Government incentives for employer-based training

A recent paper by Van Walraven (2005) compares government incentives for employersponsored training in Canada and the United States. The key analytical question is whether the relative fiscal size of Canada’s public policy incentive package can explain Canada’s lower incidence of employer-sponsored training. The key finding is that differences in the size of government incentives for employer-sponsored worker training are too small to likely be a factor in Canada’s lower incidence of training. In fact, the paper concludes that “the size of incentives for employer-sponsored training in both countries appeared too small (for the most part) to have any meaningful impact upon aggregate private costs from training and hence overall training outcomes”. (p.5)

The paper identifies five types of employer-based public fiscal incentives. Table 6.1 describes each type of incentive. In Canada, there are no federally sponsored programs and only four provincial programs. Manitoba, Nova Scotia, and Ontario offer grants, and Québec has a trainor- pay scheme. Moreover, none of these programs target less-educated workers specifically. Further analysis needs to be done to determine the extent to which less-educated workers benefit from existing initiatives. Table 6.2 provides details on the existing Canadian programs.

Table 6.1: Types of public incentives for employer-based training
Program Description Examples
Grants
  • A portion of training costs are financed through general revenues.
  • Industry Training Partnerships (Manitoba)
  • Workplace Education Initiative (Nova Scotia)
  • Strategic Skills Initiative (Ontario)
  • US: at federal level and 31 states
Levy/grant
schemes
  • A portion of training costs are funded by a levy on businesses—usually a % of payroll. Levy is used to develop a fund to which businesses can apply to obtain training subsidies
  • US: federal and state programs
Tax
deductions
  • A portion of training costs is reimbursed to employers through corporate tax breaks.
  • Europe: Austria, Italy, Luxembourg, Netherlands
  • US: in 23 states
Bond
Financing
  • Payroll taxes from newly created jobs in which workers received training are used to pay for the government’s burden of private training costs. 37
  • Used in 4 states to support their customized training programs for ‘new hires’. Target is large businesses moving into the state or expanding.
Train-or-pay
  • A portion of training costs are paid for from a tax that is payable by firms that fail to provide worker training at a sufficient level.
  • 1% payroll levy, Québec

37 According to Van Walraven (2005) the bond scheme works as follows: “Funds are generated from the sale of bonds to private investors by state governments or colleges. Proceeds are used to finance training of new or expanding businesses. Bonds are repaid from new payroll withholding tax generated by the new jobs. Instead of newly collected payroll taxes going into general government revenues, they are pledged to repay the bonds. As long as the company that is expanding hires enough new employees to generate tax revenue, it receives free training”. p.18