Incentives for SMEs to Invest in Skills

2. Reducing costs and risks

One of the main obstacles SMEs face to investing in human capital is a lack of financial or human resources that enable the investment. Some policies are therefore designed to facilitate access to resources and reduce the costs that employers bear to hire skilled workforce and/or train their employees. Measures of this type can target both direct and indirect costs of training, as well as mitigate risks, such as the risk of poaching (i.e. loss of employee soon after training). With this aim, financial and non-financial incentives are often used to complement each other.

Among financial incentives, direct subsidies are very common. General in nature and flexible across different training needs, they are most suited to address the very heterogeneous needs of SMEs, and they are therefore discussed extensively in this chapter. Other financial instruments include tax incentives and training levies that are often used as a way to pool resources together across companies and earmark them for training expenditure (OECD, 2017[3]), but which do not usually target SMEs in particular. Non-financial measures include job rotation schemes, which decrease the opportunity cost of training, and payback clauses, which mitigate the risk of poaching.

When it comes to small companies, schemes can be designed as: (i) separate tools, aimed to address specifically the needs of SMEs, lowering cost barriers and/or which specifically seek to support company growth through skill investments, or (ii) part of broader schemes, but applying a different degree of support or simpler, more flexible procedures depending on company size.

No matter the instrument, a certain level of consensus has been reached on principles of good practice that should guide the design and use of financial incentives for investments in skill (OECD, 2017[3]). These principles, together with enabling framework conditions, impact the effectiveness of policies’ and their take up among employers, especially SMEs (see Box 2.1).

Box 2.1. Good practice in the implementation of financial incentives for investment in skills

A OECD review of available evidence has identified a set of principles that can positively influence the design and implementation of financial incentives meant to steer training and investment in skills, including:

• Minimise administrative burdens, as complicated procedures negatively affect the use of these measures;

• Design systems that are simple and easily adaptable to new and emerging skills, for example by allowing measures to be tailored at sectoral and/or regional level;

• Involve social partners;

• Complement financial incentives with support measures and other interventions that can increase their effectiveness;

• Ensure monitoring and evaluation.

In addition to these principles, effective implementation depends on a number of framework conditions, such as:

• Robust systems and tools for assessing and anticipating skills needs;

• Impartial, accessible and accurate information, advice and guidance to employers and individuals on labour market needs and learning offers;

• Strong qualification frameworks;

• High-quality and responsive education and training supply;

• Effective public employment services

• Policy co‑ordination and coherence.

Source: OECD (2017[3]), Getting Skills Right: Financial Incentives for Steering Education and Training, https://doi.org/10.1787/9789264272415-en.

2.1. Training subsidies for SMEs

Subsidies for employers generally fall within four categories: subsidies for work-based learning, such as apprenticeships or traineeships; subsidies to hire and train the unemployed; subsidies to train existing workers; and subsidies for joint employer solutions, which provide funding conditional on collaboration between employers or use funding to set up bodies that provide services to groups of employers (OECD, 2017[3]).

Subsidies can cover direct costs of training and/or indirect costs, such as wage costs, and can apply to all categories of employees or only to specific target groups within firms, or respond to specific needs, such as steering training toward in-demand skills and address the need for skill adjustment within the market (OECD, 2017[3]).

Often, small employers can apply for training subsidies through the Public Employment Service (PES), as in the case in the many of the examples below, and often through easy or simplified procedures aimed to ease access to the measure for SMEs. When subsidies are aimed at investment in skills relating to innovation, digitalisation or related initiatives, they can be administered by public agencies or managing bodies competent in the field (e.g. under the Ministry of Economic Affairs).

The evidence suggests that training in small firms is relatively sensitive to the availability of subsidies, with an increase in participation shown when these measures are available (Stone, 2010[16]). This type of measure is particularly suitable for SMEs, as it lowers barriers to investment while being very flexible, a tool that can be modulated to target different needs and circumstances. This in turn reduces deadweight losses, i.e. the use of public funding for firms that would have invested in skills in any case (OECD, 2017[3]). However, more systematic targeting to lower deadweight costs may generate large administration costs and reduce take up, which represent the most evident shortcoming of subsidies for training (OECD, 2017[3]). In addition, subsidies seem to be most effective when implemented together with other interventions and services, which is often the case as shown below (Stone, 2010[16]).

In Germany, for example, all enterprises can benefit from federal subsidies to cover direct and indirect training costs under the Qualification-Chances-Law (Qualifizierungschancengesetz). Training costs are subsidised to varying degrees, depending on firm size, as well as type of training, characteristics of the worker to be trained, social dialogue and share of employers in need of skill adjustment. Smaller companies receive higher shares of support than larger companies and the subsidy covers both direct and indirect costs, again with differences by type of workers and companies. The law has come in to force as part of the national training strategy of Germany and follows from the WeGebAu programme, with the aim to expand access to subsidised training in the context of the digital transformation.

Box 2.2. The German subsidy system to cover training costs in SMEs

The Qualification Opportunities Law came into effect in 2019 and replaces the WeGebAU Programme, a successful programme that provided subsidies for training to SMEs and adults with low skills from 2006‑19. The Law is part of the new national training strategy of Germany to prepare employees for the digitised world of work, and it aims to improve and widen access to subsidised training to more workers, with particular recognition to the training needs generated by digital transformation.

Under the law, a training activity is eligible for subsidies if it lasts for at least three weeks (or 120 hours) and if workers have at least 3 years of work experience. Training costs are subsidised to varying degrees, depending on size, type of training, worker characteristics, social dialogue and share of employees in need of skill adjustment. The same factors determine if both direct and indirect costs are covered. The training can be administered flexibly, with both part-time and full-time options.

As for direct costs, micro‑enterprises (MEs) with less than 10 employees have their training costs fully covered, while large companies with more than 2 500 workers can receive subsidies up to 20% of costs. Similarly, training costs for workers over 45 and people with disabilities in SMEs can be fully covered, as are training costs for low qualified workers who participate in training leading to a qualification. Higher subsidies are also granted when more than 20% of employees in an enterprise require re‑training or when the enterprise has a collective agreement in place.

In addition to direct training costs, the subsidy can also cover up to 100% of the wage costs, with coverage rate depending again on firm size, type of training and the workers’ qualification levels. In companies with less than 10 employees, reimbursement is set at 75% and can reach 100% if the employee does not possess a vocational qualification. In SMEs (up to 250 employees) reimbursement is set at 50%, but again can increase to 100% if the employee does not have a qualification.

Source: BMAS (2020[17]), Qualifizierungschancengesetz.; OECD (2021[18]), Getting Skills Right: Continuing Education and Training in Germany, https://dx.doi.org/10.1787/1f552468-en.

In Denmark, under the Arbejdsmarkedsuddannelser (AMU) system – the Danish system for adult education, costs of training are generally made very low for employers. Companies can benefit from a training subsidy – the Arbejdsgivernes Uddannelsesbidrag (AUB) – to cover wages of staff while in training, in addition to a number of services aimed to support the company throughout the training process, from evaluation of needs to identification of courses and provision of certifications. In addition, employers who want to train their employees benefit from a subsidy for hiring a long-term unemployed as a replacement worker.

According to the Danish job rotation system, companies can receive assistance from the PES in identifying replacement workers (unemployed individuals who will take the place of the employees in training) and obtain a hiring subsidy for every hour an employee is on training and an unemployed person works as a substitute. This type of scheme is considered very relevant for SMEs, that are most affected by reduction in the workforce working time in presence of training. In addition, the system both responds to the training needs of companies and supports the reintegration of the unemployed in the labour market. The success of this type of scheme depends on a close collaboration between employers and the PES in order to find the right skill match and on the availability of training for replacement workers where the match is imperfect (OECD, 2020[19]).

Box 2.3. Job Rotation system in Denmark – subsidising replacement workers

Under the Danish system, companies can receive a public subsidy for hiring a long-term unemployed to replace the employee on training, and benefit from public assistance in recruiting such replacement workers. The employment period should last from a minimum of 10 hours to a maximum of 26 weeks, and replacement workers can receive a short training before starting work. Employers receive a hiring subsidy for every hour an employee is on training and an unemployed person is employed as a substitute. The replacement person is selected through the local job centre and receives a wage paid by the employer.

Positive effects are normally registered also for unemployed/replacement workers, who often receive training (a few weeks or longer) in order to fill vacant jobs. The scheme potentially offers a solution to the problem of worker absence for purposes of training, addressing the need to replace the employee, as well as helping the employer meeting the costs of the replacement. The success of this measure, however, is dependent on a close co‑operation between a business and the job centre in order to find good skill matches for replacements.

In Finland, employers are obliged by law to create training plans for their company. Furthermore, a large supply of training courses is subsidised by public resources. The Joint Purchase Training system (Yhteishankintakoulutus/ Gemensam anskaffning av utbildning) is a staff training system, under which training activities are organised by the PES together with individual or groups of employers, who want to retrain existing staff or set-up training programmes for new staff. Employers can receive funding and specific support to find new employees with the right skills or to adapt employees’ skills to the company’s technological and operational changes.

Box 2.4. The Finnish Joint Purchase Training system

The Joint Purchase Training System is a staff-training programme that supports individual or groups of companies in the delivery of tailored programmes to train newly hired or current employees. Upon the request of the employer, the PES helps the company define its training needs, select the appropriate candidates for training and the right education provider for the delivery of a tailored training, which is also partly funded by the employment services.

Three types of training are subsidised:

• Recruitment Training (RekryKoulutus/ RekryteringsUtbildning) – This type of training is organised with employers who struggle to find employees with the right skills. Employers receive support in developing tailored training, selecting a training provider and recruiting participants for trainings that normally last between 3 and 9 months, with a minimum requirement of 10 days, and should lead to a qualification that allows the individual to perform the required job. The PES co-funds 30% of the costs.

• Tailored Training (TäsmäKoulutus / PrecisionsUtbildning) – This type of training supports employers who want to retrain staff in order to adapt their skills to changing operational or technological landscapes in the company. The minimum duration of the training is of 10 days and the training can take place during a temporary lay-off. This type of training is co-funded by the PES at 50‑70% depending on company size. The PES also supports the employers in identifying the employee/s to train and the service provider.

• Change Training (MuutosKoulutus/ OmställningsUtbildning) – This type of training is targeted to workers, more than employers, as it is organised in case of redundancies and supports workers to transition to new jobs, with training that can last between 10 days and two years. Co-funding rate increases to 80% of costs for this type of training.

The Ministry of Economic Affairs and Employment estimates that 3 000 to 4 000 people take part in these types of training every year. According to an evaluation of the programme, this type of support helps employers build a positive learning culture and it is especially relevant for SMEs, which encounter greater challenges in addressing their training and skill needs, even if the minimum duration of 10 days for trainings can constitute a barrier to entry for smaller businesses. Companies were found to be positively affected by the services offered in terms of competence development (OECD, 2020[20]).

The financial incentives above are complemented with measures that build the capacity of companies to identify their training needs and to deliver training. The PES often helps employers define their training needs, select the appropriate candidates for training and find an education provider to deliver the tailored training (OECD, 2019[21]). This type of support also helps employers build a positive learning culture, even if the minimum duration of 10 days for trainings can constitute a barrier to entry for smaller businesses.

Subsidies to human capital cumulation can also be used to respond to sectoral needs, addressing structural changes within the labour market, as well as supporting strategic sectors with strong potential, as it is the case for the digital sector, as shown in the examples below.

MKB!dee is an experimental subsidy scheme launched in the Netherlands and targeting SMEs that encountered difficulties in investing in skills. SMEs that have a good idea to support the development of employees in their company, industry or region can submit an application for a full grant. The scheme has been used to promote projects in technical and ICT sectors, responding to the challenges of digitalisation, climate and green energy transitions, with the aim of strengthening the learning culture in small businesses.

Box 2.5. MKB! Dee – The Netherlands

Started in 2018, MKB! Dee is an experimental subsidy scheme that stimulates SMEs to invest more in training and development. SMEs are asked to propose solutions for barriers encountered when investing in human capital. The full eligible costs of the “solutions” are covered by a grant subsidy.

With MKB! Dee, the Ministry of Economic Affairs and Climate supports entrepreneurs who have a good idea to stimulate the development of employees in their company, industry or region. MKBideenetwerk.nl lists the initiatives and highlights how they give impetus to solutions for skills development. In 2020, 47 ideas were supported. The portal of the initiative also provides an overview of the projects that have received funding and that constitute good examples of different approaches used. In 2019, the scheme was used to promote projects related to technical sectors, energy and climate, and digitalisation. In 2020, funding was aimed at projects that make a contribution to:

• Investments ensuring the availability of personnel in technical and ICT sectors;

• Investments in human capital for digitalisation or for the climate transition; or

• Improvements in the learning culture in small businesses.

The main target group of the programme are SMEs, though industry organisations can also present projects targeting SMEs. If projects are submitted in partnerships, at least 65% of members need to be SMEs.

Source: MKB!DEE (2020[22]), https://mkbideenetwerk.nl/.

2.2. SME vouchers for consulting contracts

Subsidies can be administered through vouchers. Largely used to provide access to training, vouchers can target both employers and employees, and can cover direct and, at times, indirect costs of training.

Employers use vouchers to cover the cost of training for employees. They can purchase vouchers at a discounted price, where the difference between the cost of the service purchased and the SME’s disbursement is covered by public funds. Vouchers can be purchased through easy applications, including online, through authorised agencies and intermediaries.

Vouchers are widely used in many European Countries. They have been successfully used as funding schemes for SMEs to invest in digital technologies, innovation and acquisition of high-tech T-shaped skills (European Commission, 2019[23]; European Commission, 2020[24]).1

In particular, SME vouchers for consulting contracts have been particularly successful in allowing SMEs to innovate by improving their access to high-tech T-shaped skills (see endnote 1). These voucher systems are normally (at least partly) funded by governments, national training funds and/or by enterprises themselves. Consulting companies are usually identified and authorised by the funding agency of the programme, while the system generally includes a government subsidy to be matched by the SME’s own resources.

SME vouchers are considered effective as they reach the target group and support the transfer of relevant knowledge to SMEs. The administrative burden for companies is in general low: light procedures are often fully operated online and sometimes dealt with by the consulting companies, thus relieving SMEs from this burden altogether. This type of measure is also considered efficient, with small investments per case and good value for money, and a good level of transferability and scalability. Stakeholders usually report high satisfaction.

Good examples of this type of vouchers are the German ‘Go-Inno’ and ‘Go-Digital’ programmes, which are two of several programmes implemented by the German Ministry of Economic Affairs and Energy (BMWi) to support SMEs investing in skills that are relevant for the digital transformation and innovation. Germany has indeed created an SME 4.0 policy strategy, which brings together a large number of policy instruments. Vouchers and subsidies constitute some of the key instruments to fund projects within SMEs.

These programmes are considered successful in developing high-tech skills for SMEs through transfers of technological knowledge and know-how. For the Go-Inno programme, for example, 66% of SMEs stated that only the public funding was the trigger for starting the initiative (European Commission, 2020[24]). Scalability is also considered high, as other companies (both SMEs and consulting organisations) can be easily involved in the voucher scheme.

Transferability is equally considered high: the model offered by the initiatives is highly transferable to different contexts, which is demonstrated by the fact that different national programmes have significant similarities. As a result, the German Go-Digital programme has entered its second phase with more than twice as many expected applicants compared to the first phase (European Commission, 2019[23]).

Overall, this type of measure has a low level of administrative and bureaucratic burden. In addition, funding per case is comparatively small, allowing for the creation of impact already at smaller investments, and for its replication on a large scale with reasonable investments. Furthermore, the fact that SMEs are asked to contribute with own resources (shared funding model) makes the programme more sustainable for public finances. Scaling up best practice funding programmes based on vouchers could therefore respond to the reskilling needs of SMEs.

Box 2.6. Go-Digital and Go-Inno – Vouchers to promote SME Industry 4.0 in Germany

In Germany, innovation and technology funding was consolidated in 2014, and is now managed by the Ministry for Economic Affairs and Energy (BMWi). The policy follows an approached defined as “From idea into the market” to support SMEs, based on four pillars: foundation, competence, pre‑competitive research, and market-oriented research and development (R&D). The four pillars are co‑ordinated and aim to improve the transfer of technology to SMEs through different programmes. Major and complementary programmes include: Go-Inno, Go-cluster, Mittelstand 4.0‑Kompetenzzentren (SME 4.0 Competence Centres), IT-Sicherheit in der Wirtschaft (for IT security), Go-Digital, and the Digital Hub Initiative.

Go-Digital

Among these, the Go-Digital funding programme is a voucher system based on consulting contracts. It supports SMEs and craft businesses that want to optimise their business processes with the help of digital solutions. SMEs are supported by consulting firms, which provide the individual company with professional advice and support in implementing innovative measures, setting up or improving on modern technological systems. The programme covers three modules: ‘digitised business processes’, ‘digital market development’ and ‘IT security’, granting SMEs tailored advice that responds to their specific needs on these three topics. It targets German-based SMEs that have fewer than 100 employees and a turnover (of the previous year) under EUR 20 million.

The consulting companies are pre‑authorised by the BMWi, following an application that can be filled out electronically and digitally signed. In order to be authorised the consulting companies need to be a legally independent, prove economic stability for the past three years, guarantee competition-neutral advice, give proof of technical expertise, provide references to small business advisory clients, co‑operate with universities and research institutions and fulfil the quality standards set by the programme. EuroNorm GmbH, a service company that works as management agency for the programme, then reviews the application. The decision normally takes force after 4 weeks from approval, when the company is included in the list of pre‑approved consultancies that SMEs can contact. Consultancies have also the option to address SMEs directly.

The request for funding is preceded by a meeting between company and consultants, which is followed by the conclusion of a consulting contract that specifies the services to be carried out, for which prescribed contract templates are provided. The consulting company proceeds then to initiate the process, taking on all formalities linked to the projects – from the application for funding, which is made online, to the proof of use. This allows for easy access to funding for SMEs and relief of administrative burden. The application must be accompanied by a description of the project, which includes its economic effects. The consulting company assumes overall responsibility of the project and has a number of obligations, such as to review the eligibility of the SME and to document the provision of the services and use of funding, whose proof of use must be submitted within 4 weeks from the project’s completion.

The costs are subsidised at 50%. The maximum duration of each funding grant is 30 days over a period of six months, with a maximum coverage of EUR 16 500 per project and a maximum daily consultant rate of EUR 1 100. Eligible funding varies depending on number and type of services chosen. The beneficiary company has the contractual obligation to pay its own share and to allow success controls by the BMWi. It also confirms the provided services on the proof of use and evaluates the quality of the advice.

The programme has an overall budget for the initiative of EUR 10 million per year. It is considered attractive for SMEs and being an online programme with low level of bureaucracy and application effort. It is complementary to the work of Mittelstand 4.0 Competence Centres that give general advice to SMEs.

The website of the WBMi beyond including detailed information and guidance on the programme, also include practical examples of how the programme has benefited SMEs and craft businesses. Importantly, the programme has been used to respond to the needs of companies in terms of work adaptation, because of the COVID‑19 pandemic. Companies can now receive financial support if they create home office jobs at short notice. The Go-Digital programme has been expanded and tested to cover these needs through a 4^th module for setting up home workspaces, covering individual advice and the implementation of these solutions, such as setting of software and configuration of hardware.

Go-Inno

Similarly to Go-Digital, the Go-Inno programme is a voucher-system, tailored this time to innovation and marketing. Small companies often lack the knowledge of the latest methods and instruments to manage product innovations or technical process innovations internally. The Go-Inno programme aims to increase the innovative strength and competitiveness of the companies, with qualified external advice that helps in the preparation and implementation of ideas related to innovation.

As for the Go-Digital programme, the delivery of funding is mediated by consulting companies, which give tailored advice to SMEs. The BMWi authorises consulting companies through a management agency (the German Aerospace Centre), which reviews applications on the basis of a number of requirements: the consulting firms has at least three consultants with a broad spectrum of innovation and technological skills; they offer a non-competitive, branch and technology-open advice on innovation projects, as shown by references; they have expertise to offer comprehensive innovation advice, beyond engineering and scientific qualifications; they have experience in co‑operating with universities and research institutions; have knowledge of federal and state funding for technology and innovation and are able to inform the beneficiary companies about public funding; they satisfy quality standards of the programme. The consulting companies must also have good knowledge of the target group. Authorisation only takes place after two projects have been carried out successfully, while until then the company is only provisionally authorised. Companies that do not generate a project in 12 months need to reapply for authorisation. The selection procedure used for consulting companies has proved effective, with a very high rate of satisfaction among SMEs on the work of consulting companies.

The programme funds services related to (i) potential analysis, an examination of the company profile with regard to innovation project, marketability, capacity requirements and financing plan, or (ii) implementation and/or project management of the concept. It targets SMEs located in Germany with less than 100 employees and an annual turnover of less than EUR 20 million. Funding is generally provided without thematic restriction to specific technologies, products, branches or sectors of economy, though agriculture and fisheries are not eligible under this scheme. Subsidies are at 50%, with a maximum daily consultant rate of EUR 1 100. The maximum length/cost of the project depends on the service to be offered: 10 working days for potential analysis (max EUR 5 500); 25 days for realisation of the concept (max EUR 13 750); 15 days for the management of the project (max EUR 8 250).

The consulting company checks the SME’s eligibility for funding and relieves it from all formalities. The SME is contractually obliged to take part in the project actively, make its financial contribution and confirming the consultancy’s work is in line with what agreed. The SME also assesses the quality of the work provided.

2.3. Tax incentives

Tax incentives have been equally used to support investment in training and hiring of new talent. Tax incentives include: tax allowances, which are deducted from gross income to arrive at taxable income; tax exemptions, in which income is exempted from the taxable base; tax credits, where sums are detected from the taxes due; and tax deferrals, which are the postponement of tax payment (OECD, 2017[3]).

Overall, tax measures have the advantage that they build on institutional arrangements that already exist; hence, they come at relatively low cost for employers and policy makers (OECD, 2017[3]). Tax incentives can be used to target training, give leeway to employers to decide who and how to train, and are appreciated by employers for their low administrative burden (Cedefop, 2009[25]). However, tax incentives generally require high incentives, and generate high deadweight losses, as they can be used to finance investments that would have been performed by the firm even in absence of public support (Stone, 2010[16]).

Moreover, tax credits are usually available to all companies, short of constituting a form of state aid as regulated by national and international competition law. As such, they do not favour disadvantaged groups or small companies in particular (Cedefop, 2009[25]). SMEs can benefit of higher rates or deductions, with differential rates based on firm size or conditional on having previously invested in training already. Extending the list of expenses covered by the incentive, and in particular including the salary of workers in training, would also benefit SMEs disproportionately, and so do simplified funding application procedures. Even so, careful design is needed for these types of incentives to act as a stimulus for SMEs, balancing deadweight expenditure and administrative costs. However, closer targeting rapidly increases the administrative burden on public authorities. For these reasons, tax incentives should be considered mainly a supplementary measure for SMEs, which needs to be accompanied by other instruments to achieve good outcomes.

2.4. Payback clauses

One of the core risks of investing in training is poaching, i.e. that the employee leaves the company shortly after the termination of training. This risk can be higher for small businesses, in light of their higher overall cost of training on average (Cedefop, 2012[26]).

Payback clauses are a means of overcoming this risk and thus indirectly promoting training investment. When a payback clause applies, an employee who has undergone training and terminates an employment relationship within a set contractual retention period, has to refund (part of the) training costs to the employer. The clause and the regulations constituting its legal foundations dictate which costs need to be covered in case of reimbursement, the progressive reduction of the reimbursement as time passes, and the applicable contractual retention period.

The conditions of the clauses can be regulated at the national level by law, in collective agreements between social partners, or at the company level, in individual contracts of employment or in training agreements. Overall, payback clauses exist in most European countries with a variety of modalities (Cedefop, 2012[26]). Regulations in collective agreements at sectoral level or in companies seem however a more suitable approach, allowing the rules on payback clauses to adapt better to sector/branch or the company and employee training needs. Unlike national regulations, they can target the needs of a particular sector and be more specific with regard to the costs to be covered, the progressive reduction of the reimbursement and the retention period.

Importantly, these clauses can make both parties aware of their responsibility to provide and participate in training, and they can motivate employers to increase investment in employee training while reducing the risk linked to it. At the same time, the clause needs to be specific on the type of training and coverage to avoid excessive restrictions on employee’s mobility. As the content of training needs to be described in the contract between worker and firm, payback clauses are more adequate for training programs with clearly specified content and/or yielding a certification that guarantees the quality of the training provided. A second limitation of these measures is the credibility of the worker’s promise to pay: a cash-constrained worker is not able to reimburse the firm’s cost of training upon leaving. This limitation is usually overcome by requiring the poaching firm to step in and provide the amount due. Lastly, attention should be given to the ability of enforcing the clause at the judiciary level: excessive enforcement costs (e.g. lengthy trials) are likely to reduce the uptake by SMEs in particular.

The system in the Netherlands can be considered an inspiring example and a suitable model. In the country, regulations define conditions in collective agreements at sectoral and company levels. Most of Dutch agreements with provisions on vocational training include also payback clauses that respond to the needs of the branch or company. Payback clauses that are triggered if the employee does not complete the training can provide workers with an incentive to complete the course, as is the case in most agreements in the country.

2.5. Recognising the costs of informal training

SMEs are generally found to prefer informal learning (learning by doing, learning from peers and supervisors while performing one’s job) to formal training, as the former is typically less costly (Cedefop, 2015[27]). This form of training, however, is not normally covered by subsidies or financial incentives. Recognising the cost linked to informal learning actions in addition to formal and non- formal training costs can therefore be an interesting approach to incentivise investment in skills by SMEs (Stone, 2010[16]).

The AFEST – Action de formation en situation de travail (Learning at the workplace) was developed in France to provide some level of formalisation and structure to on-the‑job informal training, allowing firms and workers to access certain financial incentives that are normally reserved for organised forms of training. The measure targets SMEs and micro companies and covers costs linked to informal learning actions in addition to formal and non- formal training costs. By doing so, the initiative includes informal on-the‑job training under the training funded by the levy system in place in France, extending the scope of coverage and ultimately facilitating access to funding to firms that would be otherwise left out (European Commission, 2020[24]).

Box 2.7. AFEST – Action de formation en situation de travail – France

The launch of the experimentation of the AFEST was decided in 2014 by the General Delegation for employment and vocational training (DGEFP, Délégation Générale à l’emploi et à la formation professionnelle) of the Ministry of Labour. The AFEST targets medium, small and micro companies, as well as low-qualified people who are frequently excluded from formal training.

Before starting the training spell on the job, the employee and the employer are asked to determine its objectives and the skills they would like to develop. They need to prove that the training in practice would have a positive impact on skills acquisition.

An official from an OPCO can be involved at this stage to help the employee and the employer determine the objectives and the skills to acquire. OPCO are French competence operators that accompany SMEs in the definition of their training needs. They operate since 2019, when they replaced the OPCAs (Organismes Paritaires Collecteurs Agréées) in this function. As OPCAs, they are bodies governed jointly by employers and employees, but do not have the function of training funds as OPCAs did. Today there are in France 11 OPCOs, which include about 330 professional branches and they aim at: financing apprenticeship, helping branches to build professional certifications; provide technical support to professional branches for SAA exercises (so called gestion prévisionnelle de l’emploi et des competences GPEC). In addition, they work to provide a service to very small, small and medium-sized enterprises, allowing for improvements in the information and access of these companies to vocational training; and to support these companies in the analysis and definition of their professional training needs, particularly with regard to economic and technical changes in their sector of activity.

The impact of the AFEST on decreasing barriers to training provision in small and micro companies is substantial, especially since it addresses challenges such as lack of time, financial cost and inadequacy of training. AFEST also has a positive impact on low-qualified employees by providing tailored training. These beneficial effects led policy makers to scale up the measure, which was ratified by law in 2018.

Source: Anact-Aract (2018[28]), Expérimentation Afest – Action de Formation En Situation de Travail: Rapport Final ; Sgarzi, (2019[29]), Upskilling pathways in France, CEREQ.

Note

← 1.  According to the a recent report of the European Commission, high-tech skills encompass the skills needs related to digital technologies (e‑skills) and a group of six advanced technologies (ATs) including: micro and nano‑electronics, nanotechnology, industrial biotechnology, advanced materials, photonics, and advanced manufacturing technologies, artificial intelligence and security and connectivity. The concept of T-shaped skills has emerged, referring to a combination of both general skills across multiple domains, and specialised skills within (at least) one domain. It refers mainly to programmes, projects and curricula that combine high-tech skills with specific complementary skills, namely: technical skills in adjacent domains; skills related to quality, risk and safety; management, entrepreneurial and leadership skills; communication; innovation; emotional intelligence skills and the ability to consider ethical implications (European Commission, 2019[23]).