What is missing in Australia's skills training market

The Foundation's report Britain's Got Talent: Unlocking the demand for skillsargues that government's investment in human capital would be far more effective if training providers were 'liable for the labour market value of the skills delivered'. They contend that providers are well placed to do this because they are embedded in local economies. So it is easy for training providers to approach employers, identify their skill needs and to work out how to supply the skills they need. They can then use this information to encourage candidates to take the courses linked to local employer demand for skills. Their incentive is that at least some of their funding will be dependent on showing that the training has led to improved employment outcomes.

A government's investment in skills training can be more easily justified to the public if its link to lifting productivity can be shown in the form of existing employees's higher wages and job seekers' employment rates. This focus on outcomes will also make training providers more accountable for how well they can deliver the skills that employers value.

Training providers will have to take on some of the financial risk for delivering good labour market outcomes. This proposed arrangement is similar to the system of payment by results used by the Australian Government to allocate funding for placing job seekers in work.

The cost to government of providing good information on employment outcomes at TAFE Institute level and the incentive to do will be a small proportion of the savings to state budgets from training blow-outs.