DOCUMENT RESUME

ED 371 117 CE 066 002

AUTHOR Espinoza, Eduardo Martinez

TITLE Vocational,Training in Chile: A Decentralized andMarket Oriented System. Training Policy Study No.

8.

INSTITUTION International Labour Office, Geneva (Switzerland).

REPORT NO ISBN-92-2-109257-7

PUB DATE 94

NOTE 28p.

PUB TYPE Reports - Research/Technical (143)

EDRS PRICE MFO1/PCO2 Plus Postage.

DESCRIPTORS Adult Vocational Education; *Decentralization;Educational Administration; Educational Legislation;*Educational Policy; Employment Programs; FederalLegislation; Foreign Countries; *Job Training;Postsecondary Education; Program Effectiveness;Program Evaluation; *Public Policy; SchoolRestructuring; Secondary Education; *VocationalEducation

IDENTIFIERS *Chile

ABSTRACTFrom 1976 to 1983 major reforms were enacted in Chile

in the vocational training systems, based on four principles:

decentralization, integration, diversification, and participation.The vocational training system in Chile is a legally established,

market-oriented system in which many private training agenciescompete to sell their services to private firms andgovernment-sponsored public training programs. Private firms decide

the amount and kind of training they want to buy; governmentsubsidizes firm-based training programs through tax rebates andfinances public training programs for workers without access totraining in private firms. Enacted in 1976, the Vocational Training

and Employment Statute stresses market forces in the delivery of

vocational training services. Five types of public training programsare offered under the training and employment statute: vocational

training grants, adult workers retraining programs, training program

for low-income female workers, youth training program, andapprenticeship program. Evaluation of the training system performanceprovides evidence that decentralization of demand decisions to thelevel of individual firms has brought training supply much nearer to

local labor market demand; enhanced the capability of the system to

respond flexibly to local needs. Efficiency in terms of unit cost

reduction and local relevance have not yet been fully achieved.

(YLB)

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Reproductions supplied by EDRS are the best that can be madefrom the original document.

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co A. decentroliz and mark t oriented system by Eduardo Martinez Espinoza

U.S. DEPARTMENT OF EDUCATION Mee ol Educational Rostatch and Improvement

ECU ATIONAL RESOURCES INFORMATION CENTER (ERIC)

This document has been reproduced as

received from the person or organization originating it Minor changes hare been made to improve reproduction quality

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OERI Position or policy

"PERMISSION TO REPRODUCE THIS

MATERIAL HAS BEEN GRANTED BY

At (5- hA- TO M E EDUCATIONAL RESOURCES

INFOF MATION CENTER (ERIC)."

Training Policies and Progrornme Development 13ranch

international Labour Office Geneva

BEST COPY AVAILABLE

Training Policy Study No. 8

Vocational training in Chile: A decentralized

and market oriented system

by Eduardo Martinez Espinoza

UMITED DISTRIBUTION

The views expressed in this paper are those of the author and not necessarily those of the ILO.

Training Policy and Programme Development Branch

International Labour Office Geneva

3

Copyright © International Labour Organization 1994Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention.Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated.For rights of reproduction or translation, application should be made to the Publications Branch (Rights and Permissions),International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications.

ISBN 92-2-109257-7

First published 1994

The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentationof material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Officeconcerning the legal status of any country, area or territory or of its authorities. or concerning the delimitation of itsfrontiers.The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors,and publication does not constitute an endorsement by the International tabour Office of the opinions expressed in them.Reference to names of firms ahd commercial products and processes does ;sot imply their endorsement by the InternationalLabour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval.ILO publications can be obtained through major booksellers or 11.0 local offices in many countries, or direct from ILOPublications, International Labour Office, CH-1211 Geneva 22, Switzerland. A catalogue or list of new publications will besent free of charge from the above address.

Ptinted by the International Labour Office. Geneva, Switzerland

This study is one of several prepared in the framework of researchundertaken by the ILO's Training Policy Branch on the subject ofnational experiences in attempting to improve the efficiency, effec-tiveness and impact of public training systems. The research hasfocused in particular on the decentralization of training as a meansof enhancing flexibility and responsiveness to local labour marketconditions.

111

Contents

1. Executive summary 1

II. Background: Labour market and human resources development- the institutional framework 3

A. The labour market 3

B. Human resources development - the institutional framework 3

II!. Social changes and the emergence of a new vocational training institutional model 7

A. The transition to a market and outward oriented economy 7

B. Impact of economic restructuring on the labour market 7

C. The educational and vocational training reforms of 1976-1983 8

D. Structure and functions of the vocational training system 10

E. Standards and procedures for tax rebates on training costs 11

IV. Public training programmes under the training and employment statute 13

A. Vocational training grants 13

B. Adult workers retraining programmes 3

C. Training programme for low-income female workers 14

D. Youth training programme 14

E. Apprenticeship programme 14

F. Achieving local labour market relevance 15

V. Evaluating trainirq system performance 17

A. Size and effectiveness of the vocational training system 17

B. The equity issue 18

C. The efficiency issue 19

D. Training demand in firms 19

E. Public vocational training 20

F. The training quality issue 21

G. The role of intermediary organizations 21

H. Workers' participation in vocational training policies and programmes 21

VI. Conclusions

Notes

Bibliography

6

23

25

27

I. Executive summary

The Chilean vocational training system isessentially different from the typical LatinAmerican model where services are providedby an official, largely monopolistic, Vocational'Raining Institution (V71), financed mainly bya payroll levy on firms. Instead, Chile has alegally established, market oriented system inwhich many private training agencies competeto sell their services to private firms andgovernment-sponsored public training pro-grammes. Private firms decide the amount andkind of training they want to buy; governmentsubsidizes firm-based training programmesthrough tax rebates, and finances public train-ing programmes for workers who do not haveaccess to training in private fffms. Given thefact that training expenditure is determined byfirms themselves, tax rebates for private train-ing programmes in Chile are not - as in otherLatin America countries - simply a mechanismto withhold part of an enterprise's compulsorycontribution to an official VTI.

In 1976 Chile enacted the Vocational'Raining and Employment Statute (Estatuto deCapacitación y Empleo) stressing market for-ces in the delivery of vocational training ser-vices. The rationale of this system Ls based onthe following principles: (a) stimulating decen-tralized demand decisions as the leading forceguiding the provision of training services,aiming to strike a better balance between

7

demand and supply; (b) market comNtitionamong training agencies as a means of promot-ing efficiency and quality in the production oftraining services and (c) provision of freepublic vocational training programmes ad-dressed to labour force entrants, unemployedadults and workers not covered by firm-basedtraining programmes.

Although this system has boosted nationaltraining activities, more than tripling the num-ber of trainees and fmancial resources allottedin the former public vocational training system- 280 thousand trainees and resources of US$57 million in 1992 - it has had only a limiteddistributional impact, since subsidized trainingis highly concentrated in bigger firms and fortop level personnel. Indeed, there are signs of*switching effecte generating windfall gains atthe expense of public resources for privatefirms that do not need incentives to train theirworkers. Furthermore, in some cases thequality of training services seems undermined,training costs have risen and there is uncertain-ty regarding the socially efficient use of resour-ces when the market is highly subsidized.Fmally, training opportunities in public pro-grammes have been scarce until quite recently.Nevertheless, most a these shortcomings areprobably the consequence of a lack of govern-ment policies and controLs, and could beresolved without excessive financial strain.

1

Background: Labour market and human resourcedevelopment - the institutional framework

A. The labour market

In the last six years, the labour market inChile has experienced an impressive level ofgrowth accompanied by an improvement in itsemployment quality indicators, all of which isconsistent with successful economic perform-ance, as illustrated in Table 1:

Table 1. Chile: Labour marketprofiles

1986 1992

Participation rate (%) 30.9 33.7Employed workers(thousands) 3,743.3 4,552.1Unemployment rate (%) 11.0 4.9Real wages index(April 89 100) 113.5Labour productivity index(Dec.88..100) 117.3

Sources: National Staiistics Institute (INE), Plan-ning and Cooperation Ministry (MIDEPLAN)

Nevertheless, over one third of the labourforce is precariously employed in: (a) the urbaninformal sector (22.3 percent of employedworkers, with an average monthly income ofUS$ 190); (b) domestic services (6.3 percent ofemployed workers, with an average monthlyincome of US$ 86) and (c) small farming ac-tivities (8.4 percent of employed workers, withan average monthly income of US$ 125). Evenin the formal sector, small finns - with lowproductivity and salaries - account for morethan 25 percent of employment. In contrast,the average monthly wage of semi-skilledworkers in the modern sector is over US$ 300.

Young and female workers constitute themore vulnerable segments in the labour force:

the unemployment rate of the former is morethan double the national average (12 percentin mid-1992 in the 15-24 age bracket.MIDEPLAN, 93), whereas female workers' in-come ranks 30 percent below male incomes,onaverage (MIDEPLAN, 91).

Human capital has grown consistently,measured in terms of labour force educationalattainment, from an average of .6.2 years ofschooling in 1960 to 9.2years in 1992. Further-more, in 1992 over 8 percent of active workersreceived continuing training in firms.

B. Human resources development -the institutional framework

Work-related education and pre-employ-ment training in Chile are designed to satisfyexpansion and replacement needs in a labourforce of 4.7 million. Employment is expected toexpand by 4-5 percent annually in the next fiveyears, based on economic growth projectionsand employment-productivity elasticity trends,and currently accounts for a labour marketabsorption capacity of more than 200 thousandlabour force entrants per year. Additionally,more than 260 thousand adult workers areengaged annually in retraining and upgradingcourses - mostly in firm-based programmes - tocope with technological change, industrialrestructuring and employment turnover.

On the supply side, the annual output ofthe formal education system (those who com-plete or drop out) amounts to over .242,000.The breakdown by educational level is given(for 1989) in Thble 2.

3

Table 2. No's leaving the formal education system by educational level - 1989

(thousands)

University graduates and dropouts512

High level (post-secondary) technicians (graduates and dropouts) 25.3

Middle level (secondary technical) technicians (graduates and dropouts) 23.8

Secondary general education (graduates)25.8

Secondary general education (dropouts)62.4

Primary education (graduates and dropouts)53,8

Total outflow242.3

Source: ODE, 1990

Dropout rates (i.e., thosewho do not com-

plete) are quite low throughoutthe system (for

example at 11.6 and 2.7 percentrespectiveiy in

general secondary and primary education

respectively). These rates are broadly borne

out by the enrolment and drop out data for1990 presented in Table 3.

Table 3. Retention rates by education level 1990

Enrolment Pass rate Failure rate (repeaters) Dropout rate

Primary 1,984,288 89.91 7.80 2.29

Secondary 720,30 8027 12.35 7.37

General Secondary 464,522 80.37 1238 7.26

'Ibchnical Secondary 255,708 80.11 12.31 7.58

Various public programmes for pre-employment vocational training and technical

education are offered to school dropouts.These include adult tezhnical education (3,000

adults enrolled in 1989);adult vocational train-

ing programmes (11,000 participants in 1989);

and more recently a youth vocational training

programme (Programa de Capacitación

Laboral de J6venes) launched with financial

assistance from the Inter-American Develop-

ment Bank - IDB (25,000 participants in 1992).

In addition, there is a large number of small

scale training initiatives sponsored by private

non-profit organizations.

The institutional framework for work-re-

lated education and training has experienced amajor evolution - some say a revolution - Ithe

last twenty years. The core of the transition to

a new model is diversification and decentraliza-

tion in a context of increasing private provision

of education and training services. Post secon-

dary education capacity was expanded to cope

with the growing demand from secondarygraduates, without overloading university en-

rolments; thus, new private instkutions,

separate from the universities, were created.

Technical Education Centres (Centros deFormación lEcnica - CFT) and Professional

Institutes (Institutos Profesionales - IP) offer

three to four year programmes in advanced

technological education. In 1989, out of 110

thousand secondary school graduates, 42thousand enrolled in 144 CFB, 13 thousand in

161 IPs and 33 thousand in 52 universities.

At the same time, middle level technicateducation was decentralized, transferring the

management of former public schools either to

federations of industries or to local govern-

ments (Municipalidades)1. Under this scheme,

the central authority, through the Ministry ofEducation, plays a normative and supervisory

role focusing on basic curricula standards, and

subsidizes school operations. Over ten years of

experience in decentralized school manage-

ment show encouraging results in terms ofmatching school output and industrial needs,especially in industry-managed establishments.In 1990 there were 70 Upper Secondary Tech-nical Schools (Liceos de Educación lecnicoProfesional) managed by industrial federa-tions, such as: Sociedad de Fomento Fabril(manufacturing sector employers); Asociaciónde Industziales MetaKirgicos (metallurgy sec-tor employers); and Sociedad Nacional deAgricultura (agriculture sector employers).With small differences, the linkages betweenthese technical schools and industries consistmainly of: (i) employers' participation in schoolplanning and curricular design; (ii) study visitsby teachers and students to industries; (iii) in-dustry professionals and technicians lecturingin technical schools; (iv) industry co-operationin work experience programmes, and (v) in-dustry contributions to schools, mainly in theform of equipment and materials. By contrast,the 150 municipal schoolsare only loosely con-nected to the employment sector and thequality of their education is hampered bybudgetary constraints.

On the down side of the currentstrategy,it is more difficult in a decentralized system to:(a) coordinate nationwide educational policiesand strategies; (b) benefit from economies ofscale in administrative tasks and general pur-pose activities such as teacher training, teach-ing material production and educationtechnology research and development, and (c)correct regional disparities.

In the vocational training area, directpublic financing of the former official NationalTraining Institute (Instituto Nacional deCapacitación - INACAP) was discontinuedand INACAP was recently transferred to theprivate ltade and Production Federation(Confederación de la Producción y el Corner-cio). Though still one of the most importantvocational training institutions in Chile, IN-ACAP is nowadays a market-oriented agencyselling its services in the field of subsidizedfirm-based training and publicly sponsoredprogrammes (for example, the Youth TrainingProgramme). Moreover, the bulk ofINACAP's activities today caters for new cus-tomers: secondary school graduates ready topay for advanced technological education as analternative to university education. Overall,direct public provision of vocational trainingservices - through INACAP - has been re-placed by a demand-side subsidy to more than12,000 firms performing training activities andby publicly financed training grants for workersnot covered by firms' programmes. On thesupply side, more than 1,700 private trainingagencies actively compete to capture privateand public training demand.

None of the foregoing should give the im-pression that riorms have resulted in thedemise of public training. There is still a sub-stantial amount of public training in Chile, butthis is now managed in a highly decentralizedfashion.

Ill. Social changes and the emergence of a new vocationaltraining institutional model

A. The transition to a market andoutward oriented economy

The advent of the military government in1973 marked the collapse of a thirty-year ex-perience of inward-oriented economic policiesbased on price distorting subsidies and taxes,industrial protectionism and public enterprisepromotion. The social side of this modelwas awelfare State promoting equity by means ofincome distribution policies and the publicprovision of social security, education andvocational training, public health services andhousing. However, the financial burden ofthe?4 social programmes and the inefficiencyin public enterprises lead to severe fiscaldeficits financed by tax increases and publicdebt, causing private investment decay and in-flationary pressures.

In the mid seventies Chile initiated aprofound structural adjustment process aimedat establishing a new market- and outwaid-oriented economic model, whose key elementswere:

(i) employment reduction in the public sectorand privatization of most public enterprises, asa means of reducing fiscal deficits;

(ii) labour market deregulation as a means ofpromoting private employment and facilitatinglabour force mobility in response to produc-tivity incentives;

(iii) social security reform, based on a newpersonal savings scheme managed by special-ized private institutions, as a substitute for theformer - and deficitary - State managed socialsecurity common fund;

(iv) transition to an open economy bymeans ofuniform tariff reduction and a favourable in-stitutional environment for foreign invest-ments, in conjunction with an export pro-motion strategy. The lance include tax, credit,

commercial agreements and foreign exchangepolicies. (It is interesting to note that foreigntrade has grown from less than 15 percent tomore than 30 percent of GDP in the last twentyyears);

(v) financial and production markets within aninstitutional framework favouring free com-petition and price system efficiency throughincreased tax neutrality and the suppression ofprice distorting factors such as subsidies, con-trols, quotas and commercial barriers; and

(vi) renegotiation of the external debt terms, inorder to avoid excessive financial strain on thebalance of payments.

B. Impact of economic restructuringon the labour market

The labour market was deeply affectedduring the first ten years of economic restruc-turing. Tensions developed in labour relationsdue to the weakening of labour union powerand deregulation of salaries and employmentconditions. Unemployment grew to over 25percent in 1982, and the incidence ofprecarious occupations increased (i.e. oc-casional and part time jobs, and informal ac-tivities), not only as a natural consequence ofthe adjustment process but also because in theinterim Chile suffered two periods of reces-sion: the first (1975-78) was due to contractionof internal demand and the latter (1982-83) toan external trade and fmancial crisis. Thegovernment reacted to labour market turmoilarising from economic restructuring by meansof two main - and financially expensive - com-pensatory policies: emergency employmentprogrammes (Programa de Empleo Minimo -PEM - and Programa de Ocupación para Jcfede Hogar - POJH) and retrainingprogrammes(for example, in the railways, coal and ports

711_ 4 .

sectors). The effectiveness of the latter waseroded by financial constraints, low trainability

of workers (notably low educational levels, old

age and/or lack of interest in training) and lack

of alternative employment opportunities. Atthe same time favourable tax, foreign exchange

and commercial policies were enacted, aimedat promoting savings and investment, technicalmodernization and on-the-job training.

During the first stage of economic transi-

tion, private sector development wassustained

by improved market-guided resource alloca-

tion, and production cost reductions aimed at

increasing the competitiveness of Chilean

products in the global market. Elimination of

excess labour and idle production capacity,complemented by decreasing real wages - due

to high unemployment - and an overvaluedexchange rate were the main factors in this

latter process.

Technological modernization has been theleading force during the second stage ofeconomic transition which has seen the intro-duction of new products, production processes,materials and equipment. This process has con-

centrated mainly in low value-added primaryactivities (for example, agriculture, fishery,

timber and mining), a small number of manu-factures (for example, cellulose, printing and

food industries) and financial services (for ex-

ample, banking, insurance, stock and securities

exchange). All of these activities played a fun-

damental role in the Chilean export strategyduring the eighties.

As for the near future, a greater tech-nological dynamism is expected in the manu-facturing sector, marked by the introduction of

more complex equipment, processes andproducts, especially in small and medium size

firms with export potential. Thus, new skills

and competences will be required, generating

new demands on the technical education andvocational training systems. Observed changes

in more advanced technology-driven econ-omies and labour markets show tendenciescharacterized by: (i) the relative reduction ofemployment opportunities for unskilled andsemi-skilled blue collar workers in traditional

resource-based heavy industries; (ii) the in-creased employment of middle level white col-

lar personnel in professional, managerial,technical and administrative jobs;(iii) a general

increase in the revired academic, educational

and training qualifications of all personnel; and

(iv) the emergence of newinterdisciplinary oc-

cupations based on more advanced knowledge

and skills (Mickhail, 92). These trends indicate

a plausible path fur future labour marketdevelopment in Chile.

C. The educational and vocationaltraining reforms of 1976-83

From 1976 to 1983 major reforms wereenacted in the formal education and the nonformal vocational training systems, based on

four main principles:

1. DecentralizationDecentralized management - either mu

nicipal or private - as a means of fosteringflexibility, efficiency and labour marketrelevance in technical education and vocation-

al training. In the case of technical education,this increased autonomy was to facilitate andpromote student mobility and achieve com-pliance with basic national educational objec-

tives and contents.

2. IntegrationWork related education and training struc-

tures should be linked so as to constitute aneffective, integrated and continuing educationsystem contacting to labour force flexibility.The respective roles and frontiersof the formaltechnical education system and non-formalvocational training would be clearly defined,

with the former emphasiimg general scientific

and technical knowledge and the latter con-centrating on developing specificcognitive and

practical competences. Moreover, curriculum

design based on continuing educationconceptswould reduce educational redundancy.

3. Diversification

A work-related education and training in-stitutional framework should offer multi-entrance/exit options. Multiple education andtraining paths would enhance equity and con-tribute to reducing dropout rates.

4. Participation

All parties interested in work-relatededucation and training - such as government,workers' and employers' representatives -should participate in the formulation of sectorpolicies. Thus, the creation of a National Coun-cil for Work Related Education and Training(Consejo Nacional de Educacicin para elTrabajo) is in the agenda.

In practical terms, these reforms meantthat the Ministty of Education relinquished itsformer responsibility as the main directprovider of technical education services andthat the management of its 159 technicalsecondary schools was transferred to localauthorities or trade unions. The new role of theMinistry of Education became that of standardsetting and providing financial incentives fortraining. As noted earlier, new private post-secondary technological and professional in-stitutions, such as the lbchnical EducationCentres and the Professional Institutes, werecreated to offer an alternative to the universitysystem and to broaden access to tertiary leveleducation.

The vocational training sector has under-gone similar changes. The first adult trainingprogrammes were conducted in the fifties - ona small scale basis - by the State lbchnicalUniversity (Universidad Tecnica del Estado).Later, rapid industrial development and mas-sive infrastructure rehabilitation programmes,implemented after the 1960's earthquakes,generated a skilled worker shortage that couldnot be resolved simply by market forces. Thiscreated a more intensive public commitment tovocational training based on the argument thatfree market provision of training serviceswould result in suboptimal human capital in-vestment and unequitable access to training

opportunities. The training market fails to cap-ture "externalities" (i.e., social benefits not in-ternalized by private human capital investors)and less qualified low income workers cannotafford to buy training services. These circum-stances led to the creation of the VocationalTraining Department in the Technical Cooper-ation Service (Servicio de Cooperacienlecnica - SCT), the State owned nationalproductivity centre, to provide free trainingservices to blue collar workers.

The impressive growth of SCT trainingactivities led to the foundation, in 1966, of theNational Training Institute (Instituto Nacionalde Capacitación Profesional - INACAP), atripartite semi-autonomous agency providinginitial and upgrading training for semiskilled,skilled and technical workers, especially for themanufacturing, construction, agriculture andmining sectors. Technical assistance from theInternational Labour Office (ILO) andbilateral cooperation played a key role in thedesign and implementation of both the SCTVocational Training Department and IN-ACAP.

Finally, in 1976 the government enactedthe Vocational 'Raining and EmploymentStatute (Estatuto de Capacitación y Empleo).This provided the first legal framework defin-ing the public role in vocational training andlabour market intermediation. In line withother contemporary institutional reformsaiming to reduce State intervention ineconomic activities, this statute created amarket oriented system where the State, in-stead of providing training services, subsidizedtraining activities and controlled the overallperformance of the system. In this systemprivate training agencies would compete to selltheir services to private firms and government-sponsored public training programs. Privatefirms would decide the amount and kind oftraining they wanted to buy, and the govern-ment would subsidize firm-based trainingprogrammes through tax rebates or financepublic tra ining programmes for workers notcovered by private activities.

9 1 3

The rationale of the new system is basedon the following principles (Martinez, 83):

(a) stimulating decentralized demand de-cisions as the leading force guiding theprovision of training services, aiming to strikea better balance between human resourcesdemand and supply;

(b) market competition among training agen-cies as a means of promoting efficiency andquality in the production of training services;and,

(c) provision of free public vocational trainingprogrammes addressed to labour force en-trants, unemployed adults and workers notcovered by firm-based training programmes.

To elaborate, competition among trainingagencies was intended to promote efficiency(unit costs reduction) and quality in theproduction of training services. Trainingrelevance for local labour markets was to beachieved mainly by subsidiiing trainingdemand from firms. The idea was to substitutedemand for supply as the driving force of thetraining market, although as discussed later inthis paper, local relevance has not yet beencompletely fulfilled.

D. Structure and functions of thevocational training system

As noted above, the legal framework ofthe vocational training system was first estab-lished in 1976 (Decreto con Fuerza de LeyNo.1446) its most recent update being in 1989(Decreto con Fuerza de Ley No.1). In this

system the leading actors play the following

roles:

(a) Government subsidizes freely-chosen firm-based training programmes by means of a taxrebate scheme, and finances public trainingprogrammes for workers not covered by firm-based training, i.e., unemployed and under-employed adults, young labour force entrants,and workers displaced by industrial restructur-ing. The necessary budgetary allocations areincluded in the annual fiscal budget.

(b) The National Training and EmploymentService (Servicio Nacional de Capacitación yEmpleo - SENCE), under the Ministry ofLabour and Social Security, audits overall per-formance of the fiscal incentive system, plans

and supervises public training programmes,and provides technical support to the 156decentralized offices of the public employmentservices network (Oficinas Municipales deColocación - OMC).

(c) Enterprises organize internal or externalin-savice training programmes for workers.Government grants a fiscal incentive to covertraining costs up to the equivalent of one per-cent of the firm's payroll. This tax rebate im-plies financing by the State but the trainingimparted is decided upon by firms. Resourcesare allocated by the latter in accordance withtheir own interests, which may or may not coin-

cide with national social or economic priorities.Tax deductions seek to compensate for thedissuasive effect of training externalities onprivate training investments (for example, so-cial benefits not captured by the firm orbenefits captured by trained workers leaving

the firm) but, on the other hand, artificiallylowering the private cost of training may resultin an over-investment in human capital (Ducci,91). In 1992, more than 12,000 firms benefittedfrom this incentive to train over 260 thousandworkers.

(d) Over 1,700 private training agencies supplytraining services to firms and public sponsoredprogrammes in a competitive market. Theseagencies include universities, professional in-stitutes, technical education centres and voca-tional training firms. 'Raining agencies have tobe registered and approved by SENCE.

(el Intermediary le.chnical Organizations (Or-ganismos 16cnicos Intermedios - OTIR) planand organize (but do not perform) trainingactivities for affiliated firms. They are or-ganized on a sectorial or regional basis, andcater specially for small and medium sizeenterprises. Each OTIR pools its affiliates'resources and operates as buying agent for agroup af firms not big enough to have their owntraining department. Voluntary contributionsfrom affiliated firms are tax deductible as train-ing expenditures up to the equivalent of one

10 hi.

percent ot the tirm's payroll. Currently, thereare seven OTIR serving the metal mechanicssector (over 200 affiliates), construction sector(over 400 affiliates), general manufacturingsector (over 100 affiliates), commerce sector(over 80 affiliates), small industry and artisans(over 30 affiliates), and public transportation(over 1,200 affiliates); plus a small OTIR serv-ing training needs in a southern regional area.These OTIR are non profit organizations ap-proved by the Ministry ofJustice and registeredby SENCE.

E. Standards and procedures for taxrebates on training costs

Firms subject to income tax can deducttraining expenditures from their annual tax ac-crual, up to the equivalent of one percent ofthe firm's payroll. For small firms the annualtaxexemption ceiling is about US$ 300. 'Rainingactivities benefiting from tax rebates must bepreviously approved by SENCE and be carriedout in Chile. 'Raining expenditures in excess ofthe tax deduction ceiling are treated as an or-dinary cost to the firm. On the other hand, ifdeductible training expenditures exceed thefirm's tax liability the 'Reasury pays the balancein cash to the firm.

Deductible training expenditures include:

(a) Direct costs of training activities performedby the firm or training services provided by anexternal training agency.

(b) Administrative costs of the firm's trainingdepartment, up to the equivalent of 15 percentof direct training costs.

(c) Costs of training needs assessment, with amaximum of 10 percent of direct training costs.

(d) Costs of trainees' transport and per diem,up to 15 percent of direct training costs.

(e) Voluntary contributions to an OTIR.

(f) Apprentice salaries up to a maximum of 60percent of the legal minirum monthly wages(approximately US$ 100).

Training agencies (and firms with theirown training programmes) have to requestSENCE approval for their training coursesprior to execution, indicating where and whenthe activity is going to take place. SENCE thenevaluates the consistency of the curriculumdesign (content, duration and methodology)with the course objectives, the teachers'profile, the target population and the coursecost. The approved courses are then eligible astax-deductible training activities. Presently,SENCE has a catalogue of more than sixthousand approved courses. The approvalprocess takes from two to three weeks, eventhough the law allows 30 days.

SENCE monitors these training activitieson a selective basis. At the end of the fiscal yearfirms are required to report their total trainingexpenditures to SENCE for final approval,prior to submitting their income tax statement.

IV. Public training programmes under the training andemployment statute

A. Vocational training grants

Vocational training grants are awarded bySENCE to unemployed, underemployed, inde-pendent and small firms' adult workers. Can-didates must regiaer with the local MunicipalEmployment Service and are selected in ac-cordance with social need criteria and thetraining course requirements. Candidates forpublic vocational training grants are selectedaccording to the social situation of the in-dividual, taking into account duration of un-employment; educational level; family depend-ants; family income, and socio-economic statusas measured by a national socio-economiccharacterization system (CASEN). 'Rainingcourse entry level requirements are specifiedin terms of educational attainments, age, workexperience and other factors pertinent to thecourse content. Grants include free training,board and transport allowance, health and lifeinsurance and, frequently, a subsidized periodof work experience.

Training courses are given by private train-ing agencies, selected by a public bidding pro-cedure. Courses last between 100 and 300hours with average cost of US$ 1.5 per trainee-hour or US$ 4,000 per course. Over 2,000 fel-lowships were granted in 1992, at a total cost ofUS$ 580,000. 'Raining courses cover semi-skilled occupations in labour intensive econ-omic activities such as agriculture, livestock,forestry, small scale fishing and mining, con-struction, commerce, and personal services.

Vocational training grants are planned, or-ganized and supervised by SENCE, in line withits budget (established in the annual nationalfiscal budget) and with training needs assessedby SENCE itself or local authorities (regionalor municipal). Each Regional Division ofSENCE gathers information on training needs

and employment opportunities, using key in-formants, statistics and relevant studies fromdifferent sources (for example, investmentprojects). This information is used to plan thenumber of workers to be trained in publicprogrammes, by broad occupational areas.Training agencies are then asked to proposespecific training programmes according tothese terms of reference. SENCE supervisesthe execution of the training courses on asample basis. Systematic follow-up studieswere suspended more than ten years ago, butSENCE expects to resume them in 1994.

B. Adult workers retrainingprogrammes

Public retraining programmes addressadult workers displaced by industrial restruc-turing and modernization (retraining for tech-nological innovation within the firm is a privateconcern). Currently, these programmes arefocused mainly on the retraining of redundantworkers in the coal mining sector, estimated tobe in excess of 4,000 workers out of a totalsector workforce of ten thousand. Benefits in-clude training grants, subsistence allowance,moving and installation allowance, tools andworking implements (in the case of retrainedworkers entering self-employment), and salaryincentives for firms employing retrainedworkers. Benefits extend for a period of ninemonths up to a total cost of US$ 1,200 perworker. It is worth mentioning that this pro-gramme is part of a more comprehensive publiceffort to build up incentives aiming to helpindustrial reconversion in the coal miningzone, by means of public works, reforestationand coal production subsidies for a limitedperiod.

This retraining programme is financed and

sponsored by SENCE, and executed by privatetraining agencies. Workers participating areof-

fered the option of attending training coursesselected by SENCE on the basis ofcompetitivebidding (called ''collective training grants") orfreely chosen among the whole universe of

courses registered by SENCE (called Individ-ual training grants"). Almost 700 traininggrants, for courses lasting between 100 and 300

hours, have been provided since the beginningof the programme in 1992, at a total cost of US$

250,000 (other related benefits amount toUS$

400,000). Decentralized management andoperations are crucial for theprogramme's suc-

cess since the problem of coal mining sectorreconversion is localized in the southernSeventh Region. Thus, SENCE's regionalauthorities and local Municipal EmploymentServices play an active role in overall planning,

in providing information to workers in recruit-

ment and in supervising training activities.

C. Training programme forlow-Income female workers

'Training activities under this programmecater for unemployed or underemployedfemales over 17 years old and with a low level

of educational attainment. This is a jointprogramme financed by the National Women'sService (Servicio Nacional de la Mujer) - a toplevel autonomous public institution - and ad-ministered by SENCE according to its standardprocedures. 'Raining lasting an average 250

hours is imparted by private training agencies

selected by competitive bidding. Since thebeginning of the programme in 1992, almost

400 women have been trained in homeeconomics, semi-skilled industrial occupations(including some typically male occupations)and handicrafts, at a total cost ofUS$ 250,000.

D. Youth training programme

The target population of this programmeis 100,000 socially disadvantaged young labour

force entrants (orphans, those with a low-in-

come family background, young single

mothers, etc.) and unemployed or under-employed workers 15 to 24 years old with no

formal technical or vocational education. It is

a four-year, nationwide, 70 million dollarproject financed, planned and administered by

SENCE, with financial supportfrom the Inter-

American Development Bank.

The project has five components:

(i) pre-employment training (150 to 250-hourcourses) followed by a four-month practiceperiod on-the-job, financed under an employ-

ment subsidy scheme. The training componentcost averages US$ 2.5 per trainee-hour andUS$ 7,800 per course;

(ii) a six-month alternate (work/training

centre) apprenticeship, in subsidized private

firms;

(iii) bdsic assistance for self-employment (250-

hour courses);

(iv) teaching equipment;

(v) institutional development projects aimed at

strengthening the managerial and technical

capacity of SENCE, the network of MunicipalEmployment Services and middle level techni-

cal schools acting as training agencies.

Raining grants include free training, meal

and transportation allowancesduring the train-

ing period, life and labour hazards insurancefor trainees, and wage subsidies for fffmsemploying apprentices and in-practicetrainees. More than 2,000 training projects for

41,000 participants have been financed bySENCE since the beginning of the YouthTraining Programme in 1991, with a total cost

of US$ 24 million.

E. Apprenticeship programme

Apprenticeship is a legally regulated workcontract of a special kind, under which youngworkers - up to 21 years old - acquire practical

skills by following a structured work pro-gramme within a firm under a master'sguidance. During the apprenticeship period

(maximum 12 months) apprentice wages aresubsidized by up to 60 percent of the legalminimum monthly wages of US$ 100. The num-ber of apprentices a firm may hire at any onetime must not exceed 10 percent of its per-manent staff. Under Chilean apprenticeshiplaws, no provision is made for school-basedrelated education. 'lb qualify for subsidies, ap-prenticeship contracts have to be approved bySENCE. Apprenticeship contracts and sub-sidies are regulated by the Labour Code andthe 'Raining and Employment Statute (DFLNo.1/1989), respectively.

The apprenticeship scheme is still a smallscale training programme in Chile. In 1992,fewer than 700 apprentices were trained in 69firms and their total wages subsidy amountedto US$162,000. Starting in 1993, a pilot experi-ment with the German dual apprentict-shipsystem was due to be launched.

F. Achieving local labour marketrelevance

Public training programmes are providedby private training agencies. They are invitedto submit training proposals with high employ-ment potential. These projects (programmes)are selected by SENCE, in line with its estab-lished criteria, on the basis of competitive bid-ding, a procedure which favours decentralizedproject-design based on a thorough knowledgeof local labour markets.

As an illustration of this process, trainingprogrammes under the Youth 'Raining Pro-gramme scheme - as with other public trainingprogrammes - are planned and executed local-ly, mostly by local training agencies such astechnical schools, universities and vocationaltraining institutions. In the bidding process,each agency has to submit a training proposalwhich includes "statements of commitment"signed by local employers willing to accepttrained youngsters for work practice. Theseproposals are evaluated by SENCE accordingto various criteria which include the referencesof the training agency; the technical quality ofthe training courses offered; employmentprospects for the trainees; and the costs oftraining. Whilst theoretically sound, the mainweaknesses of this project evaluation processare the subjectivity of evaluators and thelimited verification of the references and infor-mation provided by the training agencies. Sub-sequently, SENCE supervises training courseimplementation and the trainees practiceperiods in firms.

Until recently there had been very fewfollow-up studies concerning public trainingprogrammes. In 1993, however, two majorstudies were launched under SENCE's fund-ing, one referring to the Youth 'Raining Pro-gramme and the other to retraining pro-grammes for displaced coal miners. The resultsof these studies are not yet available.

V. Evaluating training system performance

A. Size and effectiveness of thevocational training system

Under the 'Raining and EmploymentStatute enacted in 1976 training activities have

increased remarkably especially in the field ofprivate training - both in terms of number ofworkers trained and public expenditure, asshown in Table 4.

Teble 4. Number of workers trained and public expenditure on vocationaltraining

YearsFirms training programmes'Evinces lbx rebatesthousands USS million

Public trainingItainees nditurethousands U S million

1977 22.6 2.03 32.5 3.13

1978 593 5.68 48.9 4.92

1979 68.8 938 51.9 6.97

1980 972 12.73 51.9 6.61

1981 932 16.43 21.1 5.07

1982 882 12.94 20.9 3.74

1983 1053 14.32 ,19.6 1.89

1984 122.9 16.05 21.7 1.84

1985 136.8 14.57 22.0 1.50

1986 138.1 12.39 14.8 1.33

1987 162.8 15.42 13.6 1.31

1988 174.7 16.88 9.8 0.99

19C9 186.9 18.88 11.5 1.12

1990 199.6 21.41 53 0.52

1991 232.7 26.01 282 12.06

1992(*) 259.8 31.04 24.2 14.09

el Provisional figures

Source: SENCE. Statistical Bulletin No.4. 1993

Currently, public expenditure on trainingis more than three times INACAP's budget in19762, and its growth rate exceeds that of GNPand employment. Private expenditure on firm-based training activities aco3unted for a furtherUSS 14 million in 1992 (43 percent of publicexpenditure on firm-based training).

The system has proved to be highly respon-sive to labour market signaLs, since:

(i) private training services are provided as aresponse to firms' actual requirements. Themost dynamic economic sectors in terms ofproductivity growth and technological prog-ress, such as manufacturing, financial services,mining and transport and communications,have made the greatest use of fiscal incentivesfor vocational training;

17 19

(ii) public training programmes, focusing main-ly on young people .;ntering the labour market,are highly decentralized and often includeemployment-inducing provisions for gradu-ates, such as apprenticeship contracts and sub-sidized practice in private enterprises.

Nevertheless, it should be borne in mindthat firm-based training is geared to internalmarket needs - in terms of upgrading and up-dating specific competencies of in-serviceworkers - so its contribution to labour mobilityand labour market fledbility is questionable.

It is also necessary to keep a sense of pro-portion. In spite of its remarkable growth, lessthan three percent of tax paying enterprisesparticipate in the system, and only one third ofthe fiscal incentive potential - currently es-timated in US$ 97 million - is being used.

B. The equity issue

The vocational training fiscal incentive isclearly benefitting bigger firms - 84 percent oftotal subsidies were claimed by largerenterprises (200 or more employees) in theperiod 1985 to 1988. Thus the system is probab-ly generating 'windfall gains" to thcse largerfirms at public expense, since they do not needtax rebates in order to spend on training. Forinstance, many former public enterprises in theenergy, transport and communications sectorcontinued pre-existing training programmesafter privatization, but now benefit from thetax rebate scheme.

Similar evidence was produced during acase study sponsored by SENCE in 1981, whichshowed that the training budget in a group ofeighteen large private firms remained a 0.6percent of payroll expenditure, even after thefiscal incentive was enacted (SENCE, 81). Fur-thermore, some important restrictions intro;duccd into the tax rebate scheme in 1980, 1985/and 1987, establishing a ceiling on deductibletraining costs, have not hisd any noticeable dis-suasive impact in private training activities inlarger enterprises. Bigger firms are less suscep-

tible to and less affected by financial restric-tions or human capital drainage risks (i.e., riskof promoting external mobility of workers orincreasing the cost of retraining them) whenthey invest in training, therefore there are noclear social reasons - in terms of equity oreconomic efficiency - for subsidizing theirtraining expenditures.

As for the smaller firms, many reasonshave been given for their weak response to thetraining incentive. These include:

(a) ignorance about the tax rebate scheme andits procedures;

(b) fear of fiscal tax audits and bureaucraticcontrols;

(c) financial cost of recouping deferred train-ing expenditures, since the tax rebate operatesin the following fiscal year;

(d) irrelevance of the fiscal incentive, since themaximum deductible amount - one percent ofpayroll or US$ 300 - is insufficient for theirtraining needs. Furthermore, small firms do notenjoy economies of scale regarding the fixedadministrative costs of training activities;

(e) risk of losing trained workers or higher costof retraining them;

(0 less need for training as compared to largerfirms, due to the low level of technology theyemploy. A recent survey concluded that lessthan three percent of small firms trained theirworkers regularly, and one third of the rat feltno need for training programmes (SER-COTEC, 91); and,

(g) services supplied by training agencies donot meet the needs of small firms. 'Rainingcontents are either too theoretical or designedaccording to the requirements of largerenterprises. On the other hand, training agen-cies claim that small firms are not a profitablemarket since their training needs are tooheterogeneous and dispersed.

Another facet of the equity issue is that asignificant amount of the training subsidy isbeing used to train high level personnel. Thus,in the period 1981 to 1988 more than 25 per-cent of the subsidy was allocated to trainingprogrammes for professionals and managers

18

(Martinez, 91). In 1992 over 17 percent of thesubsidy benefited employees earning morethan US$ 12,000 annually (SENCE, 93). (Inthis connection, it is interesting to note that lessthan ten percent of wage earners in Chilebelong to this income bracket).

As a result of a legal reform introduced in1988 (Decreto con Fuerza de Ley 18709) - totarget training incentives on low incomeworkers - firms are allowed to deduct only 50percent of the cost of training high level per-sonnel. This reform produced the expectedresult and, at the shIne time, showed that somefir -as are able to invest in training without in-centives. During the period 1988 to 1992 nontax-deductible expenditures on training highlevel personnel amounted to US$ 45 million. Ifit were not for the 50 percent ceiling, thesefirms would have saved an extra US$ 25 millionat fiscal expense, as shown in 'Fable 5.

Table 5. Training expenditures onhigh level personnel. 1988-92

USS (millions)

Tax-deducale expenditures 24.7

Non tax-deductible expenditures 44.9

Ibtal expenditures 69.6*

Includes 50 percent training cost borne by thefirms (US$ 24.7 million) and other non deductibletraining expenditures (US$ 202 million).

Source: SENCE

C. The efficiency issue

It had been expected that training costswould decrease as a consequence of the grow-ing experience and efficiency of training agen-cies. In fact, training costs per trainee-hourhave increased, in real terms, as compared toformer INACAP's costs. They have risen fromUS$ 1.46 in 1976 (INACAP, 76) to US$ 4.44 in1992 in firm-based training programmes (ofwhich US$ 3.10 is subsidized). As for publictraining programmes, costs per training hourhave increased from USS 17.49 in INACAP in1976 to an estimated US$ 48.89 in SENCE's

Youth Training Programme in 1992 (SENCE,93)3.

Furthermore, unit training costs exhibit ahigh dispersion among different trainingspecialities. 1990 data show that the averagecost per trainee-hour for foreign languagecourses was ten times higher than for diemakers courses (Martinez, 92), a seeminglysurprising finding that is explained by two fac-tors:

(a) English courses are demanded mostly byhigh level executives and professionals, whoappear to be not very cost conscious (especiallywhen this cost is subsidized by the tax rebatescheme).

(b) Language teachers (generally foreignerswith university degrees) are more expensivethan die-making instructors (Chileans with amiddle level technical education degree).

In the same year, a large enterprisereported costs per trainee-hour ranging fromUS$ 0.57 to US$ 63.37. This results from thefact that the training supply market is highlyfragmented and lacks economies of scale.There are more than 1,700 training agenciesoperating in a US$ 57 million market.Moreover, this is not a truly competitivemarket. Distortions arise from the non-effi-cient behaviour of many firms that buy trainingservices. Sub-optimal choices are made as aresult of a scarcity of information on what isavailable, easy subsidies and the heterogeneityof training services offered in terms of contentand quality. This context clearly favours higheconomic returns for training agencies withaggressive marketing strategies or which enjoymonopolistic advantages.

D. Raining demand in firms

The training demand which firms make ontraining agencies is heavily biased towardsshort courses (average 34.3 hours per course)primarily in the areas of computer operation,languages, management, marketing and socialskills. These are transferable skills which con-tribute to broadening the workers functional

19 n

flexibility ("despecialization"). Thus, in 1990almost half of the subsidized training expendi-ture related to these specialities and less thanten percent to training in specific productiontechniques. Ad hoc technical training tends tobe provided on-the-job or internally at thefirms' expense. It is difficult to know how muchof this demand structure responds to real train-ing needs and priorities and how much Ls theconsequence of a shortage of external techni-cal training supply, since training agencies areless inclined to invest in the equipment, train-ing technology and teachers' training neededto design and deliver such courses's. Further-more firms' training activities generally re-spond to a traditional reactive pattern, i.e.,training is performed to meet current per-ceived needs.

E. Public vocational training

The public vocational training provisionincludes:

(i) training or retraining grants for unemployedor underemployed adult workers;

(ii) training grants for young labour forceentrants, and

(iii) subsidized apprenticeship programmes inenterprises.

These programmes are conceived not onlyas a means of alleviating poverty but also offorming new skilled and semi-skilled workersto meet employment growth and replacementneeds. During much of the 1980's the volumeof public vocational training contracted sig-nificantly in terms both of the number oftrained workers and the level of public expen-diture (Mb le 2). Nevertheless this contractiondid not affect economic activities since therewas a surplus of trained workers in the employ-ment market, most of them trained by IN-ACAP prior to 1980. Currently, Chile isapproaching full employment (4.5 percent un-employment rate in March 1993) and thesymptoms of a skilled worker shortage arebeginning to appear, especially in the construc-tion and manufacturing sectors. These cir-

cumstances and the fact that almost 140thousand school leavers or dropouts join thelabour force each year without any vocationaltraining (Martinez, 92) prompted SENCE todevelop (in 1991) a large scale Youth TrainingProgramme aiming to impart initial training to100,000 youngsters in a four year period.

Unit training costs are lower in public pro-grammes as compared to firm-based program-mes. The average cost per trainee-hour is US$2.49 in theYouthaaining Programme and USS2.43 in adult training wogrammes, in contrastto USS 4.44 in firm-based programmes(SENCE, 93). These differences cannot be ex-plained only in terms of course content andquality: the fact that public authorities tend topay particular attention to cost factors whenevaluating training proposals is also significant.

Formal apprenticeship in Chile is essen-tially an employment promotion device, since:(i) no provision is made for the complementatyeducation of apprentices, and (ii) on-the-jobtraining activities are loosely supervised. How-ever, growth in the apprenticeship programmesince its beginning in 1988 has been meagre, asshown in Thble 6.

Table 6. The apprenticeshipprogramme

Years Apprentices Firms SubsidiesUSS thousand

1988 518 94 117.7

1989 447 54 107.7

1990 441 61 82.9

1991 918 99 248.4

1992 655 69 154.4

Source: SENCE

This outcome is rather paradoxical in asituation of full employment, but firms' reluc-tance to hire apprentices can be explained by:

(i) ignorance of apprenticeship subsidies andprocedures;

(ii) fear of bureaucratic controls;

(iii) practical restrictions on the length of ap-prenticeship contracts (less than 12 months);and,

(iv) the ineffectiveness of subsidies in smallfinns, since their tax rebate ceiling is only onepercent of payroll or US$ 300, whichever ishigher. The main underlying cause, however,seems to be the lack of an apprenticeship cul-ture in Chile.

F. The training quality issue

SENCE lacks sufficient legal and technicalcapacity to control the quality of senicesprovided by training agencies. Many fffms arealso not very demanding in this respect, duepartly to a la& of experience in evaluatingtraining outcomes or to the fact that their train-ing expenditures are heavily subsidized. As aresult, the quality of training services is quiteuneven: prestigious un'versities for instance,compete with more or less informal trainingagencies. Analysis of this issue suggests thatcompetence and market incentives appear in-sufficient to induce training agencies to investin quality enhancing factors such as teachertraining and upgrading, teaching equipmentand materiaLs, curriculum design and trainingneeds assessment capability, and research anddevelopment in educational technology.

G. The role of intermediaryorganizations

The institutional framework of Chile'svocational training system includes the private-ly managed - sectorial or regional - Inter-mediary Itchnical Organizations (OrganismosTecnicos Interniedios - OTIR). OTIR areresponsible for planning and organizing train-ing activities for small firms, on a cooperativebasis. The rationale of the system is based oneconomies of scale and the pooling of tax-de-ductible financial contributions of numeroussmall and medium size firms. In spite of itstheoretical validity, the OTIR system hasgrown only slowly (in 1991 they channelled lessthan 14 percent of training incentives) and hasfailed to respond to expectations. This ratherpoor performance can be attributed to lack of

working capital in the majority of the OTIR,legal difficulties in starting operations and thefact that the cooperative principle has beenneglected since contributing firms are servedonly within the limits of their individual con-tribution.

H. Workers' participation Invocational training policies andprogrammes

In Chile there is no legal provision forworkers' participation - individually or collec-tively -in decisions concerning training,- eitherat the firm or at higher levels. On the otherhand, nothing impedes negotiating this kind ofparticipation in collective contracts, but this isseldom done. Workers' participation is a sensi-tive and complex matter in the current labourrelations climate, since labour unions claimthat firm-based training programmes reflectonly the employers' interests and that workershave a right to participate in decisions concern-ing the use of public funds transferred to firms- through tax xebates - for training purposes. Asfor the firms, they claim that training decisionsare a private concern, based strictly on techni-cal and financial considerations, aimed at en-hancing productivity and the sustainablegrowth of the organization. These assertionssuggest that in some firms labour relations arestill built basically on the assumption of con-flicting interests.

From a national perspective, workers par-ticipation in in-firm training decisions can con-tribute to:

(i) greater effectiveness of training program-mes (better planning and evaluation);

(ii) labour force mobility (an outcome that isfeared by individual firms if training promotesexternal mobility);

(iii) equitable access to training opportunities;and,

(iv) workers commitment to and identificationwith the organization's objectives.

On the other hand, legally enforced par- (ii) discouraging training efforts in firms fear-

ticipation within a non compulsory training sys- ing the external mobility of trained workers or

tem would risk: the growth of labour union power.

(i) the ideologization of an essentially technicalsubject, thus introducing a new source of con-flict in labour relations; and,

VI. Conclusions

There is no doubt that training reforms inChile (notably the Vocational Raining andEmployment Statute) have had a major impact,at least quantitatively. The system of subsidieshas impacted on both demand and supply. Asregards demand, the number of trainees andthe resources allocated to training have morethan trebled since 1976 by comparison with thelevel of activity and expenditure in the formerpublic vocational training system. In 1992 morethan 260,000 workers (at all levels) receivedtraining supported by the tax rebate schemeand a further 24 thousand persons participatedin public training programmes. On the supplyside, the reforms have given an impetus to thedevelopment of a very active training market inwhich a large number of private trainingproviders compete for public funds or privatetraining investment.

Unfortunately the reforms have so far hadonly a limited distributional (equity) impact,with the greater part of state-subsidized train-ing taking place in larger firms (which wouldprobably have trained their staff without stateincentives) and for top-level personnel. Thereare also doubts about the quality of some of thesubsidized training. This arises, firstly, from theweight given to costs rather than to cost-effec-tiveness in evaluating competitive bids and,secondly, from limitations in the institutionalcapability of the National Raining andEmployment Service (SENCE) to evaluatepropc6als from training providers and tomonitor outcomes (in terms of skill gains orincreased employability).

Despite these limitations, there is evi-dence that decentralization of demand de-cisions to the level of individual firms, 'inter-mediary organizations', and local offices ofSENCE has brought training supply much

nearer to local labour market demand. It hasalso enhanced the capability of the system torespond flexibly to local needs and has stimu-lated the growth of local training providersattuned to local conditions. The system is es-sentially market-driven, with all the strengthsand weaknesses that implies. Clearly the struc-tures are in place for a flexible, responsive andcost-effective training system to flourish,though as yet efficiency (in terms of unit costreduction) and local relevance have not yetbeen fully achieved.

On the debit side, decentralization hasmade it difficult to give effect to various nation-al policies and standards such as those dealingwith the school year calendar; teachers' salariesand career paths; mobility of students betweendifferent types of school; and the treatment ofstudents with special problems (e.g., pregnantgirls). Proper attention to extra-curricular ac-tivities of national importance (for example,anti-drug campa;ps, environmental educa-tion, AIDS prevention etc.) is also difficult toensure under a decentralized system.

Decentralization - ironically perhaps - hasalso tended to increase regional disparities par-ticularly in education. It has contributed to isocial segmentation of educational oppor-tunities in that richer communities have accessto better education and training than poorercommunities. This disparity manifests itself,predictably, in retention rates (higher dropoutrates in poorer communities), learning gainsand academic achievement. It is not clearwhether similar disparities are evident in skillstraining, though one can reasonably assumethat a knock-on effect from a lower education-al base coupled with a more limited trainingprovision would characterize economically dis-advantaged districts and communities.

Notes

1 194 middle level (secondary) technical schools remained privately managed.

2 Up to 1976 INACAP vitas the official Vocational 'B.aining Institution, financed by public budgetcontributions, providing semi-skilled and skilled training services free of charge.

3 Based on a total expenditure of US$ 13.37 million for 1,094 training courses of an average duration of250 hours.

4 Note that in Chile there are no subsidies for investments by training agencies.

26

Bibliography

ODE. 1990. Primer encuentro nacional de educación para el trabajo. (Santiago, Centro de Investigación yDesarrollo de la Educación - CIDE).

Ducci, Maria A. 1991. Financing of vocational training in Latin America (Geneva, IL0)1Vaining Paper No. 71.

INACAR 1976. Fonnulacion presupuestaria paru 1976 (Santiago Instituto Nacional de Capacitación - IN-ACAP).

Martinez, E. 1983. Efectos del incentivo tributario para la capacitación, in Revista de Economia. (Santiago,Universidad de Chile, No. 17, Agosto 1983).

Martinez, E. 1992. Incentivos tributarios para capacitaciOn (Santiago, Centro de Investigacion y Desarrollo dela Educaci6n - CIDE).

Mikhail, S.W. 1992. The impact of technological change on the technical and vocational education and training(Ryerson Polytechnical Institute, Canada).

SENCE, 1981.Estudio de casos sobre los efectos del DL 1446 en las pollticas y programas de capacitación de lasempresas, (Santiago, Servicio Nacional de Capacitaci6n y Empleo).

SENCE. 1993. Boletin estadfstico No. 4. (Santiago, Servicio Nacional de Capacitacion y Empleo).

SERCOTEC. 1991. Encuesta sobre necesidades de capacitación en la pequena industria, (Santiago, Servicio deCooperación Tecnica - SERCOTEC).

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