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Skin in the Game: Employer’s Ownership in Skills Training for an Emerging Workforce by Santosh Mehrotra

By Santosh Mehrotra, Jawaharlal Nehru University, New Delhi.

The mismatch between the demand and supply of technical and vocational skills is a global concern. The private sector, being the principal user, has a critical role in skills training. However, in most developing countries, the role of the government in the formal sector of skill provisioning is more prominent than that of the private sector. At the same time, in a globalized world where nationalism-driven protection, restrictions on immigration, rapid automation and changing workforce demographics are narratives shaping our future, it becomes all the more crucial and urgent to establish the employers’ skin in the game (i.e. real financial and management interest) to ensure mismatches in development of skills do not occur.

In countries where the demographic trends suggest a rise in the size of the labour force well into the next few decades (especially in South Asia and Sub-Saharan Africa), young entrants into the workforce will be unable to meet the new challenges of a globalized labour marker in the absence of growing levels of skills and a growing demand for skills. Hence the effectiveness of the technical and vocational education and training (TVET) ecosystem and of employers in imparting skills will become increasingly critical to the employability of youth.

Nations like Germany have shown that employer ownership of skill development can be a key differentiator and a competitive advantage for a country’s skill base. They have avoided building a TVET system that is supply-driven and government-led (which is too often a problem in many developing countries), and developed a demand-driven, industry-led model.

In respect of private sector participation in TVET, two broad models – the Anglo-Saxon and the Germanic models – are used by different countries in their own unique context and requirements. Before taking steps to respond to the skilling challenge of this second decade of the 21st century, developing countries need to keep in mind two sets of challenges they face simultaneously. Most of them have a significant share of the workforce in the informal economy, in self-owned enterprises, or even in tiny, micro-enterprises. With some notable exceptions (e.g. some parts of India’s informal sector or Kenya’s jua kali) the workforce here has low levels of education and similarly low levels of vocational skills. On the other hand, the developing economies have a dynamic, technologically more advanced, relatively capital-intensive sector of enterprises, where much higher levels of education and skills are required (in Sub-Saharan Africa this sector is mostly foreign-owned, though not so in South Asia). Navigating the pitfalls of creating a skills development ecosystem that caters to the needs of different types of enterprises, with varying levels of technology, is a huge challenge for the organizational capabilities of skill system planners in government. They tend to go with what they are used to, and end up building supply-driven, government-financed TVET systems, largely dominated by pre-employment providing training institutions.

However, most experience in industrialized and emerging countries tells us that such systems are doomed to be failures. What they need to do instead is to systematically examine policies, institutional frameworks, incentives, and regulations governing employer’s ownership in the two hegemonic TVET systems, and try and draw the appropriate lessons for their specific country-context.

Employer ownership of skill training starts with identifying their skill concerns and then ensuring that they address those same concerns. The industry is not a bystander; it should be an active contributor, shaper, designer of skills policies and help to deliver them.

Skills financing policies in many countries vary in this regard; they affect how skill development markets evolve and in many cases cause market failures. Hence, the skills financing models of emerging market economies, in particular Brazil and other Latin American countries, South Africa and Asian countries (e.g. Korea, Malaysia, India) should be examined.

One of the key ways to bring all employers onto a common platform for skill financing is by addressing the moral hazard problem (“I don’t skill my workers as you will poach them, and vice versa”), which leaves each employer worse off. One instrument to bring their skin into the game is a “Reimbursable Industry Contribution” (RIC), a financing mechanism that is known by different names in different countries. Linking financial benefits for employers to elicit key compliance for skill development can be a good start for a more intensive employer role. The normal mechanism of such ‘skin in the game’ for employers is where industry pays a levy, that goes into an ear-marked fund for training purposes, over which industry should ideally exercise control. Industry benefits when it conducts in-house or pre-employment training, since they are reimbursed the costs of such training, at least partially.

A key issue must be the size of the formal private sector. If the size is small, too few resources will be generated; but if it is large, then it can serve as an effective means of mobilizing additional resources for skilling.

However, there will always be a government role even in a demand-led, employer-driven model. The government’s role in funding is limited to balancing social equity goals while the private sector funds TVET to enhance its productivity. Other key methods for enhancing ownership can be by pre-employment internships, on-the-job training or apprenticeships, gifting/sharing of machinery and equipment to vocational schools, first-right on phased-out equipment and machinery for educational institutions before being scrapped, providing experienced trainers, helping design course curriculum and finally ensuring assessment are as per their needs. These should be carefully examined by policy-makers.

Skills are the key to overall economic development. The tangibles of business – land, taxation, capital – regularly overshadow the skills intangibles. However, skills are the software of business. The hardware is only as good as the software makes it. The private sector understands this software best; it knows when to repair, how to update and what its requirements of the future will be.

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NORRAG (Network for International Policies and Cooperation in Education and Training) is an internationally recognised, multi-stakeholder network which has been seeking to inform, challenge and influence international education and training policies and cooperation for almost 30 years. NORRAG has more than 4,500 registered members worldwide and is free to join. Not a member? Join free here.

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