Should the Government Subsidize General Training Provision - Essay Example

Should Government Subsidize General Training Provision? Introduction Education is considered to be an economic good. It can not be acquired easily by everyone and so needs to be allocated. It has both consumer and capital benefits. It allows its seeker to gain more knowledge and competency in that filed, while on the other hand it results in the greater production of goods and services. Education has a significant influence on the society. The person would feel greater job satisfaction; his efficiency and productivity would also increase along with his lifestyle. This positive change is heavily banked upon by governments in order to improve the output of the employees. With time, government intervention in economic policy has increased. This has led to the reconsideration of the existing interventions and policy structures, and the possibility of new ones. Since training of employees is seen as the prime factor that contributes to an increased output, governments are seeing this as an opportunity to improve the output of their industries. As a result, there is a growing debate about how governments should proceed with provision of general training to employees. One of the solutions is the provision of subsidies. This paper explores feasibility of such a measure in light of the human capital theory and provides arguments if it is justified. Discussion The costs and the skills gained from learning and being competent at a job have become an essential variable of productivity. According to renowned economists like Jacob Mincer and Gray S. Becker, if other factors are kept constant, personal incomes show variability depending upon the amount of investment in human capital (Marshall, 1998). Firms are investing more in human capital in order to increase the education and training of the employees. People have also started spending more time in upgrading their education and using it to increase their efficiency. The enrolment ratios of primary to secondary have risen such that all OECD boast of almost the same ratio. Tertiary enrolment ratios have also increased over the past couple of decades. Educationists and economists are sharing common goals to educate and empower the people in order to expand economic activity. Since the 1970s, there is more active participation in adult courses throughout the world. In Canada alone, the fraction of people who opted for adult training courses incremented annually from 4% in 1960 to 28% in the start of the 1990s.Many educationists adhere to the notion that formal schooling is nothing more than the tip of the iceberg and lifelong learning entails many other forms of learning. It includes organized school learning and taking up educational courses to advance their knowledge but also both deliberate and unintentional means of informal learning that people opt for on their own will. They can opt for this learning either on individual basis or in a group (Livingstone, 1997). Entities such as buildings, machines, stocks and assembly lines are regarded as capital. Human capital refers to the education, training, medical health care of the employees. It is also called human capital because the values and personal needs that it encompasses can not be decanted from the individual, as opposed to physical or monetary assets. The human capital theory entails activities that can increase the individual productivity of the workers (Almeida & Carneiro, 2008). These activities can be educational endeavors, or general training or firm-specific training (Bellinger, 2007). Workers invest in their learning and education themselves. Therefore their learning is dependent on many factors. From an economic point of view, the workers will consider the direct costs of the endeavors, as well as the costs in terms of the income or wage that they have lost. The decision for upgrading their skills would depend upon the incentives that such credentials offer the workers (Kurosaki & Khan, 2006). If there is a prospect of more income and a better standard of living, as well as more respect and job satisfaction, workers might consider the endeavor worthwhile and would regard the investment economically feasible. However, all investments do not warrant efficiency and better productivity. In an event of an educational endeavor that the worker feels is not economically feasible, it is likely that he or she does not undertake any training or educational courses. This will have a direct consequence on the economy of the country. Better credentials and training is believed to translate into a more sound economy. Moreover, firms also pay more salaries to employees who are more educated and skilled. Not having training could produce a less skilled workforce. For many professions, people might be discouraged from taking training or educational courses due to fewer returns in comparison to the costs of the investment; this occurs when the supply for skilled workers rises above the demand, for example in teaching. In such cases, the role of government subsidies becomes increasingly important. There is a difference between government financing of programs and government provision of training. Government financing may seem justifiable in many cases. Concurrently, the provision of training of the government is justifiable in certain cases only. The government can step in for training the employees if the training provided by private enterprises is not adequate or if there are not many enterprises providing training. Government training is also justifiable if it is the only means of achieving maximum efficiency and productivity. For the purpose of this essay, focus will be placed on the funding general training by the public sector. The main impact of a subsidy is that it increases the human capital (Gallipoli, et al., 2006). General training differs from firm-specific training in the context that the rise in marginal productivity of the employees broad, and is of benefit to all firms. Firm-specific training promotes the productivity of the workers in one particular firm only. Governments are justified to provide funds for training people in two main cases: market failure and equity (Anon., n.d.). Market failure can render the employees incapable of investing in their education (Hartog & Brink, 2007). Therefore government subsidies can prove to be effective in advancing the general training of the employees. According to the Act on Efficiency and equity in European education and training systems, equity is defined as the “is viewed as the extent to which individuals can take advantage of education and training in terms of opportunities, access, treatment and outcomes. Equitable systems ensure that the outcomes of education and training are independent of socio-economic background and other factors that lead to educational disadvantage and that treatment reflects individuals specific learning needs” (Europa, 2006). The EU legislation encourages the acquirement of training and education for the purpose of equity and efficiency. In countries where there is no equity in the provision of training and education, the social and economic differences become even more accentuated. Not everyone has access to higher education, and so can not benefit from the same opportunities. Class differentials can also impact the level of education and training that the employees receive. However, if the government steps in to provide education and general training to the employees by giving them subsidies, there are long-term benefits. The EU observes these benefits to extend from the reduction of economic and social costs to the increased value of other policy measures. These measures can lead to sustainable development and social cohesion. Although subsidies for general training for sustaining development has costs, the costs of not having general training such as inaction and a high drop-out rate are much higher. This makes the feasibility of the provision of subsidies for general training feasible. Furthermore, subsidies by the government can also equip the government better to deal with socio-economic challenges that the country face. Among the advantages that result from the governments providing more equitable training include globalization and competitiveness of newly industrialized countries, demographic patterns in the EU like the aging population of the European countries and migrations, swift changes in the nature of the labor market and keeping at par with the advances in technology that are occurring (Europa, 2006). General training is considered to be a subtype of on-the-job training. The more on-the-job training workers have the more confident and competent they would feel. If the governments invest in on-the-job training, to improve upon the general tasks that the worker performs, it helps to make the worker more flexible and yet highly skilled at the same time. The skills of the worker will not be specific to just a single firm, but be resourceful to any firm that the worker switches to. On-the-job training has certain externalities attached to it. The education that a person receives helps him or her to become better individuals. Similarly, on-the-job training allows a worker to become more productive and efficient (Carlstorm & Rollow, 1998). The advantages that the firm gains from general training are limited to it, but the government is impacted by the progress of the industries of the country, as well as a more productive and hard working labor force. Moreover, in countries which have large firms that have a high turnover, and keep on changing their work force, there is little investment in training by the firms. As a result, the governments take up the initiative of training the employees. The externalities that are associated with general training justify the grant of subsidies (Pack & Saggi, 2006). Conclusion Thus, in conclusion, training employees translates into higher productivity. This can lead to a more stable economy. However, it is difficult to ascertain the potential benefits in the returns of training in terms of monetary worth. It is also difficult to measure if adequate training is being given or not. Despite these limitations, the governments can make an analysis of the economy of the country, and the investments that are being done by firms. Events like market failure, inequitable training resources and high-turnover firms make the provision of subsidies by the government a justifiable endeavor. Reference List Almeida, R. & Carneiro, P., 2008. The return to firm investments in human capital. Labour Economics, 16 (1), pp. 97-106. Anon., n.d. Issues and Trends in Skills Development. [Online] Available at: http://www.adb.org/Documents/Books/Tech_Educ_Voc_Training/issues-and-trends.pdf [Accessed 24 June 2010]. Bellinger, W. K., 2007. The economic analysis of public policy. New York (Ny): Routledge. Europa, 2006. Efficiency and equity in European education and training systems [Online] (Updated 14 December 2006) Available at: http://europa.eu/legislation_summaries/education_training_youth/general_framework/c11095_en.htm [Accessed 24 June 2010]. Carlstorm, C. T. & Rollow, C. D., 1998. Government-Subsidized Training: A Plan for Propsperity. [Online] Available at: http://www.clevelandfed.org/research/commentary/1998/0515.pdf [Accessed 24 June 2010]. Gallipoli, G., Meghir, C. & Violante, G. L., 2006. Education Decisions & Policy Interventions: A General Equilibrium Evaluation. [Online] Available at: http://www.bancaditalia.it/studiricerche/convegni/atti/fifth/papers/gallipoli.pdf Hartog, J. & Brink, H. N., 2007. Human capital: advances in theory and evidence. Cambridge University Press. Kurosaki, & Khan, 2006. Human Capital, Productivity, and Stratification in Rural Pakistan. Review of Development Economics,10 (1), pp. 116-134. Livingstone, D. W., 1997. The Limits Of Human Capital Theory: Expanding Knowledge, Informal Learning And Underemployment. Policy Options, pp. 9-13. Available at: http://www.irpp.org/po/archive/jul97/livingst.pdf [Accessed 24 June 2010]. Marshall, G., 1998. Human-capital Theory. [Online] Available at: http://www.encyclopedia.com/doc/1O88-Humancapitaltheory.html [Accessed 24 June 2010]. Pack, H. & Saggi, K., 2006. Is There a Case for Industrial Policy? A Critical Survey. The World Bank Research Observer 2006, 21(2), pp. 267-297. Read More