Financing training: issues and options

Until comparatively recently, most training in most countries has been enterprise-based and has been financed by the employer, by the trainee, or both jointly, normally without money changing hands. As a first approximation, the cost of firm-specific training is absorbed by the employer, and the cost of transferable training is shifted to the trainee by means of a reduction in his wages, often within the framework of an apprenticeship agreement. This report examines the rationale for this division of the burden and the way that it may be modified in certain circumstances. It examines the arguments for the subsidization of training from public funds. The case can be made under four headings: market failure; externalities; equity considerations; and social considerations. It reviews experience with the various types of subsidy schemes that have been implemented in different parts of the world. The report also discusses various sources of financing, including: private financing; public revenue; and payroll taxes. In concluding, the authors note that policymakers often overlook the complementarity between basic education and later skill development. The consequence is that resources may be spent on expensive, low volume training programs when they might be used more cost-effectively and more equitably to upgrade the quality of basic education.