Workplace Training in Europe Andrea Bassanini Alison Booth Giorgio Brunello Maria De Paola Edwin Leuven

IZA DP No. 1640 Workplace Training in Europe Andrea Bassanini Alison Booth Giorgio Brunello Maria De Paola Edwin Leuven DISCUSSION PAPER SERIES DISCUSSION PAPER June 2005 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Workplace Training in Europe Andrea Bassanini OECD and University of Evry Alison Booth Australian National University, University of Essex and IZA Bonn Giorgio Brunello University of Padova, CESifo and IZA Bonn Maria De Paola University of Calabria Edwin Leuven University of Amsterdam and CREST Discussion Paper No. 1640 June 2005 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 Email: [email protected] Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. 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IZA Discussion Paper No. 1640 June 2005 ABSTRACT Workplace Training in Europe∗ This paper reviews the existing evidence on workplace training in Europe in different data sources - the CVTS, OECD data and the European Community Household Panel. We outline the differences in training incidence and relate these differences to the private costs and benefits of training, and to institutional factors such as unions, employment protection and product market competition. We ask whether there is a case for under-provision of training in Europe and examine alternative policies aiming both at raising training incidence and at reducing inequalities in the provision of skills. JEL Classification: J24 Keywords: training, Europe, training policies Corresponding author: Giorgio Brunello Università di Padova Dipartimento di Scienze Economiche Via del Santo 33 35100 Padova Italy Email: [email protected] ∗ Paper presented at the Annual Conference of the Fondazione Rodolfo De Benedetti, Venice June 2005. The views expressed here are those of the authors and cannot be held to represent those of their institutions. We are grateful to our discussants Giuseppe Bertola and Steve Pischke, to Pietro Garibaldi, Michele Pellizzari and to the audiences in Venice and Rome for comments. 3 Introduction A major strategic goal set by the European Heads of Government in the Lisbon summit at the beginning of the new millennium was to make of Europe by 2010 the most competitive and dynamic knowledge – based economy in the world. Education and training are key ingredients of the strategy, which recommends to several European countries the modernization of their education systems and the increase in the percentage of individuals participating in lifelong education ad training. The emphasis on education and training is common to all advanced industrial societies, because of the widespread belief that the challenges posed by the rise of the new low-cost producers in Asia can only be met if labour attains high levels of skill, in a continuous up-skilling process1. Almost halfway through, however, it seems clear that attaining the very ambitious goals of the Lisbon strategy is out of question for most European countries (see European Commission, 2005)2. When macroeconomists talk about human capital, most of the time they focus on education. However, the accumulation of human capital does not end with schools, and training is key to augment and adapt existing skills to the changes of technology. Training is particularly important for senior workers, whose skills accumulated at school are likely to be substantially depreciated, and for the less educated, who run the risk of social exclusion. One could argue that the attention paid to education is justified by the fact that learning begets learning: getting a better educated labour force guarantees that workers and firms invest more in training. But do they invest enough? The almost ubiquitous diffusion of training policies seem to suggest the contrary, as these policies often provide subsidies to the parties to encourage more company training. Economists have often pointed out that the market for training is characterized by several market failures, which include imperfections in labour, product and capital markets, and both positive and negative externalities. But what is the evidence? And can we say that the difference in the intensity of training across Europe is due to the different importance of these failures? Efficiency is not the only criterion which justifies government intervention in the market for training. The simple observation that learning begets learning suggests that those individuals who are disadvantaged in the education process are also likely to be at a disadvantage in their labour market learning. If access to schooling is not 1 See Crouch, 1998. 2 See Addison and Siebert, 1994, for a description of EU training policy before Lisbon. 4 open to all according to talent and effort because of market failures in the market for education, the disadvantage accumulated at school is going to be amplified by poor training in the labour market. If individuals mature differently and this affects their responses to education, this too could be amplified by training subsequently. A reinforcing factor here is that inequalities of opportunity could affect not only schooling, but also training conditional on schooling. Even if labour markets were perfectly efficient and equal, government policies which transfer resources from the taxpayer to workers and firms via training subsidies could be explained because of political economy considerations: skilled workers and firms usually are better organized than the ordinary taxpayer, and can lobby politicians for subsidies as a form of redistribution. If the positive effect of training on productivity spills over on the productivity of unskilled workers, the latter too may find it convenient to support training subsidies. This report examines in comparative perspective workplace training in Europe. Compared to training in general, workplace training is received while in employment, and is usually but not exclusively provided by the employer. This is an important area, not only because company training covers a substantial part of education after labour market entry, but because of the perception – rather widespread in the documents by the European Commissions on the Lisbon Strategy - that European employers do not spend enough in increasing the skills and competencies of their employees. This tension between policy targets at the European level and the behaviour of firms is well described by Colin Crouch in the following quotation: “Business firms are equipped to maximize, not collective objectives, but their own profitability. In doing this they will certainly provide training and retraining for large numbers of employees; there is however no reason why company decisions and market forces should maximize the level of vocational ability for a whole society except through a largely serendipitous fall-out…” (Crouch, 1998, p.370) We start by looking at the facts. Chart I.1 shows the differences in average training incidence across European countries, Anglo -Saxon countries and some countries of Eastern Europe. The Chart plots both average training participation and average annual hours of training per employee. We notice that the US – a key competitor – does not perform “better” than all European countries, because the UK, France and Scandinavian countries have both higher participation and higher annual hours of training. The rest of Europe, including the countries in the “olive belt” 5 (Greece, Italy, Portugal and Spain), does “worse” than the US, and is somewhat closer to the new entries from Eastern Europe3. While these indicators need to be considered with care, due to the measurement problems discussed at length in the report, they reveal that Europe is very heterogeneous when it comes to training outcomes. Chart I.1 Training participation and training intensity across countries Percentage of employees (aged 25-64 years) taking some training in one year and average annual hours per employee Hours per employee % 40 DNK 35 NZL NOR SWE FRA 30 FIN LUX 25 IRL AUSNLD GBR 20 ESP CAN AUT USA DEU 15 CZESLO PRT BEL GRC EST ITACHE HUN 10 LAT LIT BUL ROM POL 5 Correlation : 0.92 0 0 10 20 30 40 50 60 70 Training participation % Note: the data refer to the second half of the 1990s Source: OECD (2004). The Chart also suggests that the concern voiced across the Atlantic on the “poor” performance of US education and training might seem somewhat inflated from the perspective of Southern European countries. In a well known review of company training in the US, which dates back to the early 1990s, Lisa Lynch, 1994, talks of an emerging

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