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Employers Must Start Investing in Skills Training or Risk Having Public Policy Nudge Them Along

Daniel Munro
Principal Research Associate,
Industry and Business Strategy

Originally published in the Financial Post on May 12, 2014.

For too long many Canadian employers have neglected the essential role and responsibility they have in training the skilled workforce necessary to enhance business performance and economic competitiveness. Canada boasts world-leading rates of college and university graduates, but for too many employees, learning and skills development end at the office or factory door. Not surprisingly, Canada continues to experience chronically weak performance in innovation and productivity. We need employers to step up training investments to help produce the smart, skilled, and well-trained people Canada needs to enhance innovation, productivity, and competitiveness.

The evidence for Canada’s weak track record on employer-sponsored training is clear.

In 2009, only 31 per cent of adult Canadians aged 25-64 participated in some form of non-formal job-related education. This is slightly higher than the OECD average of 28 per cent, but well behind leading European countries such as Sweden (61 per cent), Norway (47 per cent), Finland (44 per cent), as well as the United States (33 per cent).[1] Moreover, Canadians received just 49 hours of instruction—lower than the OECD average of 59 hours and less than half the hours (105) received by adults in Denmark, the leading performer.

What explains employers’ weak investment and what can be done to improve the skills training needed to enhance innovation and productivity?

Sharing Responsibility with the Post-Secondary Education System

One reason has to do with employers’ belief that they can shift the cost and responsibility for training onto the publically-funded post-secondary education system. Employers have been successful in encouraging PSE institutions to incorporate work-related skills into curricula and to demonstrate that programs produce graduates with skills that meet labour force needs.

In fact, there is a troubling correlation between rising calls for PSE institutions to produce work-ready graduates and declining employer spending on training and development. Surveys of Canadian organizations for the Conference Board’s Learning and Development Outlook show that employer spending on training and development has declined by about 40 per cent over the past two decades. When employers believe they can externalize skills development to formal education systems, they feel less urgency to make training investments with their own limited resources.

Employers need to think differently about the role of the PSE system. PSE graduates have great knowledge and expertise to offer, as well as a capacity for future learning. But given that employers have unique skills needs, adopt new technologies and innovate, their success will depend on skills development well beyond their employees’ graduation.

Overcoming Concerns About Cost and Poaching

Second, many firms are worried about the cost of training and the possibility that, after making significant investments to improve employees’ skills, other employers will lure those higher skilled workers away. A recent study of ICT firms’ strategies to address skills shortages, for example, showed that although 62 per cent of surveyed firms trained current employees to meet gaps, 47 per cent—including some firms who trained—hired talent away from competitors.[2]

A labour market in which some employers choose to poach rather than invest in the skills of their own staff—or even where there is simply a belief that poaching occurs— creates disincentives to invest in training. Faced with the possibility that they may not reap the full benefits of their investment, many employers are discouraged from investing at all.

Employers need to think differently about the cost of skills training and the risk of poaching. Research shows that higher spending on employee training and efforts to create strong corporate learning cultures actually reduce turnover, increase employee engagement, and improve productivity and customer satisfaction. Employees recognize and appreciate the investment and reward employers with greater loyalty and productivity which, in turn, makes customers happy.

In this context, firms that reduce training investments may succeed in lowering the cost of employee flight, but actually increase the risk that such flight will occur. In doing so, they face new costs associated with recruiting and training replacement employees.

Strategies to Stimulate Investment

Employers face real challenges in providing training, but it produces great benefits for them and the economy as a whole. Leading employers recognize that the risks of not investing in training are much higher than the risks of investing. For employers who continue to lag, public policies to nudge them into action may be required.

It remains to be seen whether the Canada Job Grant can incentivize more employers to invest in training and, in turn, contribute to improvements in productivity and competitiveness. If it fails, other policies to encourage or compel employers to invest in employee training should be on the table. Quebec’s model of requiring firms of a certain size to invest 1 per cent of annual revenues in training, or forfeit the money in taxes, is one option to consider.

With corporate taxes as low as they are in Canada, and the pressing need to improve Canadians’ skills, there is no excuse for employers not to invest in training. Canada’s competitiveness and well-being depends on it.

[1] OECD, LSO network special data collection on adult learning activities. Tables C5.1a and C5.2a.

[2] Nordicity, Labour Supply/Demand Dynamics of Canada’s Information and Communications Technology (ICT) Sector (Toronto: Nordicity, 2012), 22.

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