Mechanisms for increasing employer contributions to training: An international comparison

• The level of employer expenditure on training in Australia is often assumed to be lower than that in other compatible countries. Recent data suggest increases in reported employer expenditure, with levels now comparing favourably with that of countries often held as models for Australian policy and practice.

• Approaches to securing enterprise investment in training by government form a continuum from low-level intervention to compulsion and regulation, and range from approaches which attempt to secure voluntary commitment through to legislating enterprise expenditure on training. Voluntary commitment is often seen as the most desirable and self-sustaining approach, but is difficult to secure from enterprises.

• In Australia the prevailing view is that the level of enterprise training depends on a business case. In some other countries different factors play a part; for example, a social contract that requires employers to provide developmental opportunities for their staff.

• Potential policy mechanisms for encouraging increased expenditure are:
  • levies: which need to be localised, targeted and independent of government
  • partnerships: which are likely to recognise specific needs, such as changes in technology
  • leverage: which aims at increasing training by enterprises through reducing the cost to employers in subsidies or lower wages
  • regulation: which is appropriate for likely public benefit; for example, in improved standards of food handling.
• Ultimately, decisions about expenditure on training depend on individual employer's interests, values and commitments. Improving and enhancing employers' perceptions of the value of training are vital to increasing the levels of expenditure.

Enhancing enterprise investment in training

The aim of this report is to identify and discuss policy options for increasing employer contributions to their employees' training and development. The research involved a two-step methodology. In the first phase, an extensive literature review was conducted on the policies used by governments in Australia and overseas to encourage employers to invest in training. In the second phase, interviews were conducted with major stakeholders in Australia and a range of overseas experts to appraise the effectiveness of policies in more detail.

The federal government is keen to increase the level of enterprise expenditure on training, although its specific goals for that expenditure are not always clear. The level of expenditure on training in Australia is often assumed to be lower than that in other comparable countries; thus, it is also assumed, representing a threat to Australia's national competitiveness.

Although there has been considerable debate over the level and direction of employer expenditure on training in Australia, recent data suggest increases in reported expenditure on, and workplace activities associated with, training. Moreover, the level of expenditure by Australian enterprises now possibly compares favourably with that of countries often held as models for Australian policy and practice, such as Germany. Nevertheless, there is room for improvement and optimisation. Also, expenditure and activities associated with training are not consistently distributed across industry sectors and enterprises of all sizes. In selecting and implementing new policy designed to build upon the existing enterprise commitment to training, the federal government should ensure that new policies align with enterprise needs. Government must also ensure that their policies do not disrupt the pattern of apparent increases by enterprises on their training expenditure.

Goals for policy

This project has identified a range of policy goals which have the potential to be met through an enhanced commitment by enterprises to training. These goals include fulfilling specific enterprise needs as well as building the national base of skills.

These goals might include:

• subsidising the cost of the existing provision of vocational education and training (VET)

• extending the current provision of vocational education and training by increasing the available funds

• ensuring that enterprise training expenditure is more equitably distributed across occupational groups and industry sectors in the workforce

• distributing more equitably the opportunities for vocational education and training within workplaces

• improving the supply of available industry skills

• improving the quality of skill development

• promoting the importance/value of vocations and their skill levels, and their role in maintaining the economic wellbeing of the country.

Overall approaches to securing enterprise investment in training

Approaches to securing enterprise investment in training by government are realised through approaches characterised as:

• laissez-faire

• high employer commitment

• sectoral training funds

• levies

• regulation/certification.

These approaches form a continuum from low-level intervention to compulsion and regulation.

Australian enterprises consistently report that additional expenditure by them on training has to be supported by a compelling business case. Yet, beyond the business case approach, there are other factors by which policy relating to investment in training might be informed and which have been identified in this research. These include:

• the consensual and communal politics and participatory democratic structures which see policy being discussed, developed and enacted with local input (for example, Switzerland)

• the shared burden of the costs of skill development resulting from cost savings realised through the relatively low wage levels of apprentices who are willing to forgo high wages to benefit from a thorough training (for example, Germany and Switzerland)

• a broader and more collaborative base for organising and sharing in skill development across enterprises and individuals (for example, Germany and Switzerland)

• the different emphasis given to, and sponsorship of, initial and continuing development of skills, with initial vocational education and training largely sponsored by government and continuing vocational education and training sponsored by industry (for example, the Netherlands, France and Germany)

• the social obligations which arise from social charters compelling employers to provide supportive and developmental experiences in their workplaces (for example, the Netherlands, Finland and Norway)

• the evidence of the (largely unfortunate) consequences of laissez-faire approaches to ongoing skill development for contingent workers (for example, United States and United Kingdom)

• the need for localised decision-making with nationally mandated training levies (for example, France)

• the need to engage employers in the national vision for economic development (for example, Malaysia and Singapore).

Policy mechanisms for the Australian context

Given the uncertainty of policy goals, and the evidence of inconsistent commitment to investment in training across sectors, and between enterprises of differing sizes, it was concluded that, in the short term, at least four policy mechanisms might be used judiciously to secure different kinds of goals and in different circumstances. These mechanisms are: levies; partnerships; leverage; and regulation.

Levies

In the current context, three kinds of levies were seen to be potentially applicable. These are national levies, sectoral levies and local regional levies.

Only targeted national levies would be a possibility since untargeted national levies tend to generate resentment, superficial compliance and a cost view of training. For instance, a national levy targeted at low-paid and low-skilled workers (as in Singapore) or to overcome some nationally agreed problem may succeed.

Industry sector-specific levies may well work if their need is identified either within the industry sector or is accepted by it. It is likely that these levies will operate best at a state, regional or local level. Some form of visible enterprise involvement in decision-making in relation to the collection, management and expenditure of the levies seems to be crucial for engendering enterprise support.

Regional or local levies may be acceptable either within or across industry sectors. Again, the issue of transparency of processes and accessibility to benefits by enterprises contributing to levies appears to be paramount. Such levies might arise from identified needs within the community or industry (for example, the brick and the block levy in Victoria developed by the industry to address skill shortages). Importantly, the support for the continuity of such a levy is likely to be premised on explicit (visible) evidence of its successful impact on the specific community/industry.

The following is a summary of the conditions most likely to ensure an acceptable/effective levy from the perspective of industry:

• The enterprise or industry sector identifies or expresses a particular need or inadequacy (for example, skill shortage, professional development).

• It is independent from government.

• The mechanisms for collection, decision-making and enacting the levy are visible and accessible to the enterprises contributing to it.

• Enterprises can identify the positive outcomes of the levy system.

• The application of the levy generates a commitment to ongoing contributions.

Partnerships

Partnerships between enterprises and VET providers are likely to be the most useful method for encouraging expenditure by large enterprises or groups of enterprises. Industry-funded skill centres and programs shared between particular VET providers and enterprises offer potential partnership options. Such partnerships are likely to arise from the recognition of strategic goals or potential needs (for example, changes in technology, specialist skill development needs) by enterprises in that sector.

Establishing and maintaining such partnerships is likely to be dependent on mutual interest, collaboration and trust, although individual enterprise needs will have to be met to sustain such partnerships.

Demonstrating that the cost of employees' training has been shared may well provide leverage to encourage increased expenditure by enterprises. If such sharing is to be encouraged (for example, reduced cost of employment of trainees), it must be balanced with evidence of tangible advantages to employees (for example, in Germany and Switzerland, where both countries demonstrate solid and proven commitment to developing skills in the workplace).

Leverage

Subsidies from government to reduce the financial burden of employing apprentices can be used to lever additional funds from enterprises. Sharing of cost through subsidies is applicable to both small and large enterprises and can occur in locations where partnerships cannot operate, and can be targeted to address particular needs. A shortcoming of subsidies is that they become accepted as the norm and thus encourage dependence.

The policy mechanisms for government in considering leverage could include:

• finding ways of sharing the cost of employees' development across the community

• identifying industry sector needs and those of particular groups of workers most likely to benefit from the targeted subsidies

• ensuring that both subsidies and other forms of sharing are matched by enterprises' commitment to the development of their employees' skills

• promoting and acknowledging those enterprises which make significant commitments to their employees' skill development

• encouraging communities to acknowledge the effort of enterprises which make such a commitment.

Regulation

Enterprises will fund training to meet legislated or regulatory requirements, such as licensing. These requirements represent an option to ensure additional expenditure from enterprises. In recent times, the numbers and types of regulations have been increased in workplaces as a result of community expectations about the conduct of certain kinds of work (for example, food handling and preparation).

Others may well emerge as community expectations grow or change. Governments have the capacity to increase demand for training by ensuring that certain types of work are licensed. However, this mechanism needs to be used carefully and selectively to avoid countering the important purposes of licensing (for example, health and hygiene standards). Moreover, the use of legislation to promote training needs to have the support or involvement of the particular industry sector.

For government, the policy mechanisms associated with regulating training could include:

• identifying where there is a clear community interest and governmental obligation to license work practices

• appraising the likely public benefit from regulating that training

• enacting licensing arrangements in conjunction with the particular industry

• being clear about the scope of these licensing or regulatory arrangements.

Changing enterprise perceptions about training

A long-term and strategic goal for governments in Australia is to encourage a culture within enterprises and the community which voluntarily supports a strong and unequivocal commitment to training, a goal which currently represents a substantial challenge.

Ultimately, decisions about expenditure of funds on training are determined by individuals' interests, values and commitments-as managers, supervisors, and owners who make decisions about supporting their employees' development, or individuals sponsoring their own development. Mandating financial or other support for training may prove counterproductive; for example, superficial compliance or resentment towards the ongoing skill development of employees. However, when there is agreement that such measures are required, they attract broad support.

Enhancing the status of vocational practice and vocational education appears to be a key goal for the Australian context. In other countries, apprentices work for longer hours and lower levels of pay to secure prized vocational knowledge. Similarly, enterprises and unions are willing to collaborate to provide quality vocational education. Consequently, a key role for government might be to improve the status of vocational practice. It is important that governments take on this role, rather than industry, since the latter might well experience difficulty promoting arrangements which have the potential to jeopardise industrial processes.

Policy mechanisms which government may consider to enhance the status of vocational practice and vocational education include:

• acknowledging the richness and complexity of vocational practice

• promoting in the community the significance of vocational practice to everyday life

• assisting the establishment and continuity of professional bodies which seek to promote particular forms of vocational practice

• engaging and accepting the advice of professional bodies in policy formulation

• generating a climate in which the professional standing of vocational practice is held to be significant .