Social inclusion

Effective financing mechanisms for skills development can tackle inequality woes, says a new ILO report

The study analyses pros and cons of practices around the world, shedding light on the policy options to improve access to and participation in skills development and lifelong learning of disadvantaged people.

Press release | Bangkok, Thailand | 17 August 2023
BANGKOK (ILO News) – Governments, policymakers, and the social partners should consider reviewing and adopting the use of financial mechanisms – existing at home or implemented elsewhere – for skills development and lifelong learning to enhance participation of disadvantaged groups of people, a new global report of the International Labour Organization (ILO) finds.

The report, entitled Financing mechanisms for promoting social inclusion in skills and lifelong learning systems: Global overview of current practices and policy options, is the first global study that analyses the effectiveness of existing financing instruments targeting individuals, training providers and enterprises. It also recommends how these instruments should be contextualized and better applied in developed and developing countries to ensure that training reach those who need it the most.

The report comes at a crucial time as the COVID-19 pandemic has aggravated existing inequalities globally.

A person with a disability from Toledo City on the Philippine island of Cebu works at a construction site. © ILO
People in rural communities, women, persons with disabilities, ethnic minorities, young people, the elderly and workers in the informal economy often face higher barriers to access and participate in skills development systems. This contributes to lower labour force participation and a persistent gender wage gap.

Skills development can promote their employability, enhance productivity and competitiveness of enterprises and support economic diversification and productive transformation of economies.

The report pinpoints that governments, policy makers and social partners should be informed by the effectiveness of the mechanisms implemented elsewhere to fit their local contexts or review and re-engineer those instruments that are proved to be ineffective to better serve disadvantaged groups.

The report finds that the most suitable financial incentives for encouraging training among disadvantaged individuals are properly-designed grants, targeted training vouchers, subsidies, allowances or tuition fee approaches. Lending, meanwhile, should be designed in a way that supports and reassures debt-averse low-income people.

The report highlights that some instruments, such as untargeted free technical and vocational education and training (TVET) for all, tax-based incentives in contexts of high informality, and co-financing elements that do not cover both indirect and direct costs, can be ineffective leaving many disadvantaged persons behind.

“Non-financial instruments are often more effective if coupled with financial instruments which are designed to address financial barriers associated with participating in training,” said Jordi Prat Tuca, Regional Technical and Programme Coordinator of the ILO-UK Skills for Prosperity Programme in South-East Asia which commissioned the report.

“Meanwhile, financing schemes that are not sufficiently focused on addressing the disadvantage often see financial support go to those who are able to pay for the training anyway,” added Mr Prat Tuca.

The most effective financing incentives for encouraging training providers to promote social inclusion in skills and lifelong learning systems are performance-based contracts as well as procurement and contracting approaches that explicitly take into account access to and participation in the skills systems by disadvantaged groups. These approaches are not widely used yet and governments might consider expanding its use, the report says.

The report also highlights some effective financing mechanisms for enterprises. These include targeted grants, tax incentives or differentiated levy payments that can be made available to formal sector enterprises to encourage them to train their more disadvantaged workers.

However, untargeted or blanket approaches might be ineffective in promoting social inclusion given that they are designed to increase overall training and not designed with inclusion in mind.

Meanwhile, small enterprises, especially informal sector businesses in many low- and middle-income countries are likely to have high levels of disadvantaged owner-operators and informal employers. Additionally, they are the hardest to reach. The report recommends that providing grant funding to intermediary organizations, such as employers and business membership organizations, training providers and non-governmental organisations, is the most common approach to reaching this group.

“Schemes without a co-financing or repayment requirement such as stipends and allowances to individuals and grants to enterprises are more suited to disadvantaged individuals and micro- and small enterprises,” said Mr Prat Tuca.

“This is because disadvantaged individuals and micro and small enterprises may be unable to co-finance direct or indirect costs linked to training,” he added.

The report indicates that financing mechanisms should be applied alongside non-financial measures such as awareness raising, target-setting schemes, and guidance and counselling to bring about a holistic approach.

Governments can start by undertaking a review of current financing mechanisms in their countries with the objective to better understand the root causes of social exclusion from skills and lifelong learning among disadvantaged people and strengthen monitoring and evaluation so that implementing agencies can confirm that they are reaching those individuals they intended to.

Improving awareness and understanding of financial incentive schemes and labour market information among disadvantaged persons directly, and improve awareness of such incentive schemes among firms and potential intermediary organizations is also vital, says the report.