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

2. Content 1.Introduction: Some snapshots on training participation 2.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 D.Dohmen@fibs.eu 3.Summary and Conclusion

3. Snapshots (1/3) D.Dohmen@fibs.eu

4. Snapshots (2/3) D.Dohmen@fibs.eu

5. Snapshots (3/3) D.Dohmen@fibs.eu

6. 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 => There appears to be a strong link with education, socio-economic background, income and returns D.Dohmen@fibs.eu

7. Private funding -Advantages those with higher income (except professional training, since participation depends on it -(unless other financing opportunities are available) D.Dohmen@fibs.eu

8. 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 D.Dohmen@fibs.eu

9. 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 D.Dohmen@fibs.eu

10. 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 don‘t pay taxes)  Tax deductibility is the major mode for co-financing professional training in Germany -> indicates the progressive relation between income and participation  Taxes exemptions don‘t reduce the liquidity constraint  How to overcome them? D.Dohmen@fibs.eu

11. 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 D.Dohmen@fibs.eu

12. 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 %) D.Dohmen@fibs.eu

13. 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 D.Dohmen@fibs.eu

14. 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) D.Dohmen@fibs.eu

15. 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 don’t apply for refunding -Revenue generation funds tend to establish bureaucracies -However, sometimes it seems to have had an starting effect (e.g. Taiwan) D.Dohmen@fibs.eu

16. 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) -=> Success and “failure” of a model depend on the relationship between design and environment -Important co-factors: information, advice and quality assurance D.Dohmen@fibs.eu

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