Institutional Dynamics of Vocational Training System in Korea: Systems, Innovations and Results

1. International Workshop 6-8th June, 2005 Institutional Dynamics of Vocational Training System in Korea:Systems, Innovations and Results Jin Ho Yoon Byung-Hee Lee

2. Table of Contents • Introduction • Historical Evolution of VTS in Korea • Features of the Reforms in the VTS • Evaluation on the Reforms in the VTS • Conclusion

3. 1. Introduction • Government-led training system - government’s directive intervention in training through expanding public training centers or imposing the obligation of training to large firms - focused on the mass supply of the semi-skilled workers for economic development cf. state-driven and demand-led system (ILO, 1998) developmental skill formation system (Ashton et al., 1999) -> limited explanation focused on the industrialization era • Recent reforms in VTS since the mid-1990s - review the reforms of VTS during the last decade especially, look at the institutional logic on its reform, evaluate on the achievements and limitations of its reform

4. 2. Historical Evolution of VTS in Korea • Training policy combined with industrial policy - training policy was considered as one of the key manpower policies needed to implement the economic development plan - With the shift of industrial policy towards heavy and chemical industries, the large firms were mandated to conduct training for new recruits, otherwise pay training levy cf. levy – exemption scheme • Weakening the government-led training system due to the economic development - government couldn’t create new demands for skills by industrial policies - dramatic change in the demand for training because of the trend toward higher education, intensified competition, the activation of union movement… - the lack of flexibility of government’s regulation on training system

5. 3.Features of the Reform in the VTS • Employment Insurance System, in 1995 (Unemployment Benefit Program + Employment Stabilization Program + Job Skill Development Program) - combination a social safety net with active labor market policies to make the labor market flexible • JSDP is the most important program to support training - funded by the insurance premium paid only by employers (0.1 – 0.7% of the total wage bill according to firm size) • The major changes in VTS by JSDP • - role of training policy was expanded • (employer-provided training + self-directed training for employees + • training for the unemployed) • - focus of training shifted from initial training to further training • - levy-grant scheme • Transforming toward facilitating voluntary training in the private sector but government interventions still exist.

6. Structure of JSDP

7. 4.1 Quantitative Expansion of Training Training Participation rate of the insured workers : 27.1%(’04) Proactive training for the unemployed when faced with mass unemployment - considerable expansion of training for the unemployed right after the financial crisis Employer-provided training increased considerably - the number of employer trained by employers increased 12.9 folds from 1994 to 2004 But self-directed training for employees is still small. 4. Evaluation on the Reforms in the VTS

8. Number of Trainees under the JSDP in Detail Unit: 1,000 persons

9. 4.2 Effect of Training Program for Employer • How government intervention in training affects training investment for firms? - Question : whether training subsidies stimulate corporate training investment? • Constructing panel data on 644 companies covering 1999-2001 • by merging two sets of data : • - Data on training subsidies obtained from the Employment Insurance Database • - Data on training expenditures obtained from corporate financial statements • Estimated Results • - newly subsidized firms increased training expenditure more drastically • compared to the firms with no change in subsidy status • - when formerly subsidized firms stop receiving training subsidy, • their investment in training tended to drop. • - the amount of per capita training subsidy significantly boosted • per capita training expenditure. • Training levy-grant scheme might be one of the successful institutional arrangement to cope with the under-investment in training

11. Estimated result

12. 4.3 Effect of Training For the Unemployed • How quickly training participants are reemployed compared with the untrained unemployed? • Follow-up survey of both treatment group (the trained unemployed) and comparison group (the untrained unemployed) • Estimated results - training participation raised the reemployment likelihood - but the contents of training such as training provider, training occupation do not have any significant relationship with the reemployment likelihood • Training for the unemployed deters from leaving the labor market

13. Training Participation Rate among firms and workers Gender Education Firm size

14. 4.4 Inequality in Training Opportunities • The main beneficiaries of the JSDP are large firms - training participation rate : large firms(1000+) 97.7%, small firms(50-) 2.9% • JSDP is inevitably focused disproportional on large firms because training subsidy can only be received when training is actually conducted • disadvantaged workers have relatively less opportunities for training • JSDP is not able to resolve inequalities in training opportunities because who is trained is decided by only employers and they tend to choose high-skilled workers for training

15. 4.5 Inability to Cope with the Labor Market Flexibility • Increase flexibility in labor market - increase of non-standard workers, employment adjustment, rise in the hiring of the experienced workers • Trade-off between employment flexibility and employer-provided training - The higher turnover rates and employment of temporary workers lead to lower training investments by firms • Analysis results - workers who quit jobs have less opportunities for in-company training - JSDP gives training after they lose their jobs • JSDP is disproportionally focused on employer-provided training - The system of subsidizing training only by individual employer is not able to cope with the trend of weakening corporate training investments by labor market flexibility

16. Training participating rate by job change status

17. V. Conclusion • Reforms in the VTS have been implemented in the direction of facilitating training in private sector - contributed to expanding corporate training investments and training for the unemployed • There are still many problems - JSDP is a system in line with internal labor markets, therefore has innate limitation of being focused on regular employees of large firms • Needs to create a new institutional environment to facilitate voluntary training in the private sector rather than simply curtailing government intervention - Partnership of stakeholders might be able to overcome the problems such as training inequality and weakening trend of training due to labor marker flexibility • New efforts - training consortium, sectoral skill councils, regional active labor market policies…

18. Thank You Jin Ho Yoon (ecoyoon@inha.ac.kr) Byung Hee Lee (lbh@kli.re.kr)