Training Levy-Rebate Incentive Scheme and SME Training Consortium Program to Address Unemployment and Low Productivity in SMEs – A Korean Policy Case

Case overview

This case study examines the origin, aims, execution, and achievement of the Small and Medium Enterprises (SMEs) Training Consortium Program in Korea. This Korean government program, which took place from 1990 to 2003, successfully addressed issues of low productivity and unemployment in the SME sector.

In the mid-1990s and in the aftermath of the 1998 Asian financial crisis, Korea’s enterprise sector was badly affected by high unemployment and low productivity of industrial workers. This caused a sharp deterioration in the quality of life of many workers, as well as generally low global competitiveness of Korean enterprises. Mass unemployment drew government attention to the issue of poverty and the importance of protecting and creating jobs by enhancing the skills and productivity of industrial workers.

Intervention

The demand for improved human resources in the growing export-oriented and industrializing Korean economy was effectively achieved by government intervention that promoted an increased role of private players in training markets. These flexible reforms in the skills development policy, which responded to the international financial crisis and changing market needs, caused a structural change in the existing training levy incentive system and created an institutional mechanism for SMEs to engage voluntarily and collectively in training their workers. The training levy incentive system obligated all enterprises to pay levies to fund a training program; as an incentive to encourage the provision of training for workers, enterprises were then eligible for the reimbursement of their training expenses.  However, SMEs remained less likely to avail themselves of training opportunities; further mechanisms were needed address the financial and institutional bottlenecks that kept SMEs from training their workers, and the inequitable situation that developed between large enterprises and SMEs in the operation of the workers’ training levy-rebate system. And the mechanism that emerged was a SMEs Training Consortium (T.C.) Pilot Program to address the challenges of the existing training-levy grants (rebate) system in 2001.

Key stakeholders

Ministries of Labor and Industry, Small and Medium Enterprises Administration of Korea, Korea Chamber of Commerce and Industry (KCCI), Provincial and Municipal Governments,

Development Challenges

Increasing the employment rate and improving the productivity of industrial workers during the 1990s.

Delivery Challenges

The Low Participation of Enterprises in Training Programs and less utilizing of the training levy-rebate policy in inducing SMEs to use the benefits of the program. Few SMEs made full use of the levy-rebate system by undertaking training activities to secure reimbursements. This was due to organizational, information, technical and managerial constraints, while large enterprises were not confronted with these kind of barriers.

Lessons Learned

  • Informational, institutional and management constraints affecting SMEs was improved by active engagement of the Training Managers of each Training Consortium in prioritizing of training, monitoring, and evaluation, contracting training institutions, and the training-levy rebate process on behalf of member SMEs.
  • Actively engaging SME members in internal bodies like the TC Operations Committee created ownership and strong partnership among stakeholders.
  • Taking care to establish training facilities in convenient geographical proximity to the member SMEs they served better allowed the member SMEs to actively and enthusiastically participate in the training programs.
  • Separate from the in-house training, the software infrastructure for vocational training management including skill test system, training for instructors, research programs, finance system, provided a smooth takeoff of TCs helping TC to induce SMEs to undertake vocational training for their worker. 
  • The Government of Korea found that financial assistance for the recurrent expenses of a TC was more effective than covering the capital expenses of the training suppliers; covering the provision of training managers for each TC and adequate operation of the training mangers both in-plant and on-the-job.
  • Adaptive implementation during the course of iterations on SME Training Consortium program enabled the program to benefit from the accumulated experience and knowledge generated during the course of implementation.