BIBB / Controversy over Draft Law on Securing Vocational Training

Controversy over Draft Law on Securing Vocational Training

A discussion of the first draft from March 30, 2004

Published: January 12, 1900
URN: urn:nbn:de:0035-0077-7

A first draft outlining how controversial legislation on a training levy (entitled Act on Securing Vocational Training) could be formulated and implemented was submitted to Germany's coalition parliamentary groups in March.⁰¹ Based on this bill, companies that provide in-house vocational training but have a less than seven-percent "training rate" - in other words, whose number of trainees is less than seven percent of the number of their employees - will be required to pay a levy when the overall number of training places available in the country is not sufficient to meet demand. The available number of training places is considered to be insufficient when the number of vacant training places on September 30 does not exceed the number of unplaced applicants by at least 15 percent.⁰² In such cases, the bill envisages two forms of assistance:

The creation of additional training places. This route helps ensure that applicants who have not yet been placed can still receive a training place. In this case, assistance is primarily supposed to foster the creation of additional in-company training places. External training places⁰³ may be resorted to only if need be.
Assistance in the form of compensation to benefit companies with a training rate of more than seven percent. In this case, such companies will receive financial compensation upon application for those training places they provide above and beyond the targeted level.

Those companies that do not provide in-house vocational training would have to pay a levy each year for every employee who is liable to social insurance. For example, a company with 20 employees would have to pay € 237 per employee (calculated on the basis of a need for some 30,000 additional training places) or a total of € 4,740. The training place levy does not apply to firms with ten or fewer employees and those sectors with collectively negotiated rules on securing a sufficient number of training places which meet the bill's objective. The bill also contains a hardship clause for firms with limited economic capacity. This clause however is to be applied narrowly. The Federal Office of Administration will collect the levy and administer and disburse these monies through the Fund for Securing Vocational Training. The advantages and disadvantages of the bill from March 30, 2004, are discussed below from the specialist's perspective.

Positive aspects of the bill in its present form:

The bill strengthens the regulatory cornerstone underpinning Germany's "dual" vocational training system. The draft emphasizes the industrial and administrative sectors' responsibility to train young people - and the fact that providing this training is in the interest of both industry and administrative bodies. Rather than using government subsidies, the bill relies on companies to finance the training they provide - an arrangement that is an inherent part of Germany's in-house and joint vocational training systems.
The bill offers incentives to motivate labour and management to get involved. The proposed legislation gives priority to collectively negotiated agreements containing solutions for improving the training situation, insofar as they are in line with the bill's aims. This approach will strengthen industry's (employers' and unions') sense of responsibility for providing in-house vocational training and make it possible to make special allowances for sectoral conditions.
When the criterion is met and the levy goes into effect, the bill bolsters companies that are intensively involved in providing vocational training. In such cases, the law would particularly benefit companies whose training rate exceeds seven percent. Such companies would not only be exempt from the training levy, they could even be "credited" for the in-house vocational training they provide above and beyond the seven-percent requirement and receive an assistance payment for each surplus training place they provide. This arrangement will apply however only when the new law comes into application - in other words, only during those times when the number of vacant training places does not substantially exceed the number of young people still looking for a training place at the end of a "placement year".
The bill avoids a wait-and-see stance.⁰⁴ Once the criterion for the levy has been met and the law is applied, those companies that provide training for a proportionately large number of trainees will be rewarded in any event, regardless of when they took on their trainees.
Companies and government agencies will be treated the same under the new law. The civil service sector will also have to pay when it does not meet the seven-percent training rate required by the new law.
Allowances will also be made for part-time employees. Part-time employment will be taken into account when calculating a company's training rate. As a result, companies with a large share of part-time employees will not be placed at a disadvantage.
In addition to the Federal Employment Agency's placement figures, the bill also includes other criteria for determining its application. As a result, the government can forego imposing the levy - even when statistics indicate that the requirements have been met for applying it - whenever the burden of the administrative costs appears to outweigh any benefits the levy would have. The levy can also be waived when the government has established that the vocational training market is developing positively and that conditions can be expected to improve quickly.

On the negative side, the following is to be noted:

The criterion for imposing the levy does not sufficiently correlate with the actual trend on the training place market. The bill is to be applied when the number of available training places at the end of the year does not exceed the number of unplaced applicants by at least 15 percent. However, both of these variables - the number of training places still available and the number of applicants who have not yet been placed - represent only very small parts of the overall number of training places on offer and of overall demand; they are quite easily influenced by factors outside of what is actually happening on the training place market itself. For example, the number of applicants who have not yet been placed is directly influenced by decisions taken by the Federal Employment Agency regarding how many openings it will set up in vocational preparation schemes to provide an alternative solution for young people who have been unsuccessful in their efforts to find a training place. Unsuccessful applicants who end up in one of these schemes are no longer classified as "not yet placed". Further, the number of vacant training places can easily be inflated: What is to stop a company that cannot fill one training place from reporting that it has two or three training places that it cannot fill? Companies that do this help reduce the likelihood that the criterion for applying the law is met and, concomitantly, prevent having to pay a levy.
It is therefore conceivable that the ratio of unfilled training places to unplaced applicants could improve even though the overall number of training places on offer actually declines and the "training rate" in fact falls. This however would mean that:
The bill's provisions are not in keeping with the grounds for its creation: The justification cited for the bill is that, when necessary, industry must be provided help toward self-help in order to ensure that it has enough young skilled personnel at its disposal to meet its needs. This would require a substantially higher training rate. But as we just saw, the statistical criterion that determines whether the levy goes into effect is not geared to this. It allows a multitude of situations in which the levy is not "activated" even though the targeted training rate was not met. For example, had this legislation gone into force back in 2002, only 8,885 additional training places would have been necessary to prevent the levy from being imposed. These additional 8,885 training places would have raised the country-wide training rate by just 0.03 percentage points. As a result, the training rate would have been 6.38 percent rather than 6.35 percent.5 Thus, there is a contradiction here: The bill is being justified on economic grounds - namely, industry's need for skilled labour - whereas the criterion for imposing the levy is primarily socio-political in nature: The actual point of the law is solely to expand the chances of applicants who have not yet been placed. Consequently, the following facts are also not surprising:
The criterion that decides whether the levy takes effect is far from meeting the guideline which the Federal Constitutional Court did not object to. According to this yardstick, the supply-demand ratio must be at least 112.5. In other words, overall supply must exceed demand by a minimum of 12.5 percent.
Applying this to 2003, at least 666,705 training places would have been needed to meet this requirement. This is some 94,200 training places more than the actual number of training places offered that year (572,452).
By contrast, using the criterion stipulated in the current bill, only 597,879 training places would have been needed (approximately 25,400 training places more than were actually on offer) to prevent the levy from going into effect. Consequently, a supply-demand ratio of less than 101.0 (!) would have sufficed to avoid the levy.
The bill's authors were however in something of a dilemma. If they used actual supply and actual demand as the basis for the levy criterion, the decision on whether the law would be applied would have to wait until December each year, the month when data on how the supply of training places is developing first become available.
Furthermore, it is not possible to move this date up any further. And had the authors geared the bill to the criterion proposed by the Federal Constitutional Court, the training levy would have become a permanent institution under the given conditions.
The bill does not take regional differences into account. The levy criterion is geared solely to nationwide conditions as of September 30. When the target is not met at national level, companies in regions where conditions are good would still have to pay a levy. Were the application criterion to be applied to each region individually, the state of Baden-Württemberg would not have been subject to the levy to date because the share of available training places there has always been substantially larger than required by the levy criterion (please see table with statistics from 2003).
The authors however did this intentionally because the aim of the bill is to level out regional differences in living conditions throughout the country.
States that have a particularly difficult training place situation and conduct their own programmes to place unsuccessful applicants in external training measures might be tempted to reduce these efforts and, in the process, shift these costs back to industry. Were Germany's eastern states, for instance, to reduce or abandon the programmes they conduct to place applicants who have yet to find a training place, there would be considerably more unplaced applicants and it is highly likely that the criterion for imposing the levy would be met.

To enlarge, please click here
Unplaced applicants in relation to the number of unfilled training places

In 2003, for example, some 14,000 young people in Germany's eastern states found a training place through the Federal-State Programme for Eastern Germany or through supplementary measures conducted by the individual states in the eastern section of the country. To be added to this are another several thousand young people who were placed in straightforward school-based measures which the eastern states also financed.Consequently, Germany's eastern states will have a large amount of control over whether the Act on Securing Vocational Training is applied or not.In the event however that it were to be applied because the eastern states had cut back on their programmes, industry would have to assume the - full - costs involved in ensuring that unplaced applicants do find a training place. This could ultimately lead to a situation in which a craft business in Bavaria that cannot find trainees for its training places in the butcher's or baker's trade would be required to help finance the shortfall of training places in the state of Mecklenburg-Western Pomerania.This too is intentional: The bill wants to effect the government's withdrawal from this area. Germany's Federal Constitutional Court determined in 1980 that employers have a "particular responsibility" to ensure "a sufficient number of in-company training places". Were this bill actually to succeed in reducing the number of government-funded training places and "shift" them in stages to in-house training places, this development would have to be considered a positive aspect of this legislation.
The bill stipulates that companies that offer training places but cannot find trainees for them will also have to pay the levy. This arrangement was made to prevent companies from shirking their duties by offering "phantom" training places and then claiming that they simply couldn't find any suitable applicants. Nonetheless, this passage will lead to considerable hardship for those companies that do look for trainees without success. In the long run, such companies will be punished for offering training places for occupations that are apparently not sufficiently attractive to young people.
The new law could also cause special problems for firms that do not recruit any or only a small part of their personnel from Germany's reservoir of skilled salaried employees, skilled workers and journeymen (such as companies with a large share of university graduates). Such firms would still have to pay the levy.
The bill could lead to a shift from training being provided primarily by large companies, as has been the general practice to date, to training being provided by small companies. The proposed legislation stipulates that in order to avoid having to pay the levy, a company must provide in-house vocational training and that the number of trainees must be at least seven percent of the total number of the company's employees who are liable to social insurance. The only thing that counts here is the relative number of trainees - the cost of the training does not play a role in these considerations.
In Germany, large companies generally have lower training rates than small firms do.⁰⁷ However, the training large companies provide is considerably more expensive. Some small companies are able to generate a net income through their trainees even before their training is completed. This makes it easy for such companies to achieve a seven percent training rate. For large companies, this means that they will most often be the ones who will have to pay the levy even though they already have especially high training costs to bear. Large firms could however avoid this additional financial burden by reducing the number of training places they offer (particularly the "surplus" training places that the individual company offers beyond its own needs for skilled labour) and pay the levy instead. The reason: The levy they would have to pay for training places they do not offer could be substantially cheaper than their actual net training costs.⁰⁸
This would lead to enormous shifts between training offered by large companies and training offered by small firms. At the same time, the amount of training on offer that is of particularly high quality - from the vantage point of both young people and many employers - would be cut back. By contrast, small companies would probably find it worth their while to increase the number of training places they offer. This tendency would increase in line with the profit they are able to generate from their trainees during their training.
In these cases, this would ultimately mean that the levy to be paid by large companies would finance the training offered in smaller firms which in turn might even be tempted to replace a portion of their employees (for instance, "mini-job" employees who work for a flat wage of € 400 a month) with trainees. Large companies on the other hand might recruit more of their skilled labour from full-time vocational schools, particularly when the training these schools offer leads - as envisaged by Germany's amended Vocational Training Act - to a recognized occupation that involves a final examination which is conducted by the particular chamber.·
Companies that offer a large proportion of training places and rely on receiving compensation for the additional training places they offer will have no planning security under the new legislation. The reason: A decision on whether the levy will be imposed will have to be made on an annual basis. When the number of available training places is considerably larger than the number of unplaced applicants, there will be no compensation for these companies. Furthermore, even when a company does receive money, it will have to wait several months until it is disbursed. The German government is not to pay in advance if at all possible and will disburse money only after it has collected the levy. This however also means that companies which provide training places solely on the basis of operational considerations would receive additional financial assistance for training that they would have provided anyway.
The law will favour privatized, formerly government-owned enterprises with large shares of civil servants which they absorbed upon privatization. The reason: The denominator used to calculate the required training rate is determined solely on the basis of the number of employees who are liable to social insurance. As a result, civil servants are not taken into account in this calculation. This is method is alright within the government because there the calculation would juxtapose the number of civil servants with the training provided for civil service trainees. However, these privatized enterprises do not offer training especially for civil servants.
Firms that offer training within a network will be counted only once. Under the bill, only the company that signed the training contract with the particular trainee can count the training being provided for that individual. Based on this, the training provided by other companies in the particular network could not be counted. This creates the risk that companies would increasingly withdraw from the (tried and tested) form of providing training within vocational training networks.
Structural shifts in the range of occupations being offered through in-house vocational training can be expected. A shift in training capacity - from large firms to small companies - will inevitably change the range of occupations on offer as well. The reason: Large companies will presumably withdraw not only from providing training above and beyond their actual staffing needs but will also give preference to withdrawing from those occupations where training is particularly expensive.
For people who complete a course of vocational training, there is the risk that they will have fewer job prospects. The shifts in the occupations being offered are likely to make it more difficult to meet industry's need for trained skilled workers. It is to be feared that unemployment will rise, people will be forced to change occupations and that many will have to accept jobs after completion of their training that do not reflect their training.
The share of fixed costs out of the total administrative costs for the Fund for Securing Vocational Training is large. A certain portion of the resources needed to collect the levy must be maintained even in those years when the levy is not required. An administrative apparatus would have to be kept on hand "just in case" without knowing whether it will actually have to go into action. This could also lead to a situation in which it is decided to impose the levy for political reasons so that the administrative apparatus can operate at full capacity.
It is doubtful whether the bill will increase the in-company training rate at all. The amount of in-house vocational training will increase only when the possible reduction in the amount of training being offered (discontinuing the practice of providing training for more trainees that the individual company needs to cover its personnel needs; "buying one's way out" of the requirement to provide training) resulting from the "threat" of a levy (passage of the bill) turns out to be less than the increase in the amount of training being offered as a result of incentives companies are being offered.
The bill's negative effects could manifest themselves directly following its passage, whereas any positive incentives are to be expected primarily when the levy is imposed. Given the uncertainty of whether financial assistance will be provided under this law for in-house vocational training, positive effects might not materialize.
It can't be ruled out that the law could have a negative effect on employment. Using the number of employees liable to social insurance as the basis for calculating the levy could increase the pressure companies feel to cut personnel pre-emptively - before the levy criterion is met. Some municipalities⁰⁹ have already announced that they would eliminate a corresponding number of employees in the event that a levy has to be paid. Other employers might follow this example. The bill could therefore have a negative impact on employment despite the inclusion of a hardship clause.

The bill is currently the subject of quite heated debate. It should not however be forgotten that the bill submitted on March 30, 2004, is a first draft. The present discussion is certain to lead to the bill being modified and supplemented. In addition, it has been observed that some points of criticism were the result of a misunderstanding.

Authors: Task Group of Department 2, Sociological and Economic Principles of Vocational Education and Training¹⁰

footnotes:

⁰¹Cf. bill dated March 30, 2004.
⁰² As of September 30, 2003, the number of unfilled vocational training places totalled 14,840 and the number of unplaced applicants 35,015. To meet the criterion stipulated by the bill the number of vacant vocational training places would have had to have been at least 40,267.
⁰³ In such a case, the training contract partner would be an external facility whose primary business is providing training. Care must be taken not to confuse external training with joint training. The latter is part of in-house training and is limited to those segments of training which the company involved cannot or is not to provide itself.
⁰⁴ This is understood as a wait-and-see attitude on the part of the firms providing training; this attitude is nurtured by the hope of perhaps receiving subsidy payments.
⁰⁵ Assuming that all additional training places were filled as foreseen by the end of the year with applicants who have not yet been placed.
⁰⁶ The computed number of training places on offer per 100 applicants. The number of training places being offered consists of the number of new training contracts plus the number of training places that are still vacant as of September 30. Demand (i.e., the number of applicants) comprises the number of new training contracts plus the number of applicants who were not yet placed as the September 30.
⁰⁷ In 2000, for example, the training rate for companies that provided in-house training and had more than 1,000 employees was 4.8 percent; the rate for medium-sized companies with 200 to 499 employees was 6.4 percent; the rate for companies with between 20 and 49 employees was 11.4 percent.
⁰⁸ In 2002, the average net cost (based on direct costing) was € 1,423 for firms with 10 to 49 employees, € 3,403 for companies with 50 to 488 employees and € 8,176 for companies with 500 or more employees. Cf. U. Beicht, G. Walden: "Kosten der Ausbildung." In: U. Beicht, G. Walden, H. Herget: Kosten und Nutzen der betrieblichen Berufsausbildung in Deutschland. Bielefeld: Bertelsmann, 2004, pp. 21-168.
⁰⁹ Report Mainz broadcast on March 29, 2004: Ausbildungsplatz-Abgabe: Wie der Steuerzahler gemolken wird.
¹⁰ Dr. Günter Walden, department head, in conjunction with Sections 2.1 and 2.3 (Dr. Friederike Behringer, Ursula Beicht, Klaus Berger, Simone Flemming, Dr. Elisabeth M. Krekel, Klaus Troltsch, Dr. Joachim Gerd Ulrich)

Erscheinungsdatum und Hinweis Deutsche Nationalbibliothek

Publication on the Internet: January 12, 1900

URN: urn:nbn:de:0035-0077-7

Die Deutsche Bibliothek has archived the electronic publication "Contoversy over Draft Law on Securing Vocational Training", which is now permanently available on the archive server of Die Deutsche Bibliothek.

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