of the support varies considerably between countries (see Chapter 2). For example: in France, workers on training leave receive between 80 and 100% of their wage; in Wallonia (Belgium) imposes a cap is imposed on the replacement wage; in Austria, an allowance is paid which is equivalent to the level of unemployment benefit; and in Finland and Sweden, leave is unpaid but workers can have access to the general financial aid available to students (e.g. the Adult Education Allowance in Finland).

Loans are another policy measure countries have at their disposal to encourage individuals to participate and contribute to adult learning. Indeed, they can help adults overcome temporary liquidity constraints. Governments can put in place measures to facilitate take-up, e.g. learners begin to repay the loan only when they have completed their training, or have reached a certain income threshold. In addition, interest rates can be lower than market rates. While loans are important funding tools for initial formal education (e.g. higher education), they are less known/used in the context of adult learning. That being said, some OECD countries use loans for continuous vocational training, or for up-skilling of the unemployed. For example, in Poland, the training loan (Pożyczka szkoleniowa), targeted to the unemployed and some categories of job-seekers, is financed by the Local Labour Office for up to four times the average monthly salary. It is free of interest and has to be repaid within 18\ months after completion of the training. Similarly, in Korea unemployed and non-regular workers (excluding households beyond a certain income threshold and unemployment benefit recipients) who attend vocational training for at least three weeks can receive a loan at an interest rate of 1%. In England (United Kingdom), Advanced Learner Loans exist for adults to upskill and reskill, and repayments are due at the end of the course but only if the trainees earn more than GBP 25 000 a year. In the Netherlands, adults can receive a Lifelong Learning Loan (Levenslanglerenkrediet) for participation in education and training at the tertiary level and VET education and training at the secondary level. A preferential interest rate is applied to the loan, and the monthly repayment amount depends on income.

Another way countries can encourage individuals to financially contribute to their own adult learning is to help them set aside resources for future training, for example through savings and asset building mechanisms. These schemes can include, for example, individual learning accounts (ILAs). In Iceland, all workers have access to ILAs, funded through a training levy which equals 0.3-1.1% of the salary (depending on collective agreements); the money saved in the ILAs is available to the individual also during unemployment, and the right to withdraw is also transferable between some job categories. About 45 000 people use ILAs in Iceland every year.

5.3.2. Financial incentives for employers

Employers benefit from investments in adult learning opportunities in many ways, for example through better equipped, more productive and satisfied employees, a more innovative workforce, and lower skill shortages within the company. However, many firms – and especially SMEs – face barriers to financing adult learning, which may lead to under-investments.

To overcome these barriers, virtually all OECD countries use financial incentives to encourage firms to provide training and financially contribute to adult learning. As for individuals, financial incentives for firms are primarily means to reduce the direct cost of learning. Two typical tools are subsidies and tax incentives:

  • Subsidy: These schemes include subsidies for workplace training of employees and subsidies to take on and train the unemployed. One example of a subsidy for workplace training is the POVEZ programme in the Czech Republic, where employers can obtain a contribution to the education of their employees (15% co-financing of educational activities of the employer). In Estonia, the Training Grant for Employers compensates between 50 to 100% of the training costs (with a cap), depending on the age, education level, and previous employment history of the participant. To give one example among many subsidies for employers to take on and train the unemployed: in France, through the Action de Formation Préalable au Recrutement and the Préparation Opérationnelle à l’Emploi, employers receive subsidies for training for hiring jobseekers who does not have the skills for the job.

  • Tax incentives: Tax incentives – such as reductions/exemptions in social security contributions – are used widely across OECD and emerging economies to encourage employers’ investments in training. In Spain, training offered by firms to their workers is subsidised in the form of a reduction of social security contributions. In Argentina, firms can obtain tax credit rights when workers or job-seekers participate in training, including formal basic education, professional training, RPL, or on-the-job training. In Chile, as part of the Impulsa Personas, firms can subtract training or RPL costs from their tax (up to a maximum of 1% of annual taxable wages).

On top of training costs, firms face indirect costs such as continued wage payments during training periods. To address this challenge, subsidies and tax incentives can reimburse wage costs to employers. As an example of this type of subsidy, in Norway, the Bedriftsintern opplæring is designed to cover both the cost of training and wage costs (up to 70% of total costs), for a maximum training duration of 26 weeks. In Korea, part of wage costs (on top of part of training costs) are subsidised to firms with employees on paid training leave. Similarly, in Wallonia (Belgium), employers can obtain a reimbursement for employees on paid training leave, based on the number of training hours. In Japan, the Jinzai Kaihatsu Shien Joseikin provides a subsidy to firms to reimburse employees’ wages while on training, the amount of which depends on the type of training attended and the size of the firm. As an example of a tax incentive that covers the cost of the worker, in Italy, the Tax Credit 4.0 (Credito di Imposta Formazione 4.0) introduced in 2018 is designed to cover 40% of the cost of the workers for the entire duration of the training, for a maximum of EUR 300 000 per firm per year (and for certain types of training only).

On top of the direct costs of training (e.g. fees and training equipment), and employees’ wages, firms also face opportunity costs of training their workforce, for example through foregone productivity during worker absence for training purposes. This can be particularly challenging for smaller firms who may find it hard to continue their production activities while a worker is on training, and for which work reallocation and recruitment is typically more difficult or costly. To address this challenge, some OECD countries have put in place job rotation schemes to help firms find a temporary replacement worker (e.g. usually an unemployed person) during the training period. However, these schemes can be found in very few OECD countries (Denmark, Finland) (OECD, 2017[1]).

As for individuals, loans targeted at firms for learning purposes can help firms overcome liquidity constraints to train their workforce. Across the OECD, however, these schemes are rarely used. One examples is Korea, where employers purchasing training equipment/establishing training facilities can obtain a loan from the government to cover up to 90% of the costs (with a cap of EUR 4.6 million), which need to be repaid within ten years. However, take up is very low, with only 20 beneficiaries in 2017.

Another option through which countries can encourage firms to set aside resources for future training is by using training levies/funds, i.e. employers pay a (compulsory or voluntary) contribution to a pooled fund out of which training is financed. These levies or funds can either be mandated by law or imposed on certain sectors through collective agreements. Many OECD countries – especially in Europe – and some partner economies have training levies in place (see Table 5.3). The size of employers’ contributions varies significantly across countries, and sometimes even within countries when they are differentiated by sectors, firms size, or fund. Overall, contributions can be as low as 0.1% of payroll in certain sectors in Belgium and small firms in Korea, or as high as 2.5% in certain funds in the United Kingdom. They can also consist of a lump-sum per employee, such as in Denmark. Training levies/funds can be designed in three different ways depending on what they are supposed to finance and how:

  • Revenue-generating schemes: under this scheme, employers’ contributions are used to finance general training programmes. While this scheme provides no incentive for firms to invest in the training of their workforce (because contributions cannot be claimed back to finance workers’ training), it is used to raise funds for publicly-provided training. One typical example of this scheme is the SENAI scheme in Brazil.

  • Levy-grant schemes: under this scheme, funds are returned to firms so that they can finance workers’ training. This scheme not only imposes contributions on firms to finance adult learning, but also provides incentives to firms to train their workers, especially because it can be designed so that grants are larger than contributions paid. Examples of these schemes can be found in various OECD countries, including France, Italy, Korea, the Netherlands, and Poland.

  • Levy-exemption schemes: under this “train-or-pay” scheme the cost of training is reduced to zero when firms train, up to the amount of the tax liability, thereby providing high incentives to firms to train their workers. Examples of this scheme can be found in Australia, Belgium, Canada (Quebec), Greece, Spain, and the UK.

Many countries have hybrid systems which combine different elements of different schemes and funds are used to finance both general adult learning programmes (revenue-generating schemes) and employers’ training (levy-grant or levy-exemption). These mixed systems can be found in Denmark, Hungary, Ireland, and South Africa.

Finally, employers may be reluctant to invest in training if they are not sure they can reap the benefit of their skills investments, for example if the worker leaves the company soon after training. One way to incentivise employers to increase investments in training their employees is to guarantee that they will benefit from the outcome. Payback clauses, i.e. a contract arrangement that allows employers to recover at least part of their investment in the training of staff members who voluntarily quit soon afterwards, is a policy tool that can help address this challenge. In Hungary, according to the law, the employer and the employee have to sign a study contract that sets out the commitments of the parties in case of training. This contract specifies the support provided by the employer (e.g. tuition fees, purchase of training equipment) as well as the obligations of the employee, including a time period (maximum five years) while s/he has to refrain from voluntary quitting the job. If the worker leaves the company before the agreed period, s/he has to pay back (all or part of) the training costs.

Table 5.3. Training levies in selected OECD and non-OECD countries

Country

Levy-rate (% of payroll)

Differentiation

Type

Australia

1.5%

No

Levy-exemption

Belgium

0.1% to 0.6%

By sector

Levy-exemption

Canada (Quebec)

1%

No*

Levy-exemption

Denmark

DKK 2 702 **

No

Revenue-generating/cost-reimbursement

France

0.55% to 1%

By firm size

Levy-grant

Greece

0.24%

No

Levy-exemption

Hungary

1.5%

No

Levy-exemption/revenue-generating/levy-grant

Ireland

0.7%

No

Ley-exemption/revenue-generating

Italy

0.3%

No

Levy-grant

Korea

0.1% to 0.7%

By firm size

Levy-grant

Netherlands

Up to 2%

By sector

Levy-grant

Poland

0.25%

No

Levy-grant

Spain

0.7% (of which 0.1% on workers)

No

Levy-exemption

United Kingdom

0.5% to 2.5%

By fund

Levy exemption

Non-OECD countries

Brazil

1% to 1.5%

By firm size

Revenue-generating

South Africa

1%

No*

Levy-grant/revenue-generating

Note: *Canada (Quebec) and South Africa exempt the obligatory 1% of payroll contribution for firms with a payroll under a certain threshold. **Denmark has a lump sum of DKK 2 702 per full-time employee per year paid to the AUB, which reimburse wages paid to employees undergoing off-the-job training.

Source: Based on (UNESCO, 2018[13]), (Müller and Behringer, 2012[14]), (OECD, 2017[1]).

References

[6] EAEA (2014), “Adult education in times of crisis”, European Association for the Education of Adults, https://eaea.org/wp-content/uploads/2018/02/adult-education-in-times-of-crisis2014_final.pdf (accessed on 18 June 2018).

[16] European Commission (2018), Labour market policy statistics - Methodology 2018, European Commission, Brussels, https://publications.europa.eu/en/publication-detail/-/publication/75893f87-9abf-11e8-a408-01aa75ed71a1/language-en (accessed on 25 January 2019).

[4] FiBS and DIE (2013), Developing the adult learning sector. Lot 2: Financing the adult learning sector, http://lll.mon.bg/uploaded_files/financingannex_en.pdf (accessed on 31 May 2018).

[9] FinALE (2018), An advocacy toolkit for financing adult learning in Europe: why and where to invest.

[15] Gloster, R. et al. (2016), “Mapping investment in adult skills-which individuals, in what learning and with what returns?”, BIS Research Paper, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/523037/bis-16-47-mapping-skills-investment.pdf.

[10] Kozyra, A., R. Motschilnig and G. Ebner (2017), “The status of adult learning and education in Europe and North America”, UNESCO Institute for Lifelong Learning, http://unesdoc.unesco.org/images/0025/002597/259721E.pdf (accessed on 31 May 2018).

[14] Müller, N. and F. Behringer (2012), “Subsidies and Levies as Policy Instruments to Encourage Employer-Provided Training”, OECD Education Working Papers, No. 80, OECD Publishing, Paris, http://dx.doi.org/10.1787/5k97b083v1vb-en.

[8] OECD (2018), Skills Strategy Implementation Guidance for Portugal: Strengthening the Adult-Learning System, OECD Skills Studies, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264298705-en.

[7] OECD (2018), Skills Strategy Implementation Guidance for Slovenia: Improving the Governance of Adult Learning, OECD Skills Studies, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264308459-en.

[12] OECD (2017), Educational Opportunity for All: Overcoming Inequality throughout the Life Course, Educational Research and Innovation, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264287457-en.

[1] OECD (2017), Financial Incentives for Steering Education and Training, Getting Skills Right, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264272415-en.

[11] OECD (2005), Promoting Adult Learning, http://www.oecd.org (accessed on 26 July 2018).

[5] OECD (forthcoming), Adult learning in Italy: what role for training funds?, OECD Publishing, Paris.

[3] Squicciarini, M., L. Marcolin and P. Horvát (2015), Estimating Cross-Country Investment in Training. An Experimental Methodology Using PIAAC Data, https://doi.org/10.1787/18151965.

[2] Squicciarini, M., L. Marcolin and P. Horvát (2015), “Estimating Cross-Country Investment in Training: An Experimental Methodology Using PIAAC Data”, OECD Science, Technology and Industry Working Papers, No. 2015/9, OECD Publishing, Paris, https://dx.doi.org/10.1787/5jrs3sftp8nw-en.

[13] UNESCO (2018), Funding skills development: The private sector contribution, http://unesdoc.unesco.org/images/0026/002619/261984e.pdf (accessed on 26 June 2018).

Notes

← 1. In England, for example, a recent study looked at the various sources of adult learning financing and concluded that the largest investors are employers, followed by the government (through the Department for Business, Innovation and Skills), and European funds while the overall contribution of the voluntary and community sector is not known (Gloster et al., 2016[15]).

← 2. Other areas include machinery and equipment; land, business building and infrastructures; research and development; organisation and business process improvements; software, data, IT networks and website activities.

← 3. Training participant stock data can be considered as an observation of the number of participant-years completed, as an alternative to the usual interpretation as the average number of participants at any given time during the year. Dividing the annual training expenditure by the annual average participant stock therefore gives a measurement of expenditure per participant-year (which is not the same as expenditure by participant). This measurement effectively eliminates differences due to the duration of different training programmes and provides a useful way of comparing the costs of different types of intervention. (European Commission, 2018[16])

← 4. Adult learning spending data include both public and private expenditures, but exclude indirect costs linked to adult learning (e.g. opportunity costs). For further information, see FiBS and DIE (2013[4]).

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