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TRAINING LEVIES: RATIONALE AND EVIDENCE FROM EVALUATIONS Amit Dar (HDNSP), Sudharshan Canagarajah (HDNSP) and Paud Murphy (AFTH1) (December 2003)TRAINING LEVIES: RATIONALE AND EVIDENCE FROM EVALUATIONS I. Introduction Training systems in many developing countries are confronted with trying to develop strategies about how to enhance their efficiency and effectiveness. While there are many important elements to such a strategy, one important issue is that of financing training. An appropriate financing policy should ensure both the stability of funding needed to develop the capacity for policy implementation as well as the level of financing to improve training outcomes (World Bank, 1991). The claim on public resources for vocational education and training is much less strong that that for lower levels of education in most countries. Furthermore, in many developing countries, government budgets constitute a vulnerable and unreliable source of financing for training. Thus an important objective in the financing of such a system is to increase the contribution of beneficiaries – both employers and trainees. This paper examines one of the most commonly used techniques for generating resources from employers – payroll levies. A number of countries have resorted to imposing payroll taxes on enterprises, which have become a significant source of financing for skills training, both in specialized training institutions or in enterprises (Middleton, Ziderman and Adams, 1993). The key principle behind such schemes is “who benefits pays” – according to the human capital model developed by Becker (1964), while the cost of completely general training should fall on the trainees, employers should share in firm-specific training costs. Another rationale for such schemes is usually that governments feel that because the firms are contributing financially, such interventions will encourage them to put greater emphasis on…

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