Skin in the Game: The Role of Employers in Skills Training

The mismatch between the demand and supply of 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 has been more prominent than the private sector. That is far from ideal.

In countries where the demographic trends foretell a steep rise in the size of the labor force over the next few decades, especially in South Asia and Africa, young entrants into the workforce will be unable to meet the new challenges of a globalized labor market in the absence of better skill sets. Hence the effectiveness of the technical and vocational education and training system, or the TVET ecosystem, and of employers in imparting skills, will become increasingly critical to the employability of youth, and by extension, to the social and economic stability of the developing world.

Nations like Germany have shown that employer ownership of skill development can be a crucial competitive advantage for a country’s skill base. Unlike many developing countries, they have avoided building a TVET system that is supply-driven and government-led and have instead pursued a demand-driven, industry-led model.

Before taking steps to respond to the skilling challenge they face, developing countries must bear in mind the segmented nature of their workforces. In most emerging economies, a significant share of the workforce has low levels of education and skills, and is employed in the informal economy, in self-owned enterprises, or even in micro-enterprises. At the same time, these countries have a dynamic, technologically advanced and relatively capital-intensive sector of enterprises, which require significantly higher levels of education and skills.

Navigating the pitfalls of creating a skill development ecosystem that caters to both these segments is a huge challenge for skill-system planners in the government. Often, they tend to go with what they are used to, and end up building supply-driven, government-financed TVET systems. The result is inefficient and inadequate skill development.

What they need to do instead, is to systematically examine policies, institutional frameworks, incentives and regulations governing employers’ ownership across other successful TVET systems, and try to draw the appropriate lessons for their country-specific context.

One of the key ways to bring employers onto a common platform for skill financing is by addressing the moral hazard problem of companies refraining from training their workers for fear that other companies will skirt their own training obligations and poach their trained workers instead. This leaves each employer worse off and is a pressing issue that needs to be resolved.

Other ways to enhance ownership include instituting pre-job employment-internships, on-the-job training or apprenticeships, gifting/ sharing of machinery and equipment to vocational schools, providing first right on phased-out machinery to educational institutions, providing experienced trainers, and helping design course curricula.

There will always be a role for the government even in a demand-led, employer-driven model. The government’s role in funding is focused, however, on social equity goals whereas the private sector funds TVET to enhance its productivity.

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. The industry cannot be a bystander in skills training in a developing economy. It should be an active contributor, shaper, and designer of skills policies and further help to deliver them.