Thursday, May 23, 2013 | Home› Articles
Who’ll pay for skilling?
I think the biggest challenge for skills is who pays. There is a bit of a market failure in skills; companies are not willing to pay for training or candidates, but willing to pay for trained candidates. Candidates are not willing to pay for training, but jobs. Banks or microfinance are not willing to pay for training unless a job is guaranteed. And training companies are unable to fill up classrooms, because many deserving candidates cannot afford the fees. So, the three payers; individuals, government and companies will have to work together to find a financing solution that is scalable, sustainable, transparent and honest.
On an average, the investment per candidate could vary between Rs. 2,000 to 10,000 per month and that depends on the opening balance of the candidate and the job being targeted. But the starting salary for a candidate the same age for exactly the same job profile at entry level could vary 10 times. So, finally, as the market gets efficient and information asymmetry reduces, the investment that candidates should and will be willing to make, will depend on the payback period and probability of the job.
Teamlease is a people supply chain company that is slowly backward integrating. Our core business is staffing; we have hired somebody every 5 minutes for the last five years, but that is only 5% of the candidates who came to us for a job. The staffing business is largely a matching business – the Nobel prize in economics last year went to Peter Diamond for his work on search costs in labor markets, but this gives us an important perch for the skills business because the only programs that will be successful, will be those that pray to one God; ‘jobs’. Employment outcomes are key. We currently offer short-term courses in English, soft skills, accounting, finance, sales, IT hardware and will be soon adding hospitality and retail. Our experience also shows that many candidates who come to us need more than a few months of repair, so we are working with several states to go live with vocational universities that will setup community colleges offering 2 year associate degrees. These associate degrees are not normal degrees on a diet, but vocational training on steroids and will create a missing mobility between certificates, diplomas, associate degrees and degrees.
Currently, employers think differently about stock (existing employees) and flow (new joinees at the bottom). There is a model for short-term upgrade of existing employees and we work with many employees in sales and IT hardware. The challenge lies in fresh joinees because there are three holes in the bucket; you pay for training and the candidate does not get a job, you pay for training, the candidate gets a job, but is not productive; or you pay for training, the candidate gets a job, is productive, but leaves. So, if you factor for learning, productivity and attrition risk, employer funded programs at the bottom of the pyramid have several challenges. The employer funded programs that will work are apprenticeships (they are willing to fund stipends) or reimbursement programs (candidate pays for a program that guarantees jobs, but employers reimburses the fees over the first two years of employment).
Given the impetus on skilling in India over the past years, obviously more has been in skill in the last 4 years compared to the 20 years before that. But purely private funded programs don’t seem to have a clear, sustainable or scalable business model. The ongoing review of regulatory cholesterol (apprenticeship act, employment exchange PPP’s, NVEQF, etc.) has not been concluded and is important enabling infrastructure. This is a complex problem that requires all three stakeholders to work together, because the government has an execution deficit, the NGO sector has a scale deficit and the private sector has a trust deficit. Everybody needs to learn how to work with everybody else if we are going to move the needle on the skill problem.
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