FiBS

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Financing Further Professional Training - an
Overview about Models and Experiences
CEI Human Development Forum Dr. Dieter
Dohmen FiBS Institute for Education and
Socio-Economic Research and Consulting Prague,
November 10, 2006
D.Dohmen_at_fibs.eu

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Content

• Introduction Some snapshots on training
  participation

• Modes of and experiences with financing further
  professional training
• - Private funding and tax exemption
• - Training loans
• - Saving accounts
• - Individual Learning Accounts
• - Vouchers
• - Training funds/payroll taxes

3. Summary and Conclusion
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Snapshots (1/3)
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Snapshots (2/3)
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Snapshots (3/3)
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Summary of snapshots
Participation rates are very different among
countries and - are higher in Northern than
Southern and Eastern Europe - Are increasing
with education levels, i.e. are higher for
tertiary graduates than for upper secondary and
lower secondary graduates - Are least for 55-64
and slightly higher for 25-34 year olds than for
35-44 year olds gt There appears to be a strong
link with education, socio-economic background,
income and returns
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Private funding

• Private funding
• Advantages those with higher income (except
  professional training, since participation
  depends on it
• (unless other financing opportunities are
  available)

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Tax exemptions

• Effects depend on tax system
• Progressive taxes again favour those with higher
  income since they gain more from tax deducations
• Net costs are less for people with higher income

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Tax exemptions

• Effects depend on tax system
• Progressive taxes again favour those with higher
  income since they gain more from tax deducations
• Net costs are less for people with higher income

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Tax exemptions

• Effects depend on tax system
• Progressive taxes again favour those with higher
  income since they gain more from tax deducations
• Net costs are less for people with higher income
• Flat taxes are fairer since the reduction is the
  same independent from income (unless you dont
  pay taxes)
• Tax deductibility is the major mode for
  co-financing professional training in Germany -gt
  indicates the progressive relation between income
  and participation
• Taxes exemptions dont reduce the liquidity
  constraint
• How to overcome them?

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Training Loans

• Training loans are usually not provided by the
  market (or only for certain target groups)
• Human capital does not provide any security, i.e.
  interest rates would be very high
• State guarantees are required, to keep interest
  rates at acceptable levels
• Even if, take-up rates are usually very small, as
  e.g. the British experience shows for SMEs and
  individuals
• Risk-aversity could be a problem, particularly
  for low-income and/or lowly educated groups

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Saving accounts

• Means to save money regularly on a bank account
  especially for training
• Takes time and foresight (if you are to save
  especially for training)
• Appears no instrument for costly programms, since
  time requirement is to high (e.g. it takes more
  than 6 years to finance 10.000, if interest
  rate is 10 )

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Individual Learning accounts

• ILAs were applied e.g. in the UK
• State topped-up 150 if people paid 25 on a
  bank account
• Funds to be disbursed at registered institutes
• Goal 1 mln accounts within 2 years (in fact 2.6
  mln/1yr)
• budget line of 1.5 mln exceeded by far
• 22 of the participants had no training the year
  before
• 91 said their expectations were outstripped
• 54 were more interested in training than before
• 7.000 new institutes were established
• Programme closed down after one year for misuse
  and quality problems

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Vouchers

• Can be applied to companies as well as
  individuals
• State co-funding for training
• Trainee selects training institute and delivers
  the voucher
• Institute gets reimbursed by the state/funding
  agency
• USA GI-Bill for war veterans for re-training and
  integration
• Belgium SMEs receive up to 400 vouchers of up to
  30 50 of the costs are to be SME co-funded
• Germany training vouchers for unemployed people
• Vouchers were applied in many developing
  countries
• Problems information and advice, limited usage
  by low-educated people, fraud (to some extent)

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Training funds/payroll taxes

• 2 different modes revenue generation and
  levy-grant or levy-exemption scheme
• - are applied in many countries (e.g. France,
  Malaysia, Netherlands)
• Crucial question net-impact on company training?
  
• Gross numbers are often promising, but net effect
  often low
• Experience appears to be less promising as
  expected (but room for debate)
• SME pay but dont apply for refunding
• Revenue generation funds tend to establish
  bureaucracies
• However, sometimes it seems to have had an
  starting effect (e.g. Taiwan)

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Summary and Conclusion

• No instrument is without problems!
• However, some modes appear to be performing
  better than others (e.g. ILAs/Vouchers)
• While others favour normal participation
  patterns (tax exemption in progressive tax
  systems)
• gt Success and failure of a model depend on the
  relationship between design and environment
• Important co-factors information, advice and
  quality assurance

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Financing Further Professional Training - an
Overview about Models and Experiences
CEI Human Development Forum Dr. Dieter
Dohmen FiBS Institute for Education and
Socio-Economic Research and Consulting Prague,
November 10, 2006
D.Dohmen_at_fibs.eu