Public policies for financing workers’ training Andrea Montanino Ministry of Economy and Finance, Rome C EDEFOP, April 2007 Public policies for financing workers’ training Andrea Montanino Ministry of Economy and Finance, Rome C EDEFOP, April 2007

Outline of the presentation  Distribution of continuing training and market- type mechanisms  Under-investment in workers’ training?  Which public policies for continuing trainining?  The Italian case

Post-schooling training has several beneficial effects: On worker’s productivity and therefore on wage level and its trend On labour market participation On probability to loose a job On labour mobility On job satisfaction

Distribution of continuing training is unequal It depends on:   Level of education achieved   Firm size   Firm sector   Working contract Rationale from the firm point of view but: market-type mechanisms may increase inequality and end up with under-investment in training

Who decides the quantity and quality of training? Coordination failure: quality, quantity and returns of training are difficult to measure If worker wants to pay:   Liquidity constraint   Legislative constraint If firm wants to pay:   Only private returns considered   Turnover

Market failure and the role of public policies   Reduce under-investment from a social point of view   Reduce inequality Trade-off between efficiency and equality?

Which public policies for continuing training? Demand-led policies Co-financed by private entities (either firms or individuals) Avoid displacement effects on private investment Support both collective and individual demand

Policies for collective demand: characteristics Ex-ante planning by social partners Co-management of training activities by social partners Involvement of many workers Based on firm’s training needs Mainly directed to “internal labour markets”

Policies for collective demand: aims Reducing constraints, especially in SMEs Facilitating coordination between workers and the firm Implement major skill upgrading

Policies for individual demand: characteristics Key role of the single worker Not strictly linked to current job No ex-ante planning (or limited and very general) Mainly directed to “professional labour markets” and “secondary labour markets”

Policies for individual demand: aim Reduce liquidity contraints Increase transparency on training activities and improve quality Select workers out of the “internal labour market” Those two types of policies shall be designed in order to complement each other

The Italian case: the financing Three main tools: ESF National Funds Co –managed financial resources by social partners Financial resources come from a compulsory contribution of 0.3% of gross wages – solve the free riding problem

The Italian case: the model   Resulting from subsequent legislative steps, not an unique design   Often in competition and not complement tools   Therefore: limited role of public policies - high share of labour force out of public policies

The model of Co-managed Funds A. MONTANINO  Private management of public resources (compulsory payments)  Strong role of social partners (compulsory co- management)  Lean rules (no rules?)

Problems A. MONTANINO  Financial flows  Training supply  Complementarity or competition among Co- managed Funds?  Complementarity or competition among Co- managed Funds and State-managed funds?

To conclude:  There is space for financing workforce training but design of policies is crucial to:  increase complementarities among policies and enrol the greatest share of the workforce;  make best use of (scarce) financial resources