Executive Summary
Australia requires a strong system of adult learning to position firms and workers to succeed as skill demand changes. Previous OECD analysis estimates that up to 36% of Australian adults work in jobs whose tasks could change significantly as a result of technological progress. Many adult workers will need to upskill or retrain to remain employable.
Australia has scope to improve the coverage and inclusiveness of its adult learning system. In the 2012 Survey of Adult Skills, Australia outperformed most OECD countries in coverage (the share of workers who participate in adult learning). However, national data sources (the Household Income and Labour Dynamics in Australia survey and the Work-Related Training and Adult Learning survey) suggest that overall coverage has declined in Australia since 2012. In 2017, 31% of adults had participated in formal or non-formal job-related training in the previous 12 months, down from 35% in 2008. Employer provision of both accredited and unaccredited training also declined. Furthermore, some vulnerable groups are much less likely to participate in adult learning, including low-educated workers, those working in small and medium-sized enterprises, as well as own-account and casual workers. Despite a greater need for training, only 26% of workers in occupations with a high risk of automation participated in job-related training, compared with 40% of workers in occupations with a low risk of automation. Workers in high-risk occupations who do not take advantage of opportunities to retrain risk poorer employment prospects and lower wages in the future.
Financial incentives, if carefully designed, can raise participation and improve inclusiveness in adult learning by addressing cost and time barriers. This report reviews Australia’s financial incentives to promote adult learning, and suggests reforms to improve their effectiveness.
Existing financial incentives, notably subsidies, income-contingent loans and a tax deduction for self-education expenses, have strengths. They strike the right balance between recognising the private returns to education (by making individuals and employers contribute to the costs of training) and promoting inclusiveness (by subsidising training for individuals facing financial constraints). In addition, casual and own-account workers are eligible for most financial incentives, which is rare by international standards. On the other hand, current financial incentives fail to address the greatest barrier to adult participation in training: lack of time. Incentives are too tightly linked to full formal qualifications, which are time-consuming, and Australians lack universal access to education leave. Employers cite the cost of releasing employees for training as a barrier to greater provision. Another key weakness is that existing financial incentives do not support retraining in new occupations. For instance, the tax deduction for self-education expenses may only be used for training related to one’s current employment. Workers in occupations with a high risk of automation are thus impeded from retraining in lower-risk occupations.
There is growing interest in international learning accounts (ILAs) among stakeholder groups in Australia. The portability feature of ILAs seems to promise broader and more inclusive coverage and the potential to support transitions of high-risk workers to new occupations. However, while ILAs have great potential, there is little international evidence to suggest that ILAs have so far incited wide participation nor that they have successfully bridged the training gap between high-skilled and low-skilled workers in the countries where they have been implemented. Furthermore, they do not in themselves address the barrier of time constraints which means that individuals would still pay the (high) opportunity cost of training. Quality control deserves careful consideration under an ILA scheme, and particularly given Australia’s recent experiences with fraud in the VET-FEE HELP programme. Safeguards would be needed to minimise fraudulent use of the ILA funds: a gradual phase-in period to catch and fix pitfalls related to fraud, a more rigorous approval and quality assurance process for providers, and easy access to information, advice and guidance. A final consideration is that a new ILA could be quite costly in terms of set-up and administrative costs, as well as potentially high deadweight losses, unless efforts were made to modulate the amount of support provided to priority groups.
After assessing various policy options, this report recommends that Australia adjust the design of its financial incentives to address identified weaknesses. Australia should allow use of existing subsidies and loans for less time-consuming types of training (e.g. modular, distance, online, etc.), and broaden the eligibility of the self-education tax deduction to training unrelated to one’s current employment. Adding paid education and training leave to the existing set of incentives would address time barriers. Employers could be compensated for lost wages during paid training, or provided with replacement workers through a job rotation scheme. Better targeting of existing incentives would mitigate deadweight loss. These and other recommendations are tabled below.