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Financing training in Britain.

FINANCING TRAINING IN BRITAIN (1)

1. Introduction

There are relatively fewer workers with intermediate vocational qualifications in Britain than in Germany, France and other major competitors. (Prais, 1981; Steedman, 1990). While a lack of qualifications cannot be equated with a lack of skills, a connection is difficult to dispute. This gap between British and German firms does not augur well for Britain's competitiveness and suggests that investment in training should be increased. But such investment is expensive. How should it be financed? Possible answers to this question are discussed in this article.

Our views have been influenced by our case studies (Hart and Shipman, 1990a and b, and 1991). The Confederation of British Industry introduced us to 6 British firms reporting skill shortages. We selected 6 more in the same sectors. The Ifo-Institute of Munich introduced us to 6 German firms which matched 6 of the British firms. These firms were mainly in the electronic, electrical and mechanical engineering sectors (Hart and Shipman, 1991) and were experiencing skill shortages. These case studies suggest that British firms can often sustain the output of sophisticated products, in spite of a largely unqualified workforce, by optimising the allocation of qualified labour between tasks and by relying on uncertified skills acquired through experience. However, most were also taking steps to increase their stock of formally qualified employees. By contrast, in comparable German plants - with a larger and longer-established vocational training system - it was possible to set higher (formal) recruitment and promotion standards without encountering greater skill shortages.

The interviews took place in Britain and Germany in 1990, before the current recession, when skill shortages were more severe. But the under-training of the British workforce is long-standing and the financing of the necessary increases in training remains an important issue.

It is sometimes claimed that any excess demand for qualified labour will be removed by changes in relative wages. Higher wages of qualified workers will encourage labour to finance training in general, transferable skills, while training in firm-specific skills will be financed by the firms themselves. We acknowledge the power of market forces but we do not think they will be sufficient by themselves to remove the chronic under-training of the British workforce. The reasons for this view are set out elsewhere, Hart and Shipman (1990a), and so the present article concentrates on the various types of government intervention which might be used to supplement market forces.

2. Financing training in Britain

Training costs are composed of tuition fees and the costs of maintaining trainees while they undergo training (net of any contribution to production). Where such training is not firm-specific, it could in principle be financed by the trainees, either directly by payments or indirectly by accepting wages below transfer earnings during the training period. This does not appear to be a common practice in the UK. In all the cases we studied, the firms pay for the training and retraining schemes, sometimes with assistance from YTS or other government grants. When training finishes, the firms pay the wage associated with the new skill immediately, to avoid losing the trainee to another employer. Only one of our sample was considering a scheme for recovering tuition costs from the trainees if they left within a certain period after the course.

The recent |Training in Britain' survey (Training Agency 1989) estimated that, in the tax year 1986-7 at 1989 prices, employers spent 14.4 [pounds] billion (or 0.3 per cent of their turnover) on employee training. Another 5.2 [pounds] billion was spent by the public sector, and under 3 [pounds] billion on government funded schemes. The calculations might be regarded as generous. (2) They nevertheless confirm that most training expenditure is employer-funded. We were given good reasons for this.

One firm with extensive use of computers emphasised that because of rapid change in computing, training was a continuous process. It was unreasonable to expect workers to pay for training which could become obsolete very quickly. The firm regarded its training outlay an inescapable operating cost, rather than an investment in human capital. Managers in other firms cited equity. Young people in further or higher education do not contribute to their tuition costs, and may even obtain maintenance grants, depending on parental income. So young people leaving school for the workforce do not see why they should pay for their costs of training.

When employers finance general training costs, they increase the transfer earnings of their trainees and risk losing them to other firms before receiving an adequate return on their investment in training. Nevertheless, most firms in our sample were taking this risk. (3) In times of recession, many firms are quick to reduce their training budgets. Even when the firm is doing well, the external benefits may cause under-provision of training. Few sample firms were meeting their full recruitment needs from trainees, and all were taking proportionately fewer than their German counterparts. Turnover rates were higher at the UK plants, especially for occupations in shortage. Haskel and Martin (1990) estimate an insignificant effect of training activity in reducing skill shortages, apparently because of the effects of poaching. In contrast, the German firms in our sample expected most trainees to stay with them and even to return to them, if they left their apprenticeship to study full-time for a degree.

|Transferable' training normally involves a range of basic skills and supporting theory, as opposed to higher-level training in a single skill used for a specific kind of work. Broad-based training is receiving increased emphasis as technologies change, and as jobs are redesigned to cover a wider range of tasks. However, single-skill training inevitably develops some general attributes (discipline, motivation, learning ability), which are transferable between employers. While among state-funded training measures we might expect school/college based schemes to be broad-based and employer-based schemes to be more specific, in practice all involve both on and off-job elements, and the distinction is not clear cut.

Since market forces are not sufficient to overcome myopic investment decisions of individuals, and free riding by firms, there is a case for government intervention. This usually involves the tax-payer. The various ways of using public funds to finance training are reviewed in section 3.

3. Public funding of training

Any public subsidy risks either financing what private agents would willingly have paid (duplication) or causing other private outlays to be cut in favour of the subsidised activity (substitution). With training, substitution generally takes the form of training some employees who attract a subsidy in place of others who do not. This section reviews the main types of public measure available, and their current operation in the UK.

Vocational training in schools

To counteract the tendency for individuals to under-invest in general training, the government could follow the French example and introduce extensive vocational training in school, Steedman (1990). The Technical and Vocational Education Initiative does not do this (4). The City Technology Colleges programme likewise aims to increase the vocational element within existing |academic' courses - and it appears to be at a standstill. Though the move to a National Curriculum could make it easier for government to introduce vocational options into schools, it has coincided with a shift to a common academic route from 14-16. However, recent ministerial statements are more favourable towards vocational training as an alternative to |academic' courses at 14+ and 16+, and some schools already offer BTEC options alongside science A-levels. (5) Provided it leads to national validated qualifications such as BTEC National Diploma, vocational study in the 6th form can keep students' options open between taking a job or proceeding to higher education.

Alternatively, schooling could be made compulsory up to 18 years, with the proviso that, after 15 or 16, schooling could be part-time (e.g. one day a week) in technical colleges in association with apprenticeships. This would again use compulsion to overcome young people's (and employers') economic myopia, following the German example. However, the German firms pay young trainees only one-third to one-half of the adult wage rate, to enable employers to finance general training. This is substantially less than the usual apprentice wage in Britain (Jones 1985). It might be particularly difficult to substitute trainees' or students' grants for current wages now that the 15-19 year old cohort is diminishing, and the labour market pressure is on employers to increase youth wages for non-training jobs.

Vouchers

A modified approach, proposed by the CBI (1989), (6) is that the taxpayer should fund a voucher to all 16-year-olds to meet the learning costs associated with courses leading to NVQ level 3, or its academic equivalent (A levels) (7). Employers would pay the wages of those young employees undertaking part-time vocational courses, and would also provide them with relevant practical experience. The value of the vouchers would vary according to the costs of training in different occupations, through a series of funding bands. This overcomes the problems of the YTS scheme which, by giving the same basic grant for all, discourages training for high cost skills. But it would create a problem in deciding who should receive the more valuable vouchers.

The CBI credit would last two years and is age-specific, so that those leaving school at 17 get only half. Annual cost of tuition to NVQ2 is estimated at 1200 [pounds], and to NVQ 3 at 1550 [pounds]. With approximately 440,000 school-leavers at 16 and 105,000 at 17, a universal NVQ 2 credit would, on CBI calculations, cost the taxpayer 0.591bn [pounds], and an NVQ 3 credit 0.763bn [pounds].

If the voucher lasted two years regardless of age, these costs would rise to 0.65bn [pounds] and 0.84bn [pounds] respectively. If extended to 3 years (the normal length of an apprenticeship), the costs would be 0.97bn [pounds] and 1.27bn [pounds] respectively. A 3-year voucher, which might allow abler candidates to reach NVQ 4, could be made exchangeable either for vocational training at 16-19 or for degree-level training at 18-21. Pupils staying on at 16 would then save the voucher for later use, trading the immediate loss of income from not taking a job against the later gain from having more academic qualifications. If they took A-levels but failed to enter higher education, they could still obtain vocational training at 18+. Vouchers |cashed' for degree courses would simply continue the existing state funding of students' tuition fees. Under this arrangement, sixth-form tuition costs would also continue to be met by the state.

Variants on this proposal are to be tested by selected Training and Enterprise Councils (TECs) (8). School leavers will receive a |Training Credit' of about 2000 [pounds] which can be exchanged for accredited training, by presentation to the employer or to a college. In some areas, credits may be targeted on training for shortage occupations. It is not clear whether longer courses will attract higher value credits, or whether trainees will have to supplement a standard credit. To simplify the TECs financial planning the credit must be cashed within a certain time limit (in most cases two years).

The Credit System differs from current youth training provision because it funds the tuition cost, instead of the trainee's maintenance. Employers would be expected to pay the full trainee wage, and use the voucher to cover the costs of training. At present, YTS subsidises trainee maintenance while the employer absorbs the training cost. The reversal has obvious advantages now that youth wages seem set to rise.

Subsidies and tax concessions

An alternative to vouchers for adults would be to subsidise employers for every adult employee they register for externally validated training. Employers are already permitted to offset all adult training expenditure against tax. A further concession might be to exempt adult trainees from the employer's National Insurance Contribution (NIC). The exchequer cost of this is uncertain, but some fairly generous estimates show that it need not be much more than current public spending on vocational training. Suppose that the average wage of adult trainees is 14 000 [pounds]; that all pay Class 1 contributions at 9 per cent; and that every year there are 1.5m adults receiving training. Dropping the employer's NIC completely implies a revenue loss of 1.89bn [pounds] per year, which for neutrality would have to be balanced by higher taxes elsewhere. Partial exemption would would clearly cost less. This approach avoids a funding bias towards youth training. However, employers would have to be monitored closely to make sure that those registered for training were actually receiving it. Current shortfalls in the National Insurance fund, resulting from widespread opting-out from state pensions, may make this approach infeasible in the short term.

The 1991 budget allows employees to count all their expenditures on vocational training against income tax. Previously, such deduction was only possible for training necessary for the continued performance of a current job (DES 1988). However, other deterrents to employee-financed training, particularly uncertainty over future wage enhancement and regaining work after full-time study, make it unclear how much of an additional incentive this will provide.

Training loans

In place of a grant which is later recovered through the tax or National Insurance system, the government may provide loans for training, which recipients would hope to pay back through higher future pay. Such loans are generally available in the free market, since banks are reluctant to accept future earning power as an adequate security, or offer sufficiently favourable credit terms.

Two such schemes currently operate in Britain: top-up loans for full-time students, and |career development loans' for those in full-time work who wish to follow short courses to obtain promotion. In the theory, recovery of the loan is more certain than recovery of grant finance, since a proportion of those completing the course may move on to unemployment or low wage work which exempts them from tax, or may fail to move to a higher tax bracket. However, there will also be exemptions for low-wage graduates under the current loan scheme, and a proportion of recipients may default. Career development loans are a comparatively small programme, costing just 5 [pounds] million in 1991/2.

Compulsory levies

Sector levies, which previously operated in some parts of manufacturing, raised contributions from all medium and large enterprises proportionally to size, and redistributed them to those with recognised apprenticeship programmes. Only youth training was covered. The schemes were weakened by the migration of trained labour to sectors outside the levy system, and by the increasing number of small firms which were exempt. A national levy would avoid much of the cross-sectoral poaching, though small firms outside the scheme would still be able to enjoy a |free ride'. To reduce the administrative expense, it is usually proposed that an average or target level of training per employee be set for each sector, with firms below this level paying a charge which is redistributed to firms above it (Employment Institute, 1989). Transferable training costs would here be imposed on employers collectively, though the government might contribute to the costs of administration. These would be high because of the need to set standards and monitor individual firms' training, but the scheme has the advantage of covering both youth and adult training. Exchequer costs would fall, but those of non-training firms in the scheme might rise substantially.

An alternative way to redistribute funds from net poachers to net trainers, which might avoid the administrative complexity of a levy, would be for firms to pay a |transfer fee' when they recruit labour trained by another employer. This would require a local appeals system, where evidence of the costs of training could be independently assessed. It would depend on employers knowing where their departing trainees were going: our case studies suggest that this is often the case. But appeal would need high demonstrated success rates before more employers could be induced to train in transferable skills. Moreover, if the scheme reduced poaching, it would also reduce employees' prospects of leaving a company (for career progression) which had given them training.

Schools-industry links

In the short term, any policy designed to increase youth skills has to overcome the effects of the decline in the number of 15- 19 year-olds from nearly 11 per cent of the workforce in 1987 to below 8 per cent in 1994, an absolute decline of almost one million. The firms we interviewed are well aware that they have to persuade teachers and their pupils that it is in the interest of many pupils at 16+ to take apprenticeships, and a study for a technical qualification, rather than proceed to |A' levels. Persuasive contacts with schools take the form of providing school governors from firms' managers, work experience for pupils, open days, and in some cases full-time school liaison officers. One firm in our sample had no less than four people liaising with schools, colleges, and universities. But another firm has the closest relationship, through a local schools/industry compact. It sponsors selected pupils, at age 14, for the period of their GCSE courses. These will be given work experience at the plant for three weeks, a company mentor, book allowances at the end of each year, and a guaranteed apprenticeship if necessary standards are met. In return, the sponsored pupils must write a report on their work experience, and reach pre-determined goals within the two years.

The numbers of young people reaching at least grade C level in GCSE (or its equivalent) could also be increased by encouraging those with lower grades to stay on at school for a further year and take more practical courses, such as the Associated Examining Board's (AEB's) Certificate of Further Studies. These would aim to enable youngsters to reach beyond GCSE level C by the age of 17, even if they were below this level at 16. The extra year at school would increase the supply of young people reaching the standards required for apprenticeships, and would also lessen the fall in school rolls. But it would require the amendment of those collective agreements with inflexible ages of entry into apprenticeships.

Another way to cope with the demographic decline in the number of 16 year olds would be to encourage sixth formers to prepare for vocational qualifications, such as BTEC, RSA, CGLI rather than |A' levels. (9) If they could also combine this with part-time trainee-ships in sponsoring firms, with three days a week in the firm instead of three weeks in two years, they would well be on the way to acquiring the same level of skills as their German counterparts in the |dual system'. This short-term policy would be consistent with the long-term objective of catching up with competitor countries within the European Community. In Scotland, |modular' further education, including Scotvec courses (equivalent to the English BTEC) are already available to pupils staying on at 15 (the minimum leaving age), who do not wish to proceed to |Highers'.

Special schemes

In recent years the major schemes have been for school-leavers unable to find work, and adults out of work for more than six months. An initial variety of initiatives has been simplified into Youth Training (YT) and Employment Training (ET) now administered by the TECs. Expenditures on YT will be 844 [pounds] million in 1991/2 and on ET 757 [pounds] million. Both programmes have been cut back, expenditures in 1988/9 having been 1020 [pounds] million and 1340 [pounds] million respectively at current prices (HM Treasury 1991). Better use of existing skills

Married women who have left the workforce, and unemployed people with qualifications, form two pools of ready-trained labour which may be increasingly useful to employers. In our sample, one firm has already begun a modified engineering apprenticeship for women |returners', many of whom are educated to NVQ level 3 or above, and may be contacted through the existing workforce. Unemployment tends to strike first and longest at those without certified skills, but one recent regional survey found that 7 per cent of long-term unemployed men aged 18-24 held one or more A-levels, and 25 per cent at least one O-level or equivalent - though few had any vocational qualifications (Cooper 1989, table B7).

4. Which method of finance?

If the general taxpayer is to be called upon to assist the financing of training, which method should be used? Table 1 helps to answer this question. The rows classify the different methods of financing training: those recoverable from employees (loan, qualifications tax), those recoverable from employers (national and sector levies) and those that are not directly recoverable, (grants, voucher schemes, tax and national insurance concessions, subsidies, state-run schemes, educational expenditures). The columns list the disadvantages of the different methods: administrative expense for government; substitution (if employers are compelled to incur training costs for young people, they may substitute other types of labour, such as older, part-time workers, who are outside the training scheme), duplication (financing training which employers or employees would have funded themselves), deterrence of trainees and of employers, or the exclusion of adults. Entries in the columns give only a crude indication of the likely costs involved, but they help to indicate which problems the different schemes encounter. [Tabular Data Omitted]

The first row relates to the provision of Government loans to trainees to help them to pay for their training costs. These loans are recoverable (unless borrowers' incomes stay below a threshold level). In principle, they could be extended from the current measures (discussed in section 3) to cover maintenance and tuition costs of higher education or of initial training. The major difficulties are additional administrative costs, and the reluctance of employees to finance their training this way, because of the uncertainty of future gains and the tendency to be incurring other debts at the life cycle stage where training usually occurs. It is often difficult to establish the likelihood of obtaining an extra qualification, and the chance of obtaining higher income as a result. This imposes risks on both lender and borrower, thereby reducing the volume of loans taken out. Administrative costs of recouping student loans appear to have been the main reason for commercial banks' refusal to participate in the scheme. Duplication risk is low, but substitution might take place if credit terms are made easier for specific groups.

The administrative costs in the second row, which relate to taxing qualified workers to cover the costs of their training, are likely to be lower. Specific extra taxes are placed (for a time) on those who receive the grant, on top of the direct tax on income they earn. A |graduate tax' is currently being put into operation in Australia. In the United Kingdom, a qualified employees' national insurance contribution could cover the training cost over an agreed time period. Once again, employees below the specified income threshold could be exempted from this national insurance surcharge.

A national training levy covering firms in all sectors would involve heavy administrative costs, particularly if the smallest firms were involved. If exempted, they might |poach' trained employees from larger firms involved in training. This may persuade firms to incur extra levies rather than finance training. Cross-industry poaching, can occur if the levy only operates in certain sectors. However, levy schemes avoid most duplication, substitution and exclusion problems.

The non-recoverable financing of training is more expensive to the taxpayer, at least in the short term, and raises issues of the effects of extra taxation on the supply of labour (or of higher interest rates and |crowding out' if the Government decided not to fund training subsidies by increasing taxes). A grant system carries with it the risk of some deadweight loss, where trainees or employers would have financed training in any case.

This risk of duplication also occurs in a voucher scheme. There is also a danger that funding vouchers to young people might induce substitution of youth for adult training. Because of the demographic drop, 80 per cent of the Year 2000 workforce is already in work, and many require additional training. Under youth-only vouchers, employers would still have to meet adults' full tuition costs, as well as their (probably higher) trainee wage bill. One solution would be to offer vouchers to adults as well, including the unemployed, but this would have to be done selectively. (Perhaps all those with basic academic and no vocational qualifications could be entitled to apply for a voucher.) Vouchers also incur some administrative expense with Training Credits. This is currently being financed by government, but it may eventually be passed to employers through the TECs.

Special schemes for youth and unemployed adult trainees already exist, so much of their administrative cost is already paid. The |training' component within these schemes has been criticised, though training providers are now being submitted to central |approval', and trainees are to be entered for NVQs. Real reductions in spending on these schemes as unemployment fell in 1986-9, and initial low rates of course completion, reinforced suspicions that a make-work element was involved. The schemes have been fairly cheap to administer, since most of the training takes place on employers' premises or in technical colleges, and employers' own expenditure has been levered in. However, there is inevitably some duplication (especially where employers use YT to part-finance existing apprenticeship programmes), and substitution (of youth and, to a lesser extent, long-term unemployed for other labour). Both trainees and employers may be deterred from participation (if voluntary) and Youth Training by definition excludes adults.

The Government could subsidise training by giving tax or employers' national insurance concessions to firms with recognised training programmes. (These might be partially recouped if, subsequently, the employee moves to higher income tax and NI bracket). A straight-forward training subsidy to firms is another possibility. These incur administrative costs, and risk some duplication, but substitution and deterrence are avoided.

Educational expenditure is the final non-recoverable method of subsidising training costs. Increasing the vocational training at school for those under 16 years has been considered in the previous section. Full-time training in schools and colleges for young people over 16 could also be expanded. This would not involve significant administration costs if existing facilities could be used more intensively. But it would deter young trainees (who stand to lose the earnings they could obtain from a full-time job) and exclude many adults, who cannot (or do not wish to) return to non-advanced education. School staying-on rates appear to fall during economic recoveries because of the rise in youth wages, which may now be sustained even in recession through the demographic decline. Once again, the trainees would be faced with the difficult problem of relating the opportunity cost of full-time training to the extra earnings they might obtain as skilled workers with appropriate NVQs. Their decisions would be made easier if wage differential for skilled workers were higher.

As at present, the use of public funds for training would need to be closely monitored to ensure that it provided value for money. The |productivity' of training expenditure is most easily measured if trainees are entered for National Vocational Qualifications. But this might draw objections from firms who regard their internal training as matching NVQ standards, or who recruit from a |low base' of employees they regard as difficult to train. Firms believing that their internal training merits subsidy could ask the NCVQ to accredit it. Those claiming high |value added', despite low attainments, could be entitled to an inspection of their training methods. Accrediting the funding of high-quality, internally designed and examined courses would both ease the pressure on the capacity of external trainers, and overcome the objection that external standards adjust too slowly to changing work-practices (often because external trainers cannot keep up with the new technology involved).

Conclusion

Despite employers' long and often successful experience in running advanced operations with a largely unqualified workforce, evidence on existing productivity gaps and future labour requirements suggests that skill shortages must be tackled by an increase in vocational training for both new and existing employees. Market forces by themselves are unlikely to be sufficient to remove the excess demand for skills, but they can certainly help to reduce it.

Government intervention to supplement market forces can take many forms, and there is no need to confine it to one type of activity. Indeed, the greater the variety of policies to reduce skill shortages, the greater the freedom of choice of employees and employers. Another valuable principle is that of piecemeal social engineering, with government intervention taking the form of small steps, preferably after the careful examination of small pilot schemes.

The state already provides extensive educational finance, and the share devoted to vocational training at school could be expanded, following the example of France. There is a case for creating a dozen or so Lycees Professionels (full-time vocational secondary schools for 14-18 year olds), to see whether they would be successful in Britain. The City Technology Colleges might make a ready basis for Lycees Professionels which would allow pupils to opt for courses leading to a recognised vocational qualification in place of GCSE and A-level. On similar lines - and perhaps avoiding the problem of securing |parity of esteem' for vocational qualifications-vocational GCSE syllabuses could be piloted in existing secondary schools. Although the new attainment tests at age 14 might help pupils' decisions, transfer to a vocational course would be an act of choice rather than selection. A widening of higher education entry criteria to cover good NVQ attainments would clearly add to the utility of this route, and help to overcome the perception (not shared by Britain's main EC rivals) of vocational and academic courses as exclusive alternatives.

It would be more difficult to devise a pilot scheme for the German |dual system', with compulsory apprenticeships and part-time technical education between the ages of 15 and 19 (or even 18). Such a scheme might be considered too big a step, although it is possible that some education authorities might wish to follow the German example if they were granted the necessary power and finance. The external benefits of apprentice training, and the lower trainee wages involved, might also limit participation in a piecemeal |dual system'.

Government expenditure on vocational education in schools is non-recoverable, and in principle might be regarded as inferior to the recoverable expenditures on training listed in table 1. However, the government is already financing most education up to the age of 16, so most of the expenditure on the 14-16 year olds in the British versions of Lycees professionels is already covered. The extra expenditure, particularly on the 16-18 year olds, could in principle be recovered either from their eventual employers, or from the trained labour force when it begins to earn enough. That is, it would be possible to combine some of the schemes listed in table 1.

For adult employees requiring initial or additional training, the tax concession for employee-financed training could be reinforced by an implicit subsidy to the employer, through the temporary remission of NI contributions. Although this shifts the primary burden for adult training onto government, rather than industry, the cost would be small compared with the cuts in direct taxation in some recent budgets.

Unemployed adults will continue to need state-financed schemes, combining training with re-entry to the job market. But the transfer of ET to the TECs raises the possibility of employers substituting some of the current government finance for these schemes - especially if the state is to play more of a role in financing in-school and employee vocational training.

The voucher scheme, as currently being tried, involves public funding which is not directly recoverable, and raises problems of duplication, substitution and administrative cost which a system of grants-plus-tax or levies might avoid. But if the voucher scheme were combined, for example, with qualified employees' national insurance contributions the two schemes together could be self-financing. Their running cost and popularity with trainees should be revealed by the pilot Training Credit schemes before further action is taken.

Perhaps the |best buy' in table 1 should involve using the qualified employee national insurance contributions for both higher education and NVQ directed training. There has been an extensive debate on university students' top-up loans for maintenance, and, in our judgment, such a scheme is inferior to one using national insurance contributions to recover the government grant. This argument may be extended to financing tuition costs, if the government decides to reduce expenditure on the 16-18 year olds in schools and colleges, where courses could be directed either at university/polytechnic entrance or at nationally recognised vocational qualifications.

REFERENCES

CBI (1989), |Towards a skills revolution', CBI. Cooper, J. (1989), |The West Midlands labour market', HMSO. DES (1988), |Tax concessions for training', Adult training promotions unit, May. Employment Institute, (1989), |Bridging Britain's skills gap', Economic Report, 4(3), February. Hart, P.E. and Shipman, A. (1990a), |Skill shortages in the UK: the lessons from the case studies, National Institute

Discussion Paper no. 185. Hart, P.E. and Shipman, A., (1990b), |Vocational qualifications and skills: the lessons of case studies', National Institute

Discussion Paper no. 186. Hart, P.E. and Shipman, A. (1991), |Skill shortage in Britain and Germany', International Journal of Manpower, forthcoming. Haskel, J., and Martin, C. (1990), |The causes of skill shortage in Britain', Queen Mary and Westfield College, mimeo. Jones, I.S. (1985), |Skill formation and pay relativities', in Worswick G.D.N.(ed), Educational and Economic Performance,

Gower. Katz, E. and Ziderman, A. (1990), |Investment in general training: the role of information and labour mobility', Economic

Journal, 100, 1147-1158. Prais, S.J., (1981), |Vocational training of the labour force in Britain and Germany', National Institute Economic Review,

November. Prais, S.J. and Wagner, K. (1988), |Productivity and management: the training of formen in Britain and Germany', National

Institute Economi Review, February. Shipman, A. (1990), |Skill shortages in Britain and West Germany: the lessons of case studies', National Institute Discussion

Paper no. 192. Steedman, H., (1990), |Improvements in workfore qualifications: Britain and France 1979-88', National Institute Economic

Review, 133, August. Training Agency, (1989), Training in Britain: Employers' Activities, Report by Deloitte Haskins and Sells and IFF

Research Ltd, HMSO. Training Agency/CBI (1987 and 1988), Special Survey: Skills, CBI Training Agency/IFF Research Ltd (1990), Skill Needs in Britain, IFF. HM Treasury, (1991), |The Government's Expenditure Proposals 1991/2-1993/4: Employment Department Group', Cm

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NOTES

(1) This paper forms part of the results of a research project on skills shortages in Britain and Germany undertaken in

cooperation with the IFO-Institute of Munich and assisted by a grant from the Anglo-German foundation. For which we

are most grateful. We should like to thank the Confederation of British Industry, the IFO-Institute and the many

executives in the 18 British and German firms in our sample for their invaluable help in our research. We are also

indebted to two anonymous referees for their most constructive criticism of an earlier draft. It must be emphasised that

the National Institute is not responsible for any of the views expressed in this article. (2) |Training in Britain', is based on interviews with 1484 establishments which had carried out training in the past 12

months (of which 832 were also examined for on-the-job activity), and 134 which had not carried out training. The

interviews took place in 1987, and the figures in the report are in past an extrapolation from this survey. More than half

the reported employers' expenditure arises from on-the-job training, which is costed as the trainee's and trainer's

wages during instruction minus the net value of output produced. This assumes that the trainee's wages were not

already adjusted downwards to compensate for output foregone. Expenditures of none-respondent firms were inferred

from those of respondents, whereas non-response may indicate a lower relative commitment to training firms with

fewer than 10 employees, and all firms in agriculture, forestry and fisheries - among whom training outlay is below

average - were excluded from the survey. The figure for public sector training includes expenditure on higher

education. The authors of the report acknowledge that, of the 1.2 [pounds] billion increase in employers' training outlay on a

similar survey in 1984. 5.2 [pounds] billion results from including firms of 10-25 employees, 2.5 [pounds] billion from including on-job

training costs, and 0.8 [pounds] billion from including Youth Training. (3) Katz and Ziderman (1990) postulate that firms are prepared to risk financing general training because they suspect that

potential poachers are not sure about the precise nature of the training provided and will therefore hesitate to poach. But

there are many other possible explanations. (4) The TVEI pilot schemes starting in 1983, and costing 200 [pounds] million did include some vocational courses for pupils aged

14 years and over. The TVEI extension scheme, 1988/9-1997, is budgeted for about 140 [pounds] million per year, and does

not contain vocational courses as such. Instead, it influences the content of all courses in the national curriculum. (5) See |School studies to be widened', Financial Times. 14 December 1990 and |Practically an alternative to A-levels',

The Independent, 27 December 1990. (6) Mr. W. Eltis has made similar proposals in NEDO report 1.91 (The Financial Times 8.1.91). (7) In engineering, the National Council for Vocational Qualifications have designated the following as National Vocational

Qualifications (NVQs): level 1 - City and Guilds 200 series part 1 or BTEC Basic Engineering/ Basic Technician/|first'

Certificate. Level 3 - City and Guilds 200 series part 2 or BTEC National Certificate. Level 4 - BTEC Higher National

Certificate. (8) Pilot schemes will involve 10 Training and Enterprise Councils (Birmingham, Bradford, Devon and Cornwall, Hertfordshire,

Kent, Northumberland, North East Wales, South-East Cheshire, South London, Suffolk) and one Local Enterprise Council (Grampian). (9) Some schools already offer them alongside A-level courses, as reported in The Independent, 27 December 1990, p. 13,

encouraged by universities' need to broaden their entry routes to attract more students, particularly in technical

subjects.
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Title Annotation:vocational training
Author:Hart, P.E.; Shipman, A.
Publication:National Institute Economic Review
Date:May 1, 1991
Words:6311
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