We need investment in training - but it must be the right kind

 

The second finding is that these cost-sharing mechanisms have supported increasing private investment and in turn, participation in training. But I should point out that the effectiveness and efficiency of these approaches varies considerably.  Clearly, there is a lot of room for improvement, for instance, in raising awareness of the different funding sources and mechanisms, providing better guidance... We also need to devise monitoring arrangements.

 

I should add that our analysis of the relation between financing mechanisms and private investment is largely qualitative because of the lack of statistical data, which didnt allow us to conduct a proper quantitative analysis. Information from secondary sources is also scarce. So we collected information through surveys of national experts. To examine the relation between private investment and participation in training we applied a regression analysis and used Eurostat data.

 

Patrycja Lipinska:   Mostly, these countries are implementing and adapting the schemes that were present in the older Member States, such as grants, training funds and tax incentives. Vouchers, which are becoming popular in the older Member States, are still underdeveloped in the newer EU entrants, as are loans and savings schemes.  But the most popular measure is to apply regulations that secure either the benefits of investment in training (payback clauses) or equitable access to training (training leave).  

 

Peter Szovics:  Its clear that the sectoral training funds at least try to be the most equitable. They may choose to focus on target groups, like the low-skilled or disadvantaged workers, or migrants, or people who lack specific skills. Generally, they tend to be more tailored to specific needs. Sectoral funds may also provide guidance or even training courses. Public funding of training, by comparison, tends to be more general, more focused on generic skills and employability.

 

Peter Szovics:  Lets start with what is good about tax incentives: theyre simple. Unlike, say, grants or subsidies, theyre easy to administer, at least for the companies, compared to grants and subsidies. They also make it possible to target skill gaps. In some countries, like France, its clear that apprenticeships have also increased thanks to tax incentives. Tax incentives support and encourage training in various ways by providing allowances, credits, deferrals, relief and exemptions.

 

But apart from the fact they of course represent a loss of public revenue, the schemes are usually not explicitly connected to education and training policy they focus on employers rather than employees and as such are part of income tax or corporate tax law. We have also found that tax incentives do not advance equity. They tend to support highly-qualified or more educated employees. Large companies use them more than small and medium enterprises (SMEs).

 

Patrycja Lipinska:  Equity is not just an issue for tax incentives but for all financial mechanisms. One of our studys main recommendations is that countries, which have focused so far on efficiency, should now pay more attention to equal opportunity criteria. One way to do this is to carefully define eligibility requirements. There are already many examples of this in several countries for instance, Hungary offers grants specifically to older workers who need to update their skills, the Czech Republic has special tax incentives for disabled people, the national training fund in Cyprus targets women returning to the workforce, and Polish sectoral funds target workers who have been made redundant.  

 

Peter Szovics:  Not necessarily. Let me give an example: in Austria, companies that declare a profit can deduct the entire cost of training and an extra virtual expense of 20 %. But if you havent made a profit which can happen, in small companies and start-ups especially - there is a special arrangement called a tax credit which gives 6% of the training cost back. The point is to target incentives correctly, to provide options rather than a blanket measure. One-size-fits-all is not going to work.

 

Patrycja Lipinska: Anyway, its certainly not enough to target SMEs, you should also pay attention to those who are lower-skilled within all companies, thats the group that is getting the least training right now.

 

Peter Szovics: The reason why the State gets into this business in the first place is to solve market imperfections, to allocate the money it collects in the best possible way. So its not surprising that in all education, at least 75% of finance is public. The percentage of cost-sharing depends on how the training system is structured and on the level of education. There is more and more private funding at the tertiary level. But its worth noting that the countries with the highest increase in private spending also show the highest growth in public funding.

 

Now countries are ranked according to public expenditure as a percentage of GDP usually around 5% - or as a proportion of state budget, around 10%. But this will not give you the whole picture. You must calculate expenditure on each student to see what is really being spent. If you look at these amounts, expenditure tends to rise with the level of education. And vocational education and training is more expensive than general education.

 

Patrycja Lipinska:  For lifelong learning, its clear that no state budget will be able to afford it.  So we know that to ensure upskilling we need to attract additional money - and this must come from the private sector. This is why cost-sharing is high on the policy agenda.  

 

Patrycja Lipinska:   Two main issues: one is that we need more evaluation.  Monitoring and evaluation is weak in many newer Member States. Even the opinions of individual experts and practitioners are not always available at the international level. This means we dont learn enough about how well other countries policies are working, and whether they lead to an overall increase in investment and participation in training. We also need to know whether the mechanisms are affected by the current crisis whether they are maintained, whether effectiveness or operation has altered, whether there are any negative trends and what the country intends to remedy them.

 

Peter Szovics:  We want to look at how research can contribute to the field of incentives and how other mechanisms, like  loans and subsidies, can be connected to tax incentives. Thats the crucial issue in funding: how the various mechanisms can support each other. Most of the countries  try to use a mix of approaches;  the question is to find the optimum mix, which is not going to be the same in each country. This will also involved connecting education and training policies with taxation policies.

 

Here there is also an important role of the State. We mentioned generic skills well, the State is more likely to ensure that people get generic and transferable skills, which will protect them from unemployment. Companies are more interested in teaching specific skills. There is a risk that with rising unemployment, they will have less of an incentive to invest in their workers training.

 

Patrycja Lipinska:  In our analysis, we saw that public stimulus is central to introducing, developing or maintaining cost-sharing arrangements. Increasing public spending by which we mean increasing spending as a proportion of GDP-allowed countries to experiment with various cost-sharing approaches, and encouraged social partners to get more involved. But in the current economic crisis there is a danger that public finances will get squeezed and there will be less spending on education and training. Some schemes could get abandoned, which means that private investment could also go down

 

Peter Szovics: One factor we should pay attention to is that the public sector usually works on the basis of triennial plans, so the shifts in financing that weve seen so far are minor. But in the private sector its immediately more visible the easiest way for companies to cut cost is to make cuts in training. Perhaps we will also see public spending cuts, as public debt rises. But of course if we want to have high-skilled people we will need to at least maintain our current public expenditure on education and training. 

 

You know, not all researchers agree that more spending on education is an automatic indication of progress far from it. Some say the relationship between spending and student performance is weak or even non-existent. These researchers are, looking at how efficiently resources are used in education - for instance, how increased spending affects PISA results. Of course these projects do not cover continuing training. The adult education survey could be the first to undertake this. But you need years and even decades, really, for this kind of research to bear fruit, considering how much time you may need to train for specific occupations.

 

Patrycja Lipinska:  Its perhaps more accurate to say that the two things should go hand in hand: we should not just increase funding, but also pay attention to efficient allocation and equitable distribution.  As a society we should avoid the temptation of reducing investments in people. We should just try to make sure that they are the right investments.

 

 

Interview: Ioanna Nezi