Cost-Benefit Study of the Dual Training System (DTS) in the Philippines

1. Cost-Benefit Study of the Dual Training System (DTS) in the Philippines Prof. Dennis S. Mapa, Prof. Josefina V. Almeda and Prof. Manuel Leonard F. Albis School of Statistics University of the Philippines Diliman

2. Motivation • Reducing youth unemployment in the country is a major policy challenge that confronts our leaders today. • The most recent labor unemployment data from the PSA shows unemployment rate at 5.4 percent in July 2016. • Almost half of the unemployed belongs to the 15 – 24 age group. This high youth unemployment is deplorable given the high expectations of the youth of better economic opportunities as they transition from school to the labor force. • One often cited reason for this high youth unemployment is the job-skills mismatch.

3. Motivation • The concern on the job-skills mismatch can be addressed by the Dual Training System (DTS). • The DTS is a training modality combining theoretical and practical training. The phrase “Dual Training” suggests that training occurs in two venues: the academic institution and the firm. • The vital component of the DTS is the school-industry partnership. • The school (training institution) and the firm (industry partner) work together in designing the training plan

4. Cost – Benefit Study on Dual Training System (DTS) • TESDA and the PCCI are interested in conducting a Cost Benefit Study (CBS) of the DTS to determine the desirability of the program given the cost and benefits for the firms. • If the benefits that can be generated by the firm outweigh the cost of training the student, there is the likelihood that the firm will continue investing and participating in the DTS. • The result of the study will provide the empirical evidence to the policy recommendations to expand and improve the DTS.

5. Objectives of the Study • Determine and analyze the types and amounts of benefits which enterprises receive in relation to their costs in implementing DTS; • Raise the awareness among enterprises and intensify their involvement in TVET, particularly DTS; • Establish baseline information on DTS program costs and benefits (enterprises and TVET institutions)

6. Motivation of Firms to Train • Production motive: firms train mainly because they want to benefit from the trainees’ productive contribution (Lindley, 1975) • Investment motive: firms train because they want to retain the trainees after training and ensure the skills of future employees (Merrilees, 1983) • Screening motive: firms use the training period to observe the trainees and choose the best for retention (Stevens, 1994) • Social responsibility: firms train because they want to give young people the possibility to integrate in the labor market (e.g. Beicht et al, 2004) • Reputation motive: firms expect that clients, potential employees, and suppliers have a better image of the firm when they train (e.g. Niederalt, 2004)

7. Why Measure the Costs and Benefits • The functioning of the dual system relies strongly on the firms willingness to train. • Rational firms act mostly according to cost benefit expectations. • Measuring the firms’ costs and benefits validates and revises the attractiveness of the dual system from the firms’ perspective. • Detecting the determinants of costs and benefits of training helps to ensure the functioning of the dual system.

8. Cost-Benefit Model • Many aspects of the long term benefits are difficult to report in monetary terms • Therefore, we measure only the costs and benefits during the training period • Benefitsduring training period • Productive contribution of trainees • Funds from program (e.g. tax rebate) sponsored by the National or Local Governments • Costsduring training period • Costs for trainees and training personnel • “Physical” costs (material, practice centers) • Other costs • Net costs = gross costs – benefits of training

9. Training costs

10. Training benefits

11. Number of Firms Participating in the Survey

12. Main Classification of Firms

13. Results from the Cost-Benefit Study

14. Aggregated Costs per Trainee per Month Average aggregate costs is about Php 12,801 (US$ 270.00)

15. Aggregated Short Term Benefits per Trainee per Month • Average short term benefits (Php 5,487 or US$ 116) is about 43 percent of total costs. • Average net costs is about Php 7,314 (or US$ 154) per trainee. • Average short term benefits is almost equal (at the sample) compared to the direct costs for trainees (Php 5,588 or US$ 118).

16. Aggregated Long Term Benefits per Trainee Productivity difference is about US$ 43 per trainee representing about 16 percent of the average cost.

17. Cost and Benefit in Doing DTS per Trainee for Firms

18. Percentage of Trainees Hired (Retained) by the Firms after the Training

19. Results from the Study • The study revealed that the combined short-term and long-term benefits derived by the firms from the DTS program clearly outweigh the overall costs. • The simulations made for firms in the Manufacturing and Hospitality sectors on the combined short and long term benefits of the DTS program showed such could be higher than overall costs by at least 30 percent. • Calculations made showed that combined benefits can be higher than average costs (for firms in the NCR, Region 3 and Region 4A) and thus, it will be worthwhile for the firms to participate in the DTS program.

20. Results from the Study • Moreover, the DTS program produces substantial positive spillover effects on the DTS trained workers – they become more productive, as shown by the substantial long-run productivity difference between a DTS-trained and Non DTS-trained workers. • In addition, one-in-three DTS student-trainee is employed by the firm that trained them. • Higher probability of being employed is the trademark of the enterprise-based program such as the DTS, over other modes of training.

21. Policy Recommendations • The success of the DTS program depends on the individual actions and cooperation among the three key players in running the DTS: TESDA, TVIs, and the Firms. • The TVIs should be flexible enough to catch up with the changes in the technology through capacity building of the TVI trainers. Partnering with the firms where the firms’ training personnel to actually train the instructors of the TVIs on the use of the latest technology may be an area that TVIs should look into.

22. Policy Recommendations • Monitoring of Firms and TVIs for TESDA: • The need to have an updated database of TVIs in order to identify which TVIs are offering DTS, and determine how many students are doing DTS and which firms are TVI partners. The list of TVIs and firms under the TESDA’s monitoring office should be evaluated regularly. • To properly monitor the employment rate of DTS student-trainees in TESDA and to validate if the employment is in the formal sector or informal sector (type of industry or services).

23. Policy Recommendations • For TESDA to help the firms, particularly firms classified as micro-enterprise, where the average cost of doing DTS is relatively high, on how to avail of the government incentives, such as tax incentives, related to the DTS program. The procedures on how to apply for the incentives for the firms should be clarified and simplified. • For TESDA to engage the companies in these sectors (Construction and Motor Vehicle Repair) to find out how the costs of running the DTS program can be reduced. At the current state, given the high overall costs per trainee, this may create a disincentive for other firms in the same sector to participate in the DTS program.

24. Policy Recommendations • To review the current DTS training duration. Empirical evidence suggests that average combined short-term and long-term benefits are higher when firms have training duration between 3 to 12 months and more than 12 months. • Review the DTS Law for possible amendments in Congress.

25. Policy Recommendations • The PCCI should strongly encourage its members, at the national and local levels, to participate in the DTS program. PCCI should promote the DTS program to its members through one of its standing committees. • To track accomplishment, the PCCI can set its own performance indicators related to the DTS, such as targeting a number of new PCCI members who will join the DTS program on a yearly basis. • For TESDA and PCCI to work together and review the Apprenticeship Bill (HB 1594) and the DTS Law (RA7686), harmonize the features of the two legislative initiatives and come up with a common proposal on the needed amendments to the DTS Law.

26. Thank you very much and good morning. Dr. Dennis S. Mapa Dean and Professor School of Statistics, UP Diliman Email address: csmapa@up.edu.ph