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2. Enhancing SMEs’ training efforts

Abstract

Adult learning is key to allow SMEs to close the productivity gap with larger companies, strengthen their position in global value chains, and tackle demographic changes. However, relatively few SMEs support the acquisition of skills. Indeed, Korean SMEs face great difficulties to provide training to their workers. Some of the challenges they are facing, such as lack of training facilities or the lack of a dedicated HR department, are commonly observed across SMEs in the OECD area. Other challenges, like fear of poaching, or the lack of personnel, are particularly pressing in the Korean context and relate to structural factors. The chapter analyses the key barriers that SMEs are facing in providing training to their workers.

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In Brief

SMEs in Korea should support the skills of their workers

Adult learning is crucial in Korea to help SMEs to close the gaps with larger companies, strengthen their position in global value chains, and tackle demographic changes. However, in Korea few SMEs provide training to their employees. This chapter analyses the barriers that Korean SMEs are facing in providing training to their workers. The key findings of this chapter can be summarised as follows:

Korean SMEs provide far less training opportunities to their workers compared to large firms. In 2015, only 42.6% of micro and small firms provided training to their workers, against 52.8% of medium-sized firms and 64.2% of large firms. The remainder of firms provided either only legally mandatory training or no training at all.
Partly as a result of low training provision by SMEs, Korea has the second largest training gap between workers in micro and large firms in the OECD (after Chile). Only 30.3% of workers in micro-firms participate in job-related formal or non-formal adult learning in a given year, compared to 52.5% in small firms, 63.2% in medium-sized firms, and 69.6% in large firms. Training duration also tends to be short for SME workers. The median hours spent on (non-formal) job-related training is 32 hours per year for SME workers, compared to 48 hours for workers in larger firms.
Participation to informal learning at work is also low among SME workers. Only 41.5% of workers in micro-firms participate in informal learning (i.e. learning by doing the job, learning from others, or learning new things at work at least once a week) – a rate that progressively increases to 51.8% in large companies. These rates place Korea at the very bottom of the OECD ranking.
Lack of staff (i.e. lack of time of employees, shortages of labour) is the most important reason for not implementing or supporting training, cited as the key training barrier by 30% of SMEs in Korea.
Fear of poaching – i.e. the fear that the worker would leave the company shortly after training – is another barrier to training provision among Korean SMEs. This is not surprising considering that Korean SMEs typically offer less attractive working conditions, job turnover is generally high, and workers are often looking for better employment opportunities in larger firms.
Lack of financial resources is also a key reason for not providing training. Many SMEs are not able to use the plethora of financial incentives available to cover training costs, either because they are not aware of these schemes, or because they do not meet eligibility criteria (e.g. enrolment in Employment Insurance; minimum training hours).
SMEs managers and business owners are not always supportive of training. This is due to a number of reasons, including SMEs’ low demand for high-level skills, poor perception of training quality, lack of awareness of the benefits of training, as well as poor entrepreneurship skills among managers/business owners.
In Korea like in other OECD countries, SMEs typically lack HR departments/staff and training facilities – which put them at a disadvantage vis-à-vis large companies when it comes to training provision.

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Introduction

Adult learning can help SMEs to close the productivity gap with large firms. It can also strengthen SMEs’ position in global value chains (GVCs) by helping them to specialise in high value-added activities (e.g. technologically advanced industries, complex business services). Adult learning is also valuable for SMEs going through changes due to company transitions, such as growth, restructuring, introduction of new technologies, or exporting for the first time. Despite the benefits of skills investments, relatively few SMEs in Korea support the acquisition of skills. To improve training provision, it is important for policy makers to fully understand the key obstacles that SMEs are facing, and put in place policy measures that remove such barriers.

This chapter is structured as follows. Section 2.1 depicts training participation patterns in SMEs, highlighting the extent to which SMEs offer adequate training opportunities to their workers, as well as how much SME workers participate to job-related formal, non-formal, and informal training. Section 2.2 highlights the key barriers that SMEs are facing in offering training to their workers. Section 2.3 investigates how recent labour market policies – e.g. the increase in the minimum wage and the new 52-hour workweek policy – could indirectly affect SMEs training efforts.

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2.1. Training participation patterns in SMEs

In Korea SMEs offer little training opportunities to workers compared to large companies. Partly as a result of this, the gap in training participation between workers in SMEs and workers in larger firms is among the widest in the OECD. This section highlights training participation patterns in SMEs, investigating whether Korean SMEs provide adequate training to their workers, whether SME workers (including vulnerable workers) have adequate access to training, and the extent to which SME workers are exposed to informal learning opportunities at the workplace.

2.1.1. Do Korean SMEs provide adequate training to their workers?

Much like in other OECD and European countries (OECD, 2019[1]),1 smaller firms in Korea provide far less training opportunities to their workers compared to larger companies. In 2015, only 42.6% of micro and small firms provided training 2 beyond legally mandatory course to their workers, against 52.8% of medium-sized firms and 64.2% of large firms – according to the Korean Workplace Panel Survey data (Figure 2.1).The remainder of firms provided either only legally mandatory training or no training at all.

The duration of the training programmes offered by SMEs is also much shorter. In 2015, the average annual training time per person 3 was 15.8 hours in micro and small firms, 17.6 hours in medium-sized firms, and 20.4 in larger companies (Figure 2.1).

Figure 2.1. Training provision by firms, Korea, 2015

2.1.2. Do SME workers in Korea have adequate access to training?

Similarly to what can be observed in other OECD countries, in Korea SME workers train much less than workers in larger firms. Analysis of the Survey of Adult Skills (PIAAC) shows that participation in training increases with the size of the firm in Korea. Only 30.3% of workers in micro-firms participate in job-related formal or non-formal adult learning in a given year, compared to 52.5% in small firms, 63.2% in medium-sized firms, and 69.6% in large firms (Figure 2.2).

Korea has the 7^th lowest participation rate in the OECD among workers in micro-firms. The combination of extremely low training rates among workers in micro-firms and above-average training among workers in large firms, results in the highest training gap between workers in micro and large firms (39.3 percentage points) in the OECD after Chile, and well above the OECD average (25 percentage points).4

Figure 2.2. Participation in training, by firm size, OECD countries

Even when SME workers do train, the duration of their training tends to be short. According to PIAAC data, in Korea the median hours spent on (non-formal) job-related training is 32 hours per year for SME workers, compared to 48 hours for workers in larger firms. Gaps in training hours across firms of different sizes can be found in almost all OECD countries 5 but they are higher in Korea than in any other OECD country with the exception of Denmark (Figure 2.3).

Figure 2.3. Training hours, by firm size, OECD countries

2.1.3. Do vulnerable groups in SMEs train?

Like in other OECD countries, in Korea vulnerable workers – such as older workers, women, the low-skilled, low-wage earners, or temporary workers – are less likely to train. These are the workers who arguably need training the most, yet they are typically less likely to take part in adult learning.

In Korea, vulnerable workers lag behind in firms of all sizes, but their participation in training is particularly low if they work in an SME. This is a challenge because vulnerable workers represent a considerable share of the SMEs workforce (Chapter 1). Similarly and equally worrying, often SME workers with a more privileged socio-economic status train much less than vulnerable workers in large companies. This may suggest that firm size is an issue beyond workers’ socio-demographic characteristics.

Looking at age differences, PIAAC data shows that older workers (ages 54-65) in Korean SMEs are much less likely to train compared to older workers in large firms, as well as compared to prime age workers (ages 25-53) in both SMEs and large firms (Figure 2.4). These gaps are much larger in Korea than in the OECD area on average, and compared to best performing OECD countries such as New Zealand and Finland.

Figure 2.4. Gap in participation between older and prime age workers, by firm size, selected OECD countries

Looking at gender differences shows a slightly more positive picture. Gaps in training participation between men and women are small in Korean SMEs (3 percentage points) yet they remain higher than the OECD area where gaps are virtually inexistent on average. In large firms, gaps are quite substantial in Korea: 13.8 percentage points compared to an OECD average of 4.2 (Figure 2.5).

Figure 2.5. Gap in participation between women and men, by firm size, selected OECD countries

Figure 2.6. Gap in participation between low-skilled and medium/high-skilled workers, by firm size, selected OECD countries

Working for an SME in Korea seems to compound the disadvantage in training opportunities already faced by the low-skilled. Indeed, in Korea low-skilled workers, i.e. adults with low numeracy or literacy skills according to PIAAC, in SMEs train much less than similarly low-skilled workers in large firms. Patterns across OECD countries vary considerably (Figure 2.11).

Beyond socio-demographic characteristics, the employment situation of workers – including their earnings and contract type – is also related to the take-up of adult learning opportunities. For instance, in Korean SMEs, low-wage workers (i.e. earning at most two third of the national median wage) are less likely to take part in adult learning compared to better paid workers in both SMEs and large firms, as well as compared to similarly low-paid workers in larger companies (Figure 2.7).

Figure 2.7. Gap in participation between low-wage and medium/high-wage workers, by firm size, selected OECD countries

Access to training also varies across workers with different types of contract. In Korea, gaps in adult learning participation rates between temporary and permanent workers are less than 3 percentage points in SMEs, but they are more marked in large companies (6 percentage points), just above the OECD average (5 percentage points). The situation is more mixed in the OECD area (Figure 2.13).

Figure 2.8. Gap in participation between temporary and permanent workers, by firm size, selected OECD countries

2.1.4. Expanding informal learning opportunities for SME workers

On top of improving access to formal and non-formal learning, Korea also needs to give further opportunities to SME workers to learn new skills through informal learning, i.e. learning that is less organised and structured and includes learning by doing, learning from colleagues (co-workers or supervisors), or learning new things.

Informal learning could accommodate training around work demands and minimise time spent off-site – which is particularly important for SMEs that struggle to free workers’ time for training (see Chapter 2). Informal learning could also help save money, by increasing workers’ skills at little or no direct training costs for firms, workers, and the government. It could also improve the skills of workers who would otherwise have little access to training.

Unfortunately, participation to informal learning is exceptionally low in Korea by OECD standards – and particularly so in smallest firms. PIAAC data shows that only 41.5% of workers in micro-firms participate to informal learning at least once per week (67.4% in the OECD), against 44.7% in small firms (70.2% in the OECD), 46.2% in medium-sized firms (70.8% in the OECD), and 51.8% in large companies (73.7% in the OECD). These rates place Korea at the very bottom of the OECD ranking (Figure 2.9).

Korea is also one of the few OECD countries where the incidence of informal learning is significantly below that of non-formal training (Fialho, Quintini and Vandeweyer, 2019[2]). This means that the many workers who miss out on non-formal training are not able to compensate with more opportunities for informal learning at work.

SME workers in Korea do poorly – compared to other OECD countries – on all types of informal learning, i.e. learning by doing, learning from others, or learning new things at work. About 30% of Korean SME workers learn by doing their job at least once a week, 30% learn from others, and 24% learn new things (well below the OECD average of 56%, 56%, and 38% respectively) (Figure 2.10). Interestingly, there is not so much overlap between the three forms of informal learning. Only about 12% of SME workers experience all three in Korea, against the OECD average of 21%.

Figure 2.9. Participation to informal learning, by firm size

Figure 2.10. Incidence of informal learning in SMEs

Another key challenge is that even when SME workers learn informally, they spend little time doing so by international standards. Using the methodology developed by Fialho, Quintini and Vandeweyer (2019[2]), Figure 2.11 shows that SME workers spend an average of 59.7 hours a year in learning by doing (110.1 hours in the OECD on average), 55.8 hours in learning from others (83 in the OECD) and 47.9 hours in learning new things (77.8 in the OECD).

Figure 2.11. Hours spent on informal learning in SMEs

Looking at the distribution of responses on the frequency of informal learning also reveals that Korea performs very poorly compared with other OECD countries (Figure 2.12). About 26% of SME workers report never learning from others, the highest value in the OECD and double the OECD average of 13%. Similar average distributions are observed for learning by doing and learning new things.

Figure 2.12. Frequency of learning from others in the workplace, in SMEs

Low engagement in informal learning seems to be in stark contrast with the fact that many SME workers consider informal learning as being a valuable learning option. Elaborations of the Human Capital Corporate Panel Survey (2017) show that between 60 and 70% (depending on the size of the firm) of workers in Korea believe that informal learning – defined in this survey as ‘learning through interactions between co-workers, seniors and subordinates’ – have a great or considerable effect on job performance (Figure 2.13).

Figure 2.13. Workers’ opinion on informal learning, Korea, 2017

There are several potential reasons behind limited informal learning practices among Korean SMEs. According to some observers, workers in Korea seem to prefer formal or non-formal learning situations in which learning is delivered by an instructor rather than informally. Moreover, rigid hierarchical structures may weaken individual autonomy to choose collaboration and peer-learning and therefore inhibit informal learning. Finally, high job turnover, especially in SMEs, may inhibit effective knowledge transfer from tenured colleagues to newer workers (Jeong, McLean and Park, 2018[3]).

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2.2. What are the barriers that SMEs are facing?

SMEs face greater difficulty in providing training to their workers compared to larger firms. Some of the challenges they are facing are commonly observed across SMEs in the OECD area, while others are peculiar to the Korean context and relate to structural factors. The next sections investigate the most important barriers that are undermining SMEs’ ability to train their workers, such as lack of personnel, fear of poaching, financial barriers, lack of HR department/staff, lack of training facilities, as well as the mind-set of managers and business owners.

2.2.1. Lack of personnel

According to several observers, lack of personnel (i.e. lack of time of employees, shortages of labour) is probably the most important factor behind low training provision in SMEs. National surveys seem to corroborate these arguments: the Workplace Panel Survey (2015) suggests that lack of manpower (i.e. lack of personnel) is the most frequently cited reason for not implementing or supporting training, cited as the key training barrier by 30% of SMEs (Figure 2.14). This is also the most frequently cited reason for large firms.

Figure 2.14. Most important reason for not implementing or supporting training, Korea

Indeed, in Korea SMEs experience great difficulties in freeing up time for their employees to take training. Because SMEs often face labour shortages and struggle to secure staff (see Chapter 1), management of workers is very tight and leaves little space for workers’ skills development. SMEs also tend to be more oriented towards immediate goals, notably survival and maintaining business operations, and operate to shorter horizons than larger companies.

Lack of personnel may not only reduce SMEs’ training efforts, but could also discourage SME workers to undertake voluntary training (see Chapter 3). Moreover, it could potentially undermine SMEs’ ability to use the adult learning programmes put in place by the government. The next sections discuss two policy measures that could help SMEs tackle lack of staff: i) job rotation schemes and ii) structured on-the-job training (S-OJT).6

Job rotation scheme

Job rotation schemes – i.e. an arrangement for the replacement of absent workers (by an unemployed person or worker), which also covers the cost of replacement – offer a valuable solution to the problem of worker absence during training. Job rotation schemes have already been implemented by some OECD countries, including Korea (OECD, 2019[1]).

Korea offers financial support to SMEs that use job rotation schemes. More specifically, when SMEs grant paid education and training leave to their staff for at least 120 training hours for 30 continuous days, and when they hire a replacement, they can receive a training subsidy that covers the wages of the replacement (capped at the minimum wage and not included in the annual ceiling of each firm) (see Annex 2.A). A new pilot project launched in August 2018 allows SMEs to receive additional funding beyond annual ceilings.

Unfortunately, the take-up of the subsidy is extremely low: the programme counted only six participants in 2016.7 This is mainly because SMEs struggle to secure high-quality replacement workers. Indeed, SMEs either cannot find any replacements, or find replacements who cannot work as effectively as previous employees (Chae, Choi and Yang, 2018[4]).

Good practice examples from OECD countries show that job rotation schemes are more successful when they operate in coordination with the Public Employment Service (PES) and/or existing adult learning programmes. This can help firms secure potential candidates (either unemployed people or workers). For example, in Denmark, firms can set up a training plan for their workers in cooperation with the municipal job centre, benefit from assistance in recruiting replacement workers, and receive a public subsidy for hiring a long-term unemployed person to replace the employee on training. The employment period should go from a minimum of 10 hours to a maximum of 26 weeks (Eurofound, 2019[5]; OECD, 2018[6]).8

The international experience also suggests that it is important for replacement workers to receive adequate training before taking up the position, so that they can be productive as soon as they start the job. This includes training to get the replacement worker acquainted with employer-specific practices/tools. In Germany, for example, some localities have developed a substantial support infrastructure orientated to the needs of small firms, where replacement workers are carefully prepared in advance of taking up a position (Stone, 2010[7]). Similarly, in Denmark replacement workers can receive a short training before starting work (OECD, 2018[6]). This approach assumes that the duration of the replacement is relatively long, to ensure that training efforts are worth the investment.

Korea is in a good position to improve the current job rotation scheme to raise it to the standards of international best practices. In particular, Korea needs to rely on the PES and/or existing adult learning programmes to find and train a replacement worker. The PES is already supporting firms with the recruitment of replacements in case a worker goes on maternity or childcare leave, so its role could be expanded to also tackle absences related to training. Another possible policy option is to link the Korean job rotation scheme to the CHAMP programme (see Annex 2.A) to encourage temporary transfers of employees from large firms to SMEs. This policy was already suggested by a recent OECD report on older workers (OECD, 2018[6]).

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To increase the take-up of job rotation schemes, Korea should:

Assist SMEs to secure replacement workers. This could be done by operating job rotation schemes in coordination with the PES and/or existing adult learning programmes (e.g. CHAMP).
Ensure that replacement workers receive adequate training before taking up the position. In this way, replacement workers can be productive as soon as they start the job.

Structured on-the-job training

Structured on-the-job training (S-OJT) can offer another viable solution to the problem of lack of staff and to the difficulty of finding a replacement worker. Through S-OJT, training providers send teachers to the company, where they perform a task analysis, they evaluate the expertise of workers, identify workers’ training needs, and then offer training programmes accordingly (Choi, Lee and Jacobs, 2015[8]).

As such, the key feature of S-OJT is that training is delivered at the workplace rather than in a classroom or some other off-the-job setting. This type of training allows workers to train while minimising the time spent not working (e.g. commuting). Because of its features, it is especially relevant for SMEs, which may not have the capacity to send employees to outside training.

Recognising its potential, in 2012 the MoEL and HRD Korea implemented SME structured on-the-job training programme. The programme provides a subsidy that covers the cost of training, job analysis/module development, training delivery, and assessment of results. The average annual support for each company is KRW 24 million in 2019 (approximately EUR 18 500) per company. Despite its potential, however, the programme is still at an early stage of development and today remains quite small, with only 122 participating firms in 2018.9

Expanding S-OJT is one of the priorities of the ‘3rd Basic plan for vocational skills development’, the national adult learning strategy developed by the MoEL. Under this strategy, the Korean government will analyse the contexts under which S-OJT is implementable, identify good practice examples, and scale up best practices. To operationalise this strategic direction, perhaps Korea could learn from the experience of OECD countries (e.g. France; Singapore) that have already implemented a similar S-OJT system in SMEs (Box 2.1).

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To tackle lack of personnel in SMEs, Korea should further invest in on-the-job training. Korea should evaluate the pilot “SME structured on-the-job training programme” and scale it up if considered successful.

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Box 2.1. Strengthening on-the-job training in SMEs: the experience of France and Singapore

France

The Formation en Situation de Travail (FEST) is the on-the-job training programme targeted to SMEs promoted by the French Ministry of Labour and social partners since 2014. In order to formalise FEST, the French Ministry of Labour launched a call to training funds (Opérateurs de Compétences – OPCO) to develop FEST experiments. In total 24 projects from 13 organisations have been selected. The selected projects were able to implement their FEST experiments with support of the Ministry. The experiments had a few common characteristics: only applied in firms with less than 300 employees; priority given to low-skilled individuals; diverse profile of participants, including new hires, experienced workers and unemployed; training including normal work activities and “learning elements” (e.g. moments of reflection). Small firms with less than 50 employees were reimbursed by their training fund (OPCO) for implementing FEST. A recent evaluation of the programme showed that the project was successful in helping participants to develop the skills demanded by the firm. The project also had positive indirect effects on participants’ confidence and autonomy at completing tasks, and contributed to consolidate their working relations with managers (Case and Freundlieb, 2018[9]).

Singapore

The National Centre of Excellence for Workplace Learning (2018) aims to help companies set up on-the-job training structures. Companies can apply for grants from SkillsFuture Singapore, and SMEs can receive up to 90% of the cost of training in-house trainers. It is expected to help more than 1 000 companies, especially SMEs, in the next five years.

Source: OECD (2017[10]) Getting Skills Right: France, https://doi.org/10.1787/9789264284456-en; Case and Freundlieb (2018[9]), Experimentation Afest: Action de Formation En Situation de Travail, Ministère du Travail, https://travail-emploi.gouv.fr/IMG/pdf/rapportfinalafest.pdf.; OECD (2019[11]), OECD SMEs and Entrepreneurship Outlook 2019, https://dx.doi.org/10.1787/34907e9c-en.

2.2.2. Fear of poaching

Fear of poaching is another key factor undermining training provision in Korean SMEs. When workers leave the company shortly after training, firms cannot reap the benefits of their skills investments. If they fear poaching, firms may be reluctant to provide training in the first place. Or, they may be willing to provide only firm-specific training (which produces skills that are less transferable to other companies) in a view to minimise poaching risks (Kuczera, Kis and Wurzburg, 2009[12]; Jeong, McLean and Park, 2018[3]).

While this is a challenge that Korea shares with other countries (OECD, 2019[11]), fear of poaching is particularly pressing in Korean SMEs, which on average offer less attractive working conditions, where job turnover is generally high, and where workers are often looking for better employment opportunities in larger firms (see Chapter 1).

Evidence confirms that poaching is quite widespread among Korean SMEs. In Korean small firms (5-29 employees), workers are more likely to leave the firm one year after training than workers who did not train, even after controlling for workers’ observable characteristics – a pattern that is not observed in larger companies (Yoo et al., 2009[13]).

Similarly, the Ministry of Trade, Industry and Energy (MoTIE) estimates that 49% of SMEs reported skills poaching in 2013 (OECD, 2017[14]). In a similar vein, the HCCP survey shows that, in 2017, 14% of SMEs (100-299 employees) ‘slightly’ or ‘fully’ agreed that turnover of trained personnel is high, a share that gradually decreases with firm size (Figure 2.15). It is likely that fear of poaching is even more common among smaller companies (with less than 100 employees), which are not covered by this survey.

Figure 2.15. Turnover of trained staff, Korea, 2017

In order to help SMEs overcome fear of poaching, Korea needs to reduce the gap in working conditions – e.g. wages, job protection – between smaller and larger firms (Chapter 1). This would make SME workers less willing to look for a better job elsewhere, and ultimately mitigate SMEs’ fear of poaching. Reducing the gap in working conditions across firms of different sizes relies upon a number of structural policies (e.g. industrial and labour market policies) that fall outside the scope of adult learning.10

2.2.3. Financial barriers to training

In Korea, like in other OECD countries, SMEs typically face important financial barriers to provide training to their workers. These barriers relate to both the direct costs of training (e.g. training fees) and the indirect costs of training (e.g. workers’ wages; foregone productivity during worker absence).

The direct costs of training are higher for SMEs than for large firms: while large firms can distribute the fixed training costs over a larger group of employees, smaller firms cannot benefit from economies of scale, and as a result they generally incur a higher training cost per worker compared with large enterprises (Lee, 2016[15]).

The indirect costs of training are also often greater in SMEs than in larger firms: releasing workers from revenue-generating activities for training is particularly costly for SMEs, who have fewer employees to rely upon to maintain business activities and for which work reallocation and recruitment is typically more difficult or costly (OECD, 2019[11]) (see Section 2.2.1).

On top of higher direct and indirect training costs, smaller firms are also particularly sensitive to business cycles and are more likely to respond to economic downturns by cutting investments in training. In 2017, according to the Human Capital Corporate Panel Survey data, 28.9% of Korean SMEs (100-299 employees) reported that they did not have sufficient funds to invest in training due to management crises (e.g. sales reduction) – higher than the country average (firms of all sizes) of 22.6%.11 Although data for smaller companies is not available, it is likely that an even greater share of micro- and small firms faced similar financial constraints.

In this context, it is not surprising that Korean SMEs invest much less financial resources in the training of their workers compared to larger companies. In 2018, according to the Enterprise Labour Cost Survey, the average monthly education and training expenditure of SMEs (10-299 employees) was KRW 6.3 thousand (about EUR 5) per worker, compared to KRW 42.9 thousand (about EUR 34) in larger companies (300 or more employees).

The international experience shows that financial incentives can be very useful policy tools to help firms (including SMEs) to overcome financial barriers to training. Depending on their design, financial incentives can reduce firms’ direct and indirect cost of training, help them overcome liquidity constraints, and encourage them to set aside resources for future training (OECD, 2017[16]; OECD, 2019[1]).

Recognising their potential, Korea has already put in place a plethora of financial incentives – e.g. training subsidies, loans, reimbursement of training expenses – to help firms overcome financial barriers to training. These benefits are all fully funded by the Employment Insurance, and their generosity and eligibility criteria often vary with firm size, with more generous benefits and looser access requirements offered to SMEs (Paik, 2016[17]). Annex 2.A provides a detailed description of financial incentives available to Korean SMEs.

Research evidence shows that the subsidies for employer-provided training have increased SME’s investments in adult learning and have had a positive impact on wages and productivity. For example, Ban (2013[18]) found that SMEs have experienced a positive effect of training subsidies on corporate training investment and productivity, while large enterprises have not experienced a significant increase. Similarly, Yun and Park (2017[19]) showed that workers undertaking training organised by their employers through the subsidy scheme have longer tenure than workers who did not receive any training. Participating workers also experienced a 4.8% wage increase in the year following the training.

While efforts to reduce the cost of training for SMEs have been remarkable in Korea (in terms of the quantity and generosity of financial incentives programmes available, see Annex 2.A), in practice these programmes are often under-used. To give an example, in 2016 only six participants benefited from the job rotation scheme subsidy (see Section 2.2.1). Information collected through employers’ surveys corroborates that the use of available financial support is rather low. The Human Capital Corporate Panel Survey data shows that in 2017, the share of SMEs reporting that they rarely used government-supported training programmes varied between 35% and over 70% (depending on the programme considered) (Figure 2.16). These rates are, in the vast majority of cases, higher in SMEs than in larger firms (Figure 2.16).

Figure 2.16. Use of government-supported training programmes, Korea, 2017

One reason for low take-up relates to strict eligibility criteria. To benefit from financial incentives, SMEs need to meet certain minimum criteria, e.g. they have to prove that they have offered, or plan to offer, a minimum number of training hours. For instance, in order to access subsidises for on-site training, SMEs need to provide a minimum of 8 hours of training (Paik, 2016[17]). To give another example, in order to be able to access the subsidy for education and training leave, SMEs need to provide a minimum of 20 training hours (for a minimum of 5 days) (see Annex 2.A). According to several stakeholders, these minimum training hour requirements can hardly be met by an SME that is often unable to release the worker for extended periods (see Section 2.2.1).

Another key explanation for low take-up is that financial incentives do not cover the breadth of training options that SMEs could potentially be interested in.12 Often, subsidies finance training programmes that reflect the government’s skills priorities but that are not necessarily aligned to SMEs’ training needs (see Chapter 4) (Paik, 2016[17]).

Little awareness of financial incentives among SMEs could also partly explain low take-up. As discussed in Section 2.2.4, SMEs often lack a dedicated HR department/staff that could identify financial incentives available as well as existing government-supported adult learning programmes. In this context, the government could take action to promote awareness around financial incentives available, along the lines of what is already being done in other OECD countries. For example, Ireland has developed the Irish Government’s Supporting SMEs campaign, which aims at increasing awareness of the range of government financial supports available for start-ups and small businesses. In the context of this campaign, the government has developed an online guide (“Supporting SMEs Online Tool”) conceived to help Irish start-ups and small businesses navigate the range of government financial supports.

Finally, another potential reason for low take-up of financial incentives is the unequal access to Employment Insurance across firms of different sizes. Many SMEs do not enrol in Employment Insurance although they should, and therefore they are not eligible for financial support (see Chapter 5). In this context, it is not surprising that large firms often get the bulk of EI-reimbursements.

Recent estimates show that the top ten conglomerates receive 21% of the funds to finance training (SBS, 2013[20]). Other more recent estimates show that in 2017, large firms with 1 000 or more employees received 17.4% of the Employment Insurance fund to finance training (MoEL, 2018[21]). Similarly, the Workplace Panel Survey highlights that in 2015 around 40% of training SMEs did not receive any reimbursements for training expenditures by the EI, double the share of large firms (Figure 2.17).

Figure 2.17. Reimbursement of training expenditures by employment insurance, Korea, 2015

It is important to note that financial incentives will be fully used by SMEs only if complementary action is taken to address other training barriers that SMEs are facing – e.g. lack of staff, fear of poaching. If these additional barriers are not tackled, it is unlikely that SMEs will be able to make full use of financial incentives and to ultimately increase training provision.

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Korea could implement several policy measures to increase take-up of financial incentives. These include efforts to:

Continue ongoing efforts to increase the coverage of Employment Insurance across SMEs. This would allow more SMEs to be eligible to receive government-supported subsidies for training.
Reduce or eliminate the minimum training hours for eligibility for financial incentives. Because short-duration training is harder to monitor, when minima are dropped, complementary action should be taken to strengthen the monitoring of potential fraud.
Raise awareness of existing financial incentives available, for example through public campaigns and/or online guides. This is crucial to ensure that SMEs can take informed decisions on how to finance the training of their workers.

2.2.4. Lack of a dedicated HR department/staff

Another key factor behind low training provision is that SMEs typically lack a Human Resources (HR) department/staff dedicated to organising and co-ordinating training (OECD, 2019[11]; Lee, 2016[15]). Elaborations of the Workplace Panel Survey show that, in 2015, 24% of small firms (1-49 employees), 17% of medium-sized firms (50-249), and 9% of large firms (250+) had no training department nor a person solely dedicated to training (Figure 2.18).

The lack of a dedicated HR department/staff means that there is no staff dedicated to planning suitable training, monitoring training processes, evaluating training effectiveness, and/or handling the cumbersome administrative processes for reimbursement of training expenses. It also means that there is no staff in charge of exploring and benefiting from the many adult learning programmes in place (e.g. financial incentives) (see Section 2.2.3).

Indeed, according to Workplace Panel Survey data, about 40% of small firms in Korea pre-planned annual training, compared to about 50% in medium-sized firms and 65% in large firms (Figure 2.18). Similar results are found regarding pre-approved annual budgets for training costs. Other national surveys confirm these findings.13

Figure 2.18. HR department/staff and related activities, Korea, 2015

Korea has already taken steps to solve this issue. The most important policy measure recently implemented is the SMEs training support centres. Implemented in 2018 as a pilot, the programme was recently scaled-up and today includes five centres throughout Korea. It aims to tackle the lack of Human Resources (HR) capabilities of SMEs, by supporting business guidance, company diagnosis, as well as training programme design in SMEs. The amount of support per centre is KRW 600 million (approximately EUR 460 000) (see Annex 2.A for a full description).

2.2.5. Lack of training facilities

Another key challenge is that SMEs, unlike larger companies, often do not have their own training facilities. This puts SMEs at a disadvantage vis-à-vis larger companies who have their own training infrastructures. Elaborations of the Human Capital Corporate Panel Survey (2017) show that 85.5% of SMEs (100-299 employees) have no training facility, compared to 16.7% of very large firms (2000+ employees). When they do have training facilities, SMEs are also more likely to share them with affiliates (Table 2.1). Data for micro- and small firms are not available, but it is likely that most if not all of these firms do not have any HRD facility at all.

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Table 2.1. Human Resource Development training facilities, 2017
Percentage of firms, by firm size
	100-299 employees	300-999 employees	1000-1999 employees	2000+ employees	Total
Percentage of firms with independent HRD facilities in the company	6.8%	17.5%	28.9%	56.7%	15.6%
Percentage of firms with HRD facilities shared with affiliates	7.7%	9.9%	13.2%	26.7%	10.1%
Percentage of firms with no facility	85.5%	72.5%	57.9%	16.7%	74.3%
Source: KRIVET elaborations of the Human Capital Corporate Panel Survey (7^th wave, 2017).

The main programme implemented in Korea to address this challenge is the National Human Resources Development Consortium (National HRD Consortium, or CHAMP), which is considered a case of best practice internationally. Under the programme, launched in 2001, large firms, employers’ associations and universities are encouraged (through financial incentives) to set up consortiums with SMEs to share their training facilities and equipment, as well as experience and knowhow in vocational training (OECD, 2018[6]) (see Annex 2.A for a description).

The National HRD Consortium addresses many of the organisational and technical constraints faced by SMEs. This programme also provides a good opportunity to form and strengthen partnerships between large firms and their subcontractors, firms in the same industry and region, and universities and businesses. In particular, because training courses are organised on the basis of this partnership, they can respond more closely to business needs (OECD, 2018[6]).

According to research studies that analyse the performance of the National HRD Consortium, the completion rate of training courses is high at 90.6%, as is the satisfaction rate of trainees (4.21 out of 5), and the level of the practical application of skills in workplaces (4.08 out of 5). In particular, the cost benefit ratio is quite high: for every KRW 1 in costs, the programme yields 3.5 in benefits (Lee et al., 2012[22]).

Despite these achievements, the National HRD Consortium can be still be improved. First, training in the new technology areas in response to the Fourth Industrial Revolution is limited. Indeed, only 5.3% of trainees 14 took training in new fields in 2018, according to national data. Another challenge is that joint training centres could be operated more efficiently. In particular, Korea needs to conduct rigorous performance evaluations for each joint training centre and manage the centres with underperforming or overlapping functions by imposing penalties (e.g. suspending or reducing subsidies).

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Improve the National HRD Consortium programme by: encouraging training in new fields (4th industrial revolution); conducting rigorous performance evaluations of each joint training centre; and sanctioning centres with underperforming or overlapping functions. This will reduce the administrative burden involved for SMEs to take advantage of adult learning programmes and financial incentives.

2.2.6. Mind-set of managers and business owners

Managers and business owners are those who ultimately decide on training strategies, especially in smaller firms. Therefore, ensuring that they are supportive of workers’ training is a key prerequisite for making adult learning a reality in smaller firms.

Research studies from Korea and other OECD countries show that managers and business owners with the right mind-set are key for training. For example, Bae and Lawler (2000[23]) show that firms in Korea that value Human Resource Management (HRM) and people as a source of competitive advantage are more likely to have high-involvement in training strategies. Jeon and Kim (2012[24]) find that top management leadership in human resources, e.g. managers/owners that have a clear vision about HRD and emphasise the importance of competent staff,15 are positively associated with the effectiveness of informal learning. Research from other OECD countries shows similar results. For example, in Japan studies show that the attitudes of the owner/manager is the most influential factor in determining the intensity of training in SMEs (Gamage and Sadoi, 2008[25]).

Despite this evidence, much remains to be done to shape a positive learning culture among managers and business owners in Korean SMEs. There are several underlying reasons behind this lack of a learning culture.

One relates to the low demand for skills among SMEs, which inevitably translates into a low demand for training. Korean SMEs often employ low-skilled workers and produce low value-added goods (e.g. in the service sector), and therefore they do not consider training to be a revenue-generating activity (OECD, 2019[11]).

Indeed, elaborations of the Workplace Panel Survey (2015) show that in Korea, 26% of SMEs (less than 250 employees) report ‘no need for training due to work characteristics/simplicity of tasks’ as the most important reason for not implementing or supporting training, the 2^nd most frequently cited reason after lack of personnel (see Figure 2.14).

In this context, low-valued-added production strategies and low skill levels become locked into a self-reinforcing cycle and result in a low skills equilibrium. Breaking the vicious cycle and fostering a learning culture will partly rely upon efforts to shift the productive system towards the use of new and high value-added technologies (see Chapter 4).

Another reason behind the lack of a learning culture is the perception, among managers and business owners, which available training is of low quality or low relevance. Indeed, government-sponsored training programmes are not always perceived as being aligned with the needs of SMEs (Chapter 4). This potentially generates reluctance and doubts about the usefulness of training among managers and business owners. Elaborations of the Workplace Panel Survey (2015) show that in Korea, 16% of SMEs (less than 250 employees) report that the most important reason for not implementing or supporting training is that there was ‘no suitable training reflecting one’s workplace’, and another 3.8% report that ‘training offers little benefits due to low efficiency of training’ (see Figure 2.14). Efforts to improve training quality and offer more tailored courses targeted to the needs of SMEs could help to convince managers about the effectiveness and relevance of training.

Another related challenge is that managers and business owners in SMEs often lack awareness of the benefits of training, and therefore are not always convinced about the value of workers’ continuous learning. According to the Human Capital Corporate Survey (2017) data, some 24% of SMEs (100-299 employees) in 2017 ‘slightly’ or ‘fully’ agreed that management lack awareness for education and training issues. This share decreases to only 17% in firms with 300-999 employees, 13.1% of firms with 1000-1999 employees, and 6.6% of firms with 2000+ employees (Figure 2.19).16 In this context, making the business case for training – by building and sharing the evidence on the links between skills and firms’ performance – could change managers’ mind-sets towards learning and can ultimately be expected to raise training levels.

Figure 2.19. Awareness for education and training among managers, Korea

Another key issue is that – given that SMEs often lack HR departments/staff (see Section 2.2.4) – managers themselves may not be aware of all the adult learning policies available to SMEs and could find it difficult to navigate the numerous programmes available (Kim, 2019[26]). Supporting managers of SMEs to understand what programmes are available and how to use them is key.

On top of raising the demand for high-level skills, improving training quality and relevance, and making the business case for training, going forward, Korea will also need to ensure that entrepreneurs are adequately trained to start and run a business that nurtures its talents. Enhancing the skills of entrepreneurs – e.g. by expanding education and training programmes on entrepreneurship – may lay the foundations for more training opportunities for SME workers. Well-trained entrepreneurs are also more likely to implement High Performance Workplace Practices (HPWPs), which could improve the quality of the work environment and therefore the attractiveness of jobs in SMEs.

Although the government has been extending entrepreneurship-related education programmes in recent years, Korea still has a long way to go to catch up with better performing countries. For example, experts interviewed in the context of the Global Entrepreneurship Monitor (GEM) survey considered that entrepreneurship education is unsatisfactory in Korea – in both primary, secondary, and post-secondary education. Korea performed particularly poorly on post-secondary education programmes in entrepreneurship, ranking 37th out of 54 countries (GEM, 2018[27]).17

In Korea, adults are less likely than peers in the OECD area to feel that they have the skills, knowledge and experience to start a business. In Korea, 43% of men and 29% of women indicated that they had sufficient skills, knowledge and experience to start a business over the 2013-17 period, among the lowest levels in the OECD area (Figure 2.20). These results need to be taken with caution, because they reflect subjective perceptions of skills.18

Figure 2.20. Adult perception of their entrepreneurship skills

Moreover, in Korea many adults have no access to training on starting and growing a business, compared to other OECD countries. Figure 2.21 shows that in Korea 36% of men and 29% of women reported having access to training on how to start a business in 2013, rates that are well below the majority of OECD countries.

Figure 2.21. Access to entrepreneurship training

Another challenge worth mentioning is that many older people, after retirement, decide to start and run a business, but few of them have the necessary business skills to achieve high productivity and business success (see Chapter 1). This means that, unless they are adequately trained, these older people may set up and run unproductive businesses.

In addition to poor initial education options to become entrepreneurs, few continuous training opportunities are offered to established business owners. In Korea like in other OECD countries, lost working time is an especially important constraint with respect to owner-manager training, and many small business owners consider that undergoing training themselves will not enhance their ability to operate the firm.

Indeed, elaborations of the Survey of Adult Skills (PIAAC) show that only 40.5% of business owners (self-employed with employees) in Korea participate to formal or non-formal learning in a given year. While this is in line with the OECD average (39.6%), Korea lags well behind best performing countries such as Finland, Germany, the Netherlands and Norway where over half of business owners participate to job-related training in a given year (Figure 2.22).

Figure 2.22. Training of business owners, Korea and OECD countries

Korea has already recognised these challenges and has put in place several programmes specifically aimed at creating a learning culture among managers and business owners. These efforts aim to build future entrepreneurs through entrepreneurship and start-up education; train managers and business owners through targeted adult learning programmes; and make them aware of the importance of training, through awareness campaigns. These programmes are described in Annex 2.A. Examples from OECD countries are provided in Box 2.2.

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To improve the mind-set of managers and business owners in SMEs and ensure that they are supportive of workers’ training, Korea should:

Make the business case for training. For example, building and sharing the evidence on the links between skills and firms’ performance, could change managers and business owners’ mind-sets towards learning and can ultimately be expected to raise training levels.
Enhance the skills of entrepreneurs and ensure that they are adequately trained to start and run a business that nurtures its talents. This could be done by expanding initial education programmes on entrepreneurship as well as by providing more adult learning programmes targeted to managers/business owners.
Raise the demand for high-level skills in SMEs. Encourage larger firms to engage in greater transfer of technological and organisational know-how with smaller companies in their supply chains. This will of course require action in a number areas beyond adult learning measures.
Develop a knowledge-sharing platform where business owners and managers can exchange on how they implement training.

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Box 2.2. Building the skills of managers and business owners in SMEs: international good practice examples

United Kingdom

The Small Business Leadership Programme (2018) looks to provide management training to 2000 small business leaders in its first year and to scale-up to reach 10 000 beneficiaries by 2025. The Small Business Leadership Programme is part of a package of measures to assist businesses in improving their productivity. This also includes the strengthening of local networks focused on business improvement, getting the UK’s leading businesses signed-up to mentoring programmes, and promoting “Knowledge Transfer Partnerships” whereby postgraduates are placed in small businesses to translate their research insights into business growth.

Mexico

The Business incubators for basic enterprises (2015) encourages the upgrading of managerial skills and ICT adoption in micro-enterprises. Micro-enterprise owners receive six hours of basic management training as part of this programme.

New Zealand

Lightning Lab XX is a four-month mentorship-driven business acceleration programme. Based in Wellington, Lightning Lab XX makes a seed investment of NZD 20 000 (approximately EUR 12 600) in each company in return for a small equity stake, and offers support services that are delivered through mentors. The programme receives funding from the science and innovation arm of the Ministry of Business, Innovation and Employment and private sponsors.

Australia

Women in STEM and Entrepreneurship (2016) aims to increase awareness and participation of girls and women in STEM and entrepreneurship education and careers, increase participation of girls and women throughout the innovation ecosystem, and stimulate an increase in the number of women in senior leadership and decision making positions in government, research organisations, industry and businesses. This programme supports projects that seek to increase girls’ and women’s interest in STEM fields and entrepreneurship, develop their skills and knowledge, build their professional networks, or other activities consistent with the programme’s objectives. The government has allocated AUD 8 million (approximately EUR 5 million) for 2016-20.

Source: OECD (2019[11]), OECD SMEs and Entrepreneurship Outlook 2019, OECD Publishing, Paris.

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2.3. Recent labour market policies and their implications for training

Korea is implementing major labour market reforms that could potentially have significant implications for SMEs training. These measures include the recent increase in the minimum wage and the gradual introduction of the 52-hour workweek. Although it is early to assess the impact of these policies, the next sections explore their potential implications for adult learning.

2.3.1. The increase in the minimum wage

The Korean Minimum Wage Council decided to raise the hourly minimum wage (MW) by 16.4% in 2018 and 10.9% in 2019 19 - with plans to increase it by an additional 2.9% in 2020. These increases are part of the “income-led growth” that the government aims to achieve to address worsening income inequality, close the labour market duality gap, and guarantee a decent living for low-income workers (OECD, forthcoming[28]).

Stakeholders interviewed in the context of this project have expressed conflicting views on what could be the implications of the MW hike on training. According to some observers, the increase in labour costs could reduce firms’ budgets for training. Other stakeholders point to the fact that increased labour costs will generate a drop in the rate of return on education, which may lead employers to invest less in training. It is also possible that the increase in the MW could increase firms’ reliance on informal workers, leading to under-investments in training as these workers are not bound by a long-term employment relationship.

Other more optimistic observers argue that there might be indirect effects that generate an increase in training provision. Because training programmes are often subsidised by the government, the MW hike is unlikely to reduce firms’ training efforts. Rather the opposite, companies will likely try to meet the cost of higher MWs by investing in training to make their workers more productive. Moreover, workers benefiting from MW hikes may decide to stay longer with their employers, and the resulting lower job turnover could incentivise both firms and workers to engage in training.

While evidence on the impact of MW increases on training is not available in Korea, the international experience shows that in some OECD and developing countries, the rise or introduction of the minimum wage had negative implications for workers’ training. In Japan, Hara (2017[29]) finds that a 1% increase in the minimum wage causes a 2.8% decline in formal training. In China, Haepp and Lin (2016[30]) find significant negative effects of the introduction of minimum wages on firms’ human capital investment rates. In Germany, Bellman, Gerner and Hübler (2017[31]) show that the introduction of the new statutory minimum wage was associated with a slight reduction in the intensity of training (although no impact on the incidence of training was found).

Going forward, it is important that Korea carefully monitors the impacts of the MW hike on training provision, and especially in SMEs, which could be particularly affected by this policy.

2.3.2. The 52-hour workweek policy

The tradition of long working hours in Korea may take time away from workers’ training. Indeed, working time in Korea was the third longest in the OECD in 2018 at 1967 hours per year, 13% above the OECD average.20 While long working hours is an issue for firms of all sizes, working time is even longer in SMEs, which typically face labour shortages (see Chapter 1) (OECD, 2018[32]).

To address this challenge, several actions have been taken in Korea. In June 2010, a tripartite agreement was reached to cap maximum working time at 1 800 hours by 2020. To achieve this goal, the government is gradually cutting the statutory limit on weekly working hours from 68 to 52. The policy was implemented in July 2018 for firms with 300 or more employees, and is gradually being rolled out to firms with 50 to 299 employees as of January 2020 and firms with 5 to 49 employees as of July of 2021 (SMEs with less than 5 employees will not be affected).

In order to smooth the implementation process, the government plans to publish a ‘Flexible working hours guide’ and hold industry-specific and regional briefing sessions for businesses and keep them informed. For example, in preparation for the implementation of the 52-hour workweek system, the government will establish a ‘field support group’ in 48 local employment offices to provide customised support to SMEs that are facing troubles preparing for the change.

Thanks to this measure, Korea’s working time legislation has become more in line with OECD practice. But while the policy is a much-needed step in the right direction for improving work-life balance, it is too early to tell what will be the implications of the 52-workweek measure on training. Several stakeholders expressed concerns on the potential unintended negative consequences that the policy could have on workers’ participation to training programmes.

Because the time workers spend on training is counted as working hours in Korea, firms may decide to cut their training efforts in a view to comply with the 52-workweek measure. This may be particularly true for SMEs that already struggle with labour shortages and face difficulties to free up time for their employees to take training (see Section 2.2.1). This is similar to what happened in France with the 35-workweek measure, whereby firms cut lunchbreak, time for putting on uniforms and protective gears that were previously part of the working time.

At the same time, in Korea the 52-workweek measure could free up workers’ time for pursuing training that is voluntarily initiated and that typically takes place outside of working hours. This includes training that would prepare the worker for a career shift, in a different firm or a different sector.

Recent evidence suggests that the first phase of the 52-hour workweek policy reform (applying to large firms with 300 or more employees) has been effective in reducing the incidence of very long working hours (Hijzen and Thewissen, 2020[33]). Evidence on previous policy efforts to reduce working time legislation showed that the measure increased productivity per hour worked (Park and Park, 2019[34]). Going forward, it will be important for Korea to monitor the impact of the 52-workweek measure on SMEs and workers’ attitudes towards training. Moreover, the government should capitalise on the briefing sessions and field support groups to guide SMEs on matters related to training, for example by increasing awareness of existing flexible work systems and adult learning programmes.

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Korea should carefully evaluate the impact that new labour market policies may have on training. These measures include the recent increase in the minimum wage and the 52-hour workweek policy.

References

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[31] Bellmann, L., M. Gerner and O. Hübler (2017), Training and minimum wages: first evidence from the introduction of the minimum wage in Germany, IZA Journal of Labor Economics, https://doi.org/10.1186/s40172-017-0058-z.

[9] Case, F. and I. Freundlieb (2018), Experimentation Afest: Action de Formation En Situation de Travail, Ministère du Travail, https://travail-emploi.gouv.fr/IMG/pdf/rapportfinalafest.pdf.

[4] Chae, C., Y. Choi and J. Yang (2018), Action Plan for Facilitating Paid Leave Training, Korea Research Institute for Vocational Education and Training.

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[24] Jeon, K. and K. Kim (2012), “How do organizational and task factors influence informal learning in the workplace?”, Human Resource Development International, Vol. Vol. 15/No. 2, https://doi.org/10.1080/13678868.2011.647463.

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[34] Park, W. and Y. Park (2019), When Less is More: The Impact of the Regulation on Standard Workweek on Labor Productivity in South Korea, Association for Public Policy Analysis and Management.

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[13] Yoo, G. et al. (2009), An Empirical Analysis on the Performance of Vocational Training and a Study on the Reform Direction of Government Support Projects, Korean Labor Economic Association, http://www.prism.go.kr/homepage/entire/retrieveEntireDetail.do;jsessionid=9352FF20E58FF9F95C7C4639943461B7.node02?cond_research_name=&cond_research_start_date=&cond_research_end_date=&research_id=1490000-200900077&pageIndex=2504&leftMenuLevel=160.

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Annex 2.A. Adult learning programmes for SMEs

This annex describes the adult learning programmes put in place in Korea to encourage SMEs to offer training to their employees.

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Subsidies for employer-provided training

When employers provide vocational training to their current and prospective workers, they can recover all or part of the training costs through the Employment Insurance (EI), the national compulsory social insurance scheme (see Chapter 5).21

Human Resources Development Service of Korea (HRD Korea) – a public agency under the Ministry of Employment and Labor (MoEL) that supports workers’ lifelong education – is responsible for the approval of training courses and the reimbursement of employer-provided training.

In order to receive training subsidies, companies need to meet certain eligibility criteria (e.g. minimum training hours). These eligibility criteria are typically more flexible for SMEs. For example, in case of collective (i.e. classroom) training and on-the-job training, the course should last at least 2 days or 16 hours for large firms and at least 1 day or 8 hours for SMEs (eligible for preferential support). Remote training requires a minimum of 8 hours of training, regardless of firm size (Annex Table 2.A.1).

The amount of the subsidy also varies depending on the size of the firm (see Annex Table 2.A.1). As of 2018, SMEs eligible for preferential supports (see Box 2.3) have 100% of training costs subsidised. This compares to a 60% subsidy for large firms with less than 1 000 employees and 40% for large firms with 1 000 or more employees. In addition, Korea provides wage subsidies to firms that train non-regular workers. SMEs receive 120% of the minimum wage (MW) during the training period, while large firms receive 100% of the MW.

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Annex Table 2.A.1. Subsidies for employer-provided training
Eligibility criteria and subsidy, by training type and firm size (2018)
Training type	Firm size	Eligibility criteria (minimum training time)	Subsidy
Training type	Firm size	Eligibility criteria (minimum training time)	Training cost (Percentage of training unit cost)	Wage for non-regular workers (Percentage of minimum wage)
Collective / On-the-job training	SMEs (eligible for preferential support)	1 day and 8 hours	100%	120%
	Large firms with less than 1 000 employees	2 days and 16 hours	60%	100%
	Large firms with 1 000 or more employees	2 days and 16 hours	40%	100%
Remote training	SMEs (eligible for preferential support)	8 hours	100%	Not available
	Large firms with less than 1 000 employees	8 hours	80%	Not available
	Large firms with 1 000 or more employees	8 hours	40%	Not available
Mixed training	All firms	Mix of collective (or on-the-job) and remote training
Note: SMEs refer to the Preferentially Supported Enterprises defined in the Employment Insurance Act. Collective training refers to the training in which a group of trainees are gathered and trained in a suitable (certified) facility (except for industrial production facilities and workplaces). On-the-job training refers to the training in which workers acquire knowledge and skills related to their jobs from their supervisors or seniors in the same environment as the actual place of work. Remote (smart) training refers to the training conducted using information and communication media, and management of trainees is conducted on the web. Mixed training is a combination of two or more types of training in the midst of collective training, on-the-job training and remote (smart) training.
Source: MoEL (2019[35]), Employment Insurance White Paper; HRD Korea (2018[36]), Employer Vocational Competency Development Training Manual.

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Box 2.3. Definition of SMEs eligible for preferential supports

Under the Employment Insurance system, the government gives priority to SMEs when providing financial support through employment security and vocational skills development projects. The definition of Preferentially Supported Enterprises is based on Article 19 of the Employment Insurance Act and Article 12 of its enforcement decree. The definition is solely determined by the number of ordinarily employed workers and varies by industry. To meet the criteria of the Preferentially Supported Enterprises, the number of ordinarily employed workers is 500 or less in the manufacturing sector, 300 or less in mining, construction, and telecommunications sectors, 200 or less in wholesale and retail trade, and 100 or less in other industries (Table 2.2).

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Table 2.2. Definition of Preferentially Supported Enterprises
Number of ordinarily employed workers, by industry
Industrial classification	Number of ordinarily employed workers
1. Manufacturing	500 workers or fewer
2. Mining / 3. Construction / 4. Transportation / 5. Publishing, motion picture, broadcasting, telecommunications and information services / 6. Business facilities management and business support service / 7. Professional, scientific and technical services / 8. Health and social work services	300 workers or fewer
9. Wholesale and retail trade / 10. Accommodation and food services / 11. Financial and insurance activities / 12. Arts, sports and recreation related services	200 workers or fewer
13. Other industries.	100 workers or fewer
Source: Enforcement Decree of the Employment Insurance Act.

In recent years, the number of workers taking employer-provided training funded under the Employment Insurance Act has increased rapidly from 2.47 million in 2015 to 4.58 million in 2018.22 In parallel, the gap in training opportunities between large firms and SMEs has been gradually decreasing. During the 2015-18 period, the number of trainees in SMEs (1-299 employees) increased by 2.3 times while that of large companies (+300) increased by 1.5 times. As a result, the share of SMEs in total training participation increased from 46% in 2015 to 57.3% in 2018. In particular, the share of small businesses (1-49) increased significantly from 18.2% to 27.3% (Annex Figure 2.A.1). This increase in training is mainly due to the increase in distance training.

Employer-provided training funded under the Employment Insurance Act takes different forms, including collective training (i.e. classroom), on-the-job training, and remote training (e.g. by correspondence, internet, or smartphone). Although collective training was used most often in 2016, the use of remote training is on the rise, reflecting recent development of IT technology and changing learning patterns of workers (Annex Figure 2.A.2) (see Chapter 4). The use of on-the-job training is extremely low, accounting for only 0.04% of the total training.

Annex Figure 2.A.1. Trends in employer-provided training under the Employment Insurance, by firm size

Annex Figure 2.A.2. Employer-provided training, by training type

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Systematic on-the-job training (S-OJT)

S-OJT was launched in 2018 to foster and facilitate customised on-the-job training for SMEs, which may have difficulty in using external training institutions due to labour shortages and lack of personnel. The HRD Korea selects about 150 companies through the competition process every year. The main supports include: a) training course development by which external experts analyse the tasks that require training and provide a firm-specific on-site training programme; b) capacity building of in-house trainers including trainees coaching techniques; c) supports for administrative procedures and professional consulting related to training by matching professional support agencies; d) subsidies of training costs and training teacher allowances. A total of 122 companies were selected and supported by this programme in 2018. The average annual expenditure was KRW 24 million (about EUR 18 774 23) per company.

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SMEs training support centres

SMEs training support centres were open in 2018 by designating professional agencies as consulting centres to provide professional services to promote SMEs’ participation in training. A total of five centres, including two in 2018 and three in 2019, have been selected as SME training support centres through open bidding process. The selected institutions are the Korea Chamber of Commerce and Industry (Busan Institute of Human Resources Development and Gwangju Institute of Human Resources Development), the Korea Productivity Center, the Gyeonggi Employers Federation and the Korea University of Technology and Education.

The main contents of support are: a) providing guidance and consultation on the government-funded programmes; b) searching and supporting of participating companies; c) providing vocational training consulting, including training course design; and d) supporting of administrative procedures related to training. In 2018, 1 559 SMEs benefited from the SMEs training support centres. The amount of support for each centre is KRW 600 million (about EUR 480 623) per year.

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Annex Table 2.A.2. Number of beneficiaries (firms) in SME support centres (2018)
Total	Training information	Training consulting	S-OJT consulting	Training Implementation
1559	1141	216	135	67
Source: Administrative data provided by the Ministry of Employment and Labor.

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Subsidy for paid training leave

The subsidy for paid training leave financially supports employers who grant their workers time off work to train. SMEs eligible for preferential support (see Box 2.3) need to provide training for at least 20 hours and give their employees at least 5 days of paid leave. The subsidy covers the wage of participants, which is subsidised at 150% of the minimum wage. Since 2011, additional support is given to SMEs to partially subsidise the wage of replacement workers. This additional subsidy is granted when three conditions are met. The employers need to: continuously provide training for at least 120 hours; give employees at least 30 days of paid leave; and hire replacement workers. The eligibility criteria for large firms are more stringent than for SMEs, and the subsidy is also less generous (Annex Table 2.A.3).

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Annex Table 2.A.3. Subsidies for paid training leave
Eligibility criteria and subsidy
	SMEs (eligible for preferential supports)		Large firms
	Subsidy	Eligibility criteria	Subsidy	Eligibility criteria
Training cost	Same as subsidy for employer-provided training	At least 20 training hours for 5 days	Same as subsidy for employer-provided training	At least 180 training hours for 60 days. Workers with min. 1 year of tenure.
Worker’s wages	Working hours × hourly minimum wage × 150%	At least 20 training hours for 5 days	Working hours × hourly minimum wage × 100%	At least 180 training hours for 60 days. Workers with min. 1 year of tenure.
Replacement worker’s wages	Working hours × hourly minimum wage × 100%	At least 120 training hours for 30 days	Not provided	Not eligible
Source: OECD 2018 Policy Questionnaire: Readiness of Adult Learning Systems to Address Changing Skills Needs.

The take-up of paid training leave is on the rise in recent years, and KRW 19.3 billion (about EUR 15.1 million) were provided for 19 676 workers at 5 285 workplaces in 2018. The number of beneficiaries has nearly doubled over the 2015-18 period, and the participation of small firms with less than 50 employees has increased even more significantly from 4 916 in 2015 to 12 419 in 2018 (Annex Figure 2.A.3). However, the take-up of the subsidy for the replacement worker’s wages was extremely low at only six participants in 2016.

Annex Figure 2.A.3. Number of beneficiaries of paid training leave, by firm size

Under the Employment Insurance Act, the annual support ceiling for SMEs is 240% of annual levy paid. However, 96.5% of SMEs have an annual ceiling of only KRW 5 million (about EUR 3 911), so they cannot conduct long-term paid leave training for their workers under such a low annual ceiling. To address this challenge, Korea launched a pilot project in August 2018 to encourage the use of long-term (over 30 days) paid leave training for SMEs. Through this project, SMEs can receive additional funding for paid leave training that does not count into the annual ceiling.

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National Human Resources Development Consortium

Under the National Human Resources Development Consortium programme (i.e. CHAMP) – launched in 2001 – large firms, employers’ associations and universities establish joint training centres, which conduct consortium projects to provide customised training for workers in SMEs. In August 2018, a total of 216 joint training centres had been set up, and participating institutions were evenly distributed between large firms, employers’ association and universities (Annex Table 2.A.4).

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Annex Table 2.A.4. Joint training centres by operation institution, 2018
Total	Large firms	Public institutions or NGOs	University	Polytech	Employers’ associations, etc.
216	45	37	35	26	73
Source: Administrative data provided by the Ministry of Employment and Labor.

On top of the subsidy for employer-provided training, the government further subsidises infrastructure costs for joint training up to KRW 2 billion (about EUR 1.6 million) per year. Training facilities and equipment costs are provided within the limit of KRW 1.5 billion (about EUR 1.2 million) per year and operating cost are provided within the limit of KRW 400 million (about EUR 0.3 million) per year (80% of projected cost respectively). Programme development costs are also covered up to a maximum of KRW 100 million (about EUR 0.1 million) per year (100% of projected cost).24

The National HRD Consortium has made a significant contribution to increasing SME participation in vocational training. As of 2018, 124 230 of SMEs and 252 159 workers had benefited from this programme. The programme accounted for 25% of the total government spending on vocational training for incumbent workers.

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Training Centres by the Ministry of SMEs and Start-ups

Since 1982, The Ministry of SMEs and Start-ups (MSS) operates programmes aimed at providing educational opportunities to SME workers to enhance their business and job-related skills.

The MSS provides 600 training courses per year through 5 training centres under the Korea SMEs and Start-ups Agency. The programme provides training for both employees and CEOs/business owners and around 50 thousand people per year participate in this programme.

The training involves a short-term courses (3/4/5 days), divided into beginner, intermediate and advanced levels to encourage participation by SMEs workers. Participation fees are paid by the employees, but 50% to 60% of the training costs are reimbursed through the Employment Insurance.

Training content is defined based on surveys of skill demands by companies. Many efforts are currently being made to reform existing curriculum into new industry and smart factory courses. Therefore, the participation of SMEs interested in building smart factories is expected to increase.

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Work-Study Dual system

The Work-Study Dual System introduced in 2013 is a Korean-style apprenticeship, which enables young people to acquire relevant job competences through the structured theoretical education at education/training institutions and practical training in workplaces.

To be eligible for the programme, firms need to have at least 50 full-time employees (at least 20 full-time employees for joint training centres), they have to hire trainees and provide NCS-based off-site and on-site training for 1 year to 4 years.

Eligible firms can receive a subsidy to cover the costs of training and related infrastructure costs, including the costs of developing education and training programmes and the cost of consulting services to develop learning tools.

The Work-Study Dual System is spreading rapidly among companies, with the number of companies selected for the programme jumping from 1 897 in 2014 to 14 110 in 2018. By 2018, a total of 11 217 participating companies had actually developed training programmes tailored to their needs with government subsidies and had actively provided practical training for 76 076 training workers (Annex Table 2.A.5).

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Annex Table 2.A.5. Trend of Work-Study Dual System
	2014	2015	2016	2017	2018
Selected firms	1 897	5 212	8 492	11 688	14 110
Training firms	752	2 816	6 207	9 228	11 217
No. of training workers	3 154	14 318	34 378	57 423	76 076
Source: Administrative data provided by the Ministry of Employment and Labor.

Although this programme is opened to companies of all sizes, it is especially contributing to skills development for SMEs. Indeed, some 95.8% of the selected firms are SMEs with less than 300 employee (Annex Table 2.A.6). Most programmes target workers who have already graduated from school (Annex Table 2.A.7).

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Annex Table 2.A.6. Selected firms, by firm size (August, 2018)
	Total	Less than 20	20-49	50-99	100-299	300-999	+1000
No. of selected firms	12 977	3 727	4 696	2 347	1 658	443	106
Percentage of total firms	100.0	28.7	36.2	18.1	12.8	3.4	0.8
Source: Administrative data provided by the Ministry of Employment and Labor.

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Annex Table 2.A.7. Selected firms, by characteristics of training workers (August, 2018)
	Total	Employees (already graduated from school)		Students
	Total	Training by Individual firm	Joint Training Centre	High School	Junior college	University
No. of selected firms	20 413	2 763	10 428	5 642	512	1 068
Percentage of total firms	100.0	13.5	51.1	27.7	2.5	5.2
Note: The total includes 7 436 firms that participated in more than one category.
Source: Administrative data provided by the Ministry of Employment and Labor.

Through these programmes, SMEs can secure the necessary skilled talent, foster employees attachment and increase corporate productivity. On their side, trainees can learn the job competencies and skills required by firms while working, and can settle into their jobs early without spending time acquiring unnecessary credentials and qualifications.

According to employers surveys, the job performance of the trainees who completed this programme – defined as a share of the job performance of skilled workers in the firm – has improved from 48.5% (before training) to 81.2% (after training) (Park et al., 2018[37]).

The employment retention rate after training is also relatively good, compared to the Employment Success Package Programmes (ESPP), a comprehensive employment support programmes for the unemployed. The percentage of participants retaining jobs for more than one year after completing the Work-Study Dual system, for example, was 62.6% in 2017, well above that of the ESPP (48.4%).

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SME Learning Organization Project

Introduced in 2006, this programme supports SMEs’ learning activities and helps them build infrastructures related to training. When an SME sets up a body for organised training bridging work and learning, it may receive subsidies to cover the expense of running the body (e.g. learning group activities, sharing model practice, outside expert consulting, building spaces for learning). The average annual support is KRW 24 million (about EUR 18 774) per company and 91 companies were selected through the public offering process in 2018. In particular, more than 70% of the selected firms are small companies with less than 100 employees (Annex Table 2.A.8). This programme enables SMEs to accumulate and share work-related knowledge and knowhow within the firm systematically.

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Annex Table 2.A.8. Learning organisations, by firm size, 2018
	Total	1-99	100-199	200+
Number of firms	91	65	19	7
Source: Administrative data provided by the Ministry of Employment and Labor.

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Awareness campaigns and training programmes for CEOs

Korea has put in place various policies to raise awareness among CEOs on the benefit of training:

September is designated as the month of vocational skill development and various events, such as the National Human Resource Development Conference and the ‘Vocational Skills Month’ are held every year.
HRD Korea has a training programme for SME CEOs and HRD managers through their headquarters and branch offices. The objective of this training is to encourage SME CEOs and managers to recognise the importance of vocational skills development and enhance their human resource development capabilities. This programme is free of charge, and training lasts 2 hours for CEOs and 4 hours for managers. In 2018, KRW 410 million (about EUR 320 718) was provided. Some 4 532 people benefited from the programme.

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Best-HRD certification awards

The Ministry of Employment and Labor encourages companies to invest in human resource development by awarding Best-HRD Certification to companies that excel in human resource development and management. The selection criteria are geared towards competency-based HRM (hiring, promotion, wages, etc.) and the highest weight is given to the CEO’s willingness to invest in human resource development. Companies that have received the Best-HRD certification are given preferential treatment in selecting various SME support projects (such as the SME Learning Organization Project). Since 2006, a total of 1 533 companies have applied for this programme and 676 companies have been certified, including 552 SMEs. Other similar programmes exist in Korea. For example, the Ministry of SMEs and Start-ups operates the “Human resources cultivating SMEs designation programme” to promote human resources investments in SMEs, and provide financial and administrative incentives to them.

Notes

← 1. The Korean Workplace Panel Survey (WPS) and the European Continuing Vocational Training Survey (CVTS) are not fully comparable for several reasons: 1) Unlike the WPS, the CVTS excludes firms with less than 10 employees; 2) The CVTS includes legally mandated training – while in WPS most questions exclude legally mandated training; 3) CVTS includes training provided to persons employed who either have a working contract or who benefit directly from their work for the enterprise such as unpaid family workers and casual workers – while in the WPS, most questions refer to regular workers (excluding executives).

← 2. This includes both mandatory and other types of training.

← 3. i.e. the total training hours of the trained employees divided by the total number of employee in the year preceding the survey.

← 4. This refers to the gap in participation between micro and large firms.

← 5. Except for Austria, Greece, Japan, Lithuania, Spain and Turkey – where the gap is null or negative.

← 6. Informal learning can also help address this challenge.

← 7. Source: OECD 2018 Policy Questionnaire: Readiness of Adult Learning Systems to Address Changing Skills Needs.

← 8. The replacement workers are chosen among unemployed people with a minimum of 26 weeks of unemployment. The wage follows the collective agreement in the company and the employment period should go from a minimum of 10 hours to a maximum of 26 weeks. At the beginning of 2014, the number of unemployed in job rotation was around 7 000.

← 9. The financial resources spent on the programme was only 3 645 million KRW (approximately EUR 2.8 million) in 2018.

← 10. For example, industrial policies can encourage SMEs to adopt cutting-edge technologies that could increase workers’ productivity, performance, and wages; adjustments in the Employment Protection Legislation (EPL) can decrease labour market duality between regular and non-regular workers; wage setting mechanisms can be designed to reward performance rather than seniority.

← 11. The average includes firms with 100 or more employees.

← 12. E.g. training that meets certain quality criteria; or that refers to National Competency Standards.

← 13. For example, elaborations of the HCCP Survey (2017) show that 66.8% medium-sized firms (100-199 employees) have an annual HRD (training) plan in place, a rate that increases progressively with firm size up to 96.7% for very large firms (with 2 000 employees or more). Similarly, 51.5% of medium-sized firms ‘slightly’ or ‘fully’ agree that HRD experts are insufficient, against 23.3% in very large firms.

← 14. 11 989 out of 224 302.

← 15. Top management leadership in human resources is measured though various factors: (a) ability to treat excellent and talented employees considerately and specially, (b) having a clear vision about HRD, and (c) emphasising the importance of competent people.

← 16. Elaborations of the Workplace Panel Survey (2015) show that in Korea, 3.2% of SMEs (with less than 250 employees) report that the most important reason for not implementing or supporting the training is lack of understanding from management.

← 17. Partly related to the poor offer and quality of entrepreneurship education available, only 24.1% of women and 38.7% of men in Korea (aged 18-64) say that they have the knowledge and skills to start a business – one of the lowest values in the OECD (OECD/EU, 2017[38]).

← 18. Considered the high share of SMEs in the Korean economy (see Chapter 1), these results could point to the fact that many adults (including many older people who go on “honorary retirement” relatively early in their careers) start a new business out of necessity even if they do not feel that they have the skills to do so.

← 19. Before the implementation of the policy, the minimum wage in Korea was already relatively high at 53% of median wages in 2017, above the OECD average of 51%.

← 20. Source: OECD Labour Database.

← 21. This subsidy is the primary channel for incumbent workers to develop and improve their job skills in Korea. On top of financing vocational training for incumbent workers, the Employment Insurance also finances employment security programme to retain or create jobs, as well as unemployment benefits.

← 22. Employer-provide training includes five programmes that provide training subsidies to employers: (1) subsidy for employer-provided training, (2) National HRD consortium, (3) region-industry tailored training, (4) Work and Study dual system (5) Stepping stone to employment programme. The budgets and the number of beneficiaries of these programmes are managed and open in one category: employer-provided training.

← 23. All currency conversions are based on the exchange of 31 December 2018: EUR 1 = KRW 1 278 38.

← 24. While there is no limit to the support period, the maximum amount varies depending on the operation period. Also, the duty fulfilment period of consortium businesses is 6 years after receiving support for training facilities and equipment. If the business is suspended or cancelled before this period ends, they must pay back the subsidies received.

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