Vocational Education

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Vocational Education Training Finance in Korea

• Sung-Joon Paik

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1.Purposes

• To Analyze the Main Features of the Vocational
  Education and Training Finance in Korea
• in terms of Funding Sources and Distribution
  Mechanisms
• To Examine Impact and Problems of the Current VET
  Finance System
• To Discuss Issues and Challenges

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2. Content

• A. Vocational Education Finance
• B. Vocational Training Finance
• . Training Levy System
• . Financing System of Vocational Competence
  Development Program
• C. Issues and Challenges of VET Finance

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VET Finance in Korea

• lt VE Finance gt
• MOE HRD
• 60 of Budget from Private Sources
• V.H.S. and National J.C. Polytechnic U.
• Input-based Finance
• J.C. Polytechnic U.
• Subsidy based on Evaluation

• lt VT Finance gt
• MOL
• 2/3 of Budget from Private Source E.I.F.
• Mainly Input-based Finance
• Bonus Payment based on VT Institutes Program
  Evaluation

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3. Vocational Education Finance

• A. Funding Sources
• Central Government(M of Educ. HRD)
• Local Education Authorities
• 16 Municipal Provincial Offices of Educ.
• Parents Students
• School Foundations

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Budget of VE institutes by funding sources

• (unit million won, )

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Budget of VE Institutes by Funding Sources
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B. Budget Distribution Mechanism

• Distribution of Govt Budget to Schools

MOE Budget
Central Govt
Special Account for Local Education
Local Education Authorities
National/ Public Schools
Private Schools
Schools
School Foundation
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Distribution from Central Govt to Local Govt

• General Grant
• To guarantee Equal Educational Expenditure for
  All Students in Each Province
• Grant Standard Fiscal Demand - Standard
  Fiscal Revenue
• Special Grants
• To Support Unexpected Financial Demands
• (natural disaster, revenue decrease etc.)
• 84.8 of MOE Budget to Local Ed. Au. in 2005

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Distribution from Local Govt to Voc. High S.

• 16 Different Distribution Mechanisms
• Mostly distributes on the basis of Unit Cost per
  School, per Class, and per Student by Vocational
  High School Type
• In addition, Supports Expenses for the
  Maintenance of Gym, Auditorium or Car
• gt to Give More Autonomy

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Financial Support to Junior College Polytechnic
University by MOE

• MOE Provides Direct Subsidies for Specific
  Government Projects.
• Facilities Equipment, School-Industry
  Partnership(customized program development),
  Diversification Specialization of Program
• MOE Distributes on the basis of Evaluation
  Results.
• Project Proposal, Performance Results
• Institutes bid for Funding.

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C. Problems of VE Finance

• Structural Vulnerability of V.E. Funding
• High Proportion of Private Institutes
• Lack of School-Industry Partnership
• Little Incentive for Industry
• Lack of Autonomy in Voc. High Schools
• Low Discretion in Curriculum Design and
  Implementation
• No Systematic Evaluation on Investment
• Only Audit for Budget Management

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Vocational Training Finance

• Before(1977-1998)
• Training Levy System
• Compulsory Training S.
• Govt-Controlled, Supply-Oriented
• V.T. Promotion Fund
• Closed Training Mkt

• Now(since 1995)
• Vocational Competence Development Program
• Incentive System
• Demand-Oriented
• Employment Insurance Fund
• Open Training Mkt

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Reasons for Reform

• Emergence of the Knowledge-based Economy
• Training for Upgrading Workers Skill became a
  Critical Policy Issue.
• Need for Lifelong Learning System
• Comprehensive and Active Labor Market Policy
• Not only Unemployment Benefits but also Promotion
  of Job Security and V.T.

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4. Vocational Training Finance

• A. Training Levy System (1976-1998)
• Enactment of the Basic Law for Vocational
  Training in 1976 Compulsory Training S.
• Private Firms with 300 or more Employees required
  to Provide In-plant Skill Training
• 200 or more in 1989, 150 or more in 1992
• MOL annually fixed the Proportion of Employees to
  be trained from 1977 to 1986. Since 1987, the
  Compulsory Ratio determined based on the Firms
  Payroll.

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Introduction of the Levy System

• Employers could either Provide In-Plant Training
  or Pay Levy to the Vocational Training Promotion
  Fund.
• From 1977 to 1986, MOL calculated Levy by the
  Standard Training Cost per Trainee per month
• Since 1987, by applying the Compulsory Training
  Ratio to Firms Total Payroll

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Implementation of Compulsory Training and Levy
System

• Until 1978, In-Plant Training Expanded.
• Since 1979, the Number of Trainees Declined
  Sharply.
• Levy was Less Than Actual Training Cost.
• Excessive Government Regulation on Training
  Facilities, Course Content and Duration
• of Firms provided T. kept decreasing.
• Quality of the Training Low in terms of Training
  Duration and Skill Test Results

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Implementation of Compulsory T. Levy Sys.
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Vocational Training Promotion Fund

• Enactment of the Vocational Training Promotion
  Fund Law in 1976
• To Provide Budget for
• Training of Skilled Workers
• Curriculum Development, Instructor Training,
  Research
• The Korea Manpower Agency(HRDKorea)
• Loans for Equipment Facilities

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Revenues and Expenditures of the Fund

• Total Revenue kept increasing,especially after
  1987.
• However, the Proportion of Expenditure to Revenue
  Fluctuated from 28 to 90.
• No Consistent and Systematic Investment Policy.
• 55.3 of Exp. on Subsidies Loans for Equipment
  Facilities 35.5 on Actual Training between
  1977 and 1993

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Revenues and Expenditures of the Vocational
Training Promotion Fund.
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B. Financing System of Vocational
Competence Development Scheme

• Introduction of the Employment Insurance System
  in 1995
• Employment Security Program
• Vocational Competence Development Program
• Unemployment Benefits
• Vocational Competence Development Prog.
• Assistance to Employers
• Assistance to Employees
• Assistance for V.T. of the Unemployed

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Vocational Competence Development Scheme

• Incentive System to Encourage Employers and
  Employees Active Participation in Lifelong
  Vocational Training through Financial Support
  from the EIF
• Enactment of the Worker Vocational Training
  Promotion Act in 1997
• V.T. Paradigm Shift from Govt Controlled,
  Supply-oriented to Demand-oriented
• Compulsory Training Levy System Abolished

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Funding Sources of V.T.

• Public Sources
• Central Government
• Ministry of Labor
• Other Ministries
• Local Governments
• Private Sources
• Employment Insurance Fund
• Budget of V.C.D.P. administered by MOL
• Students/Trainees

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Demand-side Finance

• Subsidies for Employers
• Training Cost Support
• Support for Paid-leave Training
• Loans for Facilities and Equipment
• Subsidies for Employees
• Training Scholarship for Workers
• Tuition Loans for Workers
• Subsidies for the Unemployed
• Training Cost to V.T. Institutes
• Allowance to Trainees

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Subsidies for Employers

• V.T. for Upgrading Workers Skills
• of Employers 7.3 times Increase between 1997
  and 2003
• of Trainees 9.0 times Increase
• Budget Subsidy 5.8 times Increase
• Paid-leave Training
• Relatively Small Increase

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Workplaces and Trainees for V.T.
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Workplaces Trainees for Paid-leave Training
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Tuition Loan for the Employees
(1,000 won)

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C. Impact of New VT Finance System

• of Trainees of Upgrading Training kept
  Increasing from 679,000 in 1998 to 1.725 million
  in 2003, while of Trainees in Initial Training
  decreased from 78,000 to 38,000.
• of trainees in T for the Unemployed decreased
  after 1999, as the Korean E was recovering.
• Differences between Large and Small Firms in of
  VT trainees and Paid-leave trainees

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? Trainees of Vocational Competency Development
Scheme
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? Budget of Vocational Competency
Development Scheme
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Differences between Large and Small Firms

• 70.9 of Trainees for V.T. for Upgrading Workers
  Skills belonged to Large Firms with 1000 or more
  Employees in 2003.
• 86.2 of Trainees for Paid-leave Training was
  from Firms with 150 or more Employees.
• Regressive Problem of Rate of Benefit over
  Contribution
• The Smaller the Firm Size, The Lower the Rate of
  Benefited Amount over Contribution

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D. Problems of V.C.D.P.

• Differences between Large and Small Firms
• Small Firms lack Financial and Human Resources.
• Need to Increase Subsidies to SMEs
• Inefficient Distribution Mechanism
• Based on Training Volume( of Trainees, Time)
• Not on the basis of Performance Results
• Lack of Relevance of V.T. to Skill Demands
• Small of Trainee for Paid-leave Training,
  Training Scholarship and Tuition Loan
• Time for Training to be obtained through a
  constructive Industrial Labor Relations

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5. Issues and Challenges of VET Finance

• A. Funding
• Diversify Funding Sources
• V.E. Expand Funding from Local Governments,
  School Foundations, and Private Firms
• V.T. Increase Trainees Share
• Prevent Adverse Equity Effect
• Increase the Government Investment to SMEs
• Linkage between VE and VT Finance
• Use E.I.F. for Vocational High School and J.C.

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B. Distribution

• More Direct Subsidies to Individuals
• Voucher
• Performance-based, Output-related Finance
• Develop Indicators and Methods to Evaluate the
  Management and Output of VET accurately
• Make Evaluation Results Public
• Empowerment of VET Institutes