Activity Guidelines for the Employers and Human Capital Development Administration

The Employers and Human Capital Development Administration—a three-way joint project of the state (at the time, the Labor Branch), employers (the Socioeconomic Forum established by the Israeli Presidency of Business Organizations), and the workers (Histadrut)—began to function in January 2021, based on the recommendations of a report by the Israel Democracy Institute. A review of the recommendations of the previous report shows that after two years of activity, most of the tasks that the Administration took upon itself have been accomplished. Concurrent with the establishment of the Administration, significant changes were made in the Vocational Education and Training (VET) Department in the Labor Branch, also contributing to the Administration’s success. In this report we focus on the activity of the Employers Administration only, not to minimize the contribution of the process that has taken place in the past two years or more in the VET Department.

The report that follows demonstrates that since the establishment of the Administration in early 2021, most of our recommendations in the previous report have been implemented: An integrative body for professional training (known as the Employers and Human Capital Development Administration) was established as a joint initiative of the Socioeconomic Forum and the Labor Branch; the involvement of employers in the industry-wide vocational committees that determine the content of training programs was promoted (led by the VET Department); the scope of training programs was significantly expanded as part of an On-the-Job  Training (OJT) model, made possible in part thanks to productive cooperation between the VET Department and the Employers Administration. In addition, the Labor Branch promoted a partial switch to a model of results-based funding of training programs, and funding was made contingent on the employers’ involvement and on the results of each training program. Furthermore, the Administration promoted the enrollment of target populations in training programs offered in conjunction with employers.

However,  several  important  recommendations  have  not  yet  been implemented: Not enough has been done to promote training programs for workers currently employed, with emphasis on lifelong learning (LLL); no significant changes have been made in the system of training programs in preparation for anticipated changes in the labor market, such as the rising need for certain occupations and fields due to the switch to a low- emission economy (green employment), or in preparation for anticipated technological changes, especially digitization and the increased role of artificial intelligence, which are expected to affect how all jobs are done.

The purpose of this report is to give the decision-makers in regard to the Administration’s activity a set of recommendations for improving its operation, based on a review of the present activity and a comparative international review.

The literature presents general justifications for government intervention in the VET system based on market failures: Employers cannot always visualize the overall economic return on their investments in VET, so they will often not invest in training programs to the extent necessary from a perspective of the general economy. Moreover, employees do not always understand or are not capable of assessing the potential future benefit to them of investing in training programs, or they cannot afford the training program and therefore may not maximize the potential inherent in VET. Furthermore, as the leading international bodies present it, the justification for three-way cooperation in the training system is that it is a common interest of all three players—the state, the workers, and the employers—all of whom benefit from it.

The international comparison shows that the countries similar to Israel in terms of having agencies comparable to the Administration are Switzerland, Germany, and Finland. These three countries are characterized by relatively high government involvement in training programs, as is Israel. The models in these countries are considered successful according to the indices used to select successful comparison countries: They have high labor productivity, low inequality, and a low mismatch between the workers’ skills and their actual occupations. The comparison shows that before the establishment of the Administration and the reform in the VET Department, Israel was the closest of these countries to the “regulation model” (a model that exists in countries such as China, where the entire system is managed from above by the state).

The report indicates that the activity of the Employers Administration currently complies with the fundamental recommendation of the International Labor Organization (ILO) that three-way cooperation be maintained among the players. According to the ILO, as well as the writers operation, based on a review of the present activity and a comparative international review.

The literature presents general justifications for government intervention in the VET system based on market failures: Employers cannot always visualize the overall economic return on their investments in VET, so they will often not invest in training programs to the extent necessary from a perspective of the general economy. Moreover, employees do not always understand or are not capable of assessing the potential future benefit to them of investing in training programs, or they cannot afford the training program and therefore may not maximize the potential inherent in VET. Furthermore, as the leading international bodies present it, the justification for three-way cooperation in the training system is that it is a common interest of all three players—the state, the workers, and the employers—all of whom benefit from it.

The international comparison shows that the countries similar to Israel in terms of having agencies comparable to the Administration are Switzerland, Germany, and Finland. These three countries are characterized by relatively high government involvement in training programs, as is Israel. The models in these countries are considered successful according to the indices used to select successful comparison countries: They have high labor productivity, low inequality, and a low mismatch between the workers’ skills and their actual occupations. The comparison shows that before the establishment of the Administration and the reform in the VET Department, Israel was the closest of these countries to the “regulation model” (a model that exists in countries such as China, where the entire system is managed from above by the state).

The report indicates that the activity of the Employers Administration currently complies with the fundamental recommendation of the International Labor Organization (ILO) that three-way cooperation be maintained among the players. According to the ILO, as well as the writers of this report, such cooperation contributes to improving the match between the needs of business-sector employers and the fields in which VET is offered and the nature of the training. Therefore, we consider the continued existence of this body highly important.

In this report we found that the Administration promotes the goals, objectives, and tasks defined for it in the contractual agreement signed between the Labor Branch and the Socioeconomic Forum. The report indicates that the Administration has been operating with substantial success to match the personnel needs in the labor market with the fields in which VET is offered. Thus, the Administration promotes VET programs in conjunction with employers and creates work interfaces and a connection between the Labor Ministry/Branch and employers. Another objective that the Administration took upon itself later—to increase the proportion of “diversity populations”—is still in the relatively early stages, but our impression is that this objective is included in the Administration’s work plans for the future.

In addition, in the first two years of its activity, the Administration accomplished a substantial portion of the tasks set for it in the contractual agreement, including gathering information and identifying employers’ short-term needs, helping employers develop training programs, and involving employers in designing and implementing the training programs. Particularly worth noting is the fact that in just two years the Administration managed to build an organized infrastructure of employer relations, including making the Labor Branch’s employers’ portal accessible and establishing an information presentation system as part of the customer relationship management (CRM) system, and held numerous roundtables incorporating the employers’ representatives.

These activities of the Administration, as described above, are an impressive achievement considering the extremely short time in which they were accomplished—about two years since its establishment in early 2021. The Administration created impressive infrastructure, enabling the Professional Training Branch to offer many more training programs in conjunction with employers. In 2021 and 2022, the number of trainees in programs conducted in conjunction with employers shot up to a total of 15,800, compared to a yearly average of 900 in 2010–2019. Most of the increase in 2022 was in on-the-job training (OJT); the Administration also took action to make such training programs accessible to small and medium-sized businesses, which accounted for 82% of employers receiving funding in 2022.

The objective of offering training in high-paying, in-demand fields also seems to have been achieved: In 2022 the highest proportion of trainees was in software development, along with a large number of trainees in quality control and quality assurance. These fields combined account for 20% of total training programs, whereas 10% of the total wage-earners in the country work in high tech. Moreover, a high proportion of trainees who took part in the OJT track in 2022 (43%) received salaries of at least NIS 8,500 afterwards and their employers were consequently eligible for high-salary grants (given for each employee who earns a starting salary of at least that amount). The starting salary of graduates of training programs in the “Class on the Job” track averaged close to NIS 10,500.

These data from the Employers Administration reinforce the assessment that the Administration’s activity contributed to an improvement in the match between the various training tracks and market needs: In 2022, three of the five most common occupations for which training programs were offered in conjunction with employers were at the top of the list of job vacancies published by the Central Bureau of Statistics: software developers, security personnel, and cooks.

Furthermore, there are indications that most of the surge recorded in 2022 in training programs in conjunction with employers (with government funding) did not come at the expense of privately funded training programs; it was not a matter of government money replacing private money. Therefore, most of the government-funded training programs presumably addressed existing market failures and did not replace private funding with government funding.

As for the forecast of long-term training needs, we believe that long-term planning of the VET needs of the economy cannot be based solely on employers’ needs in real time or on a mapping of medium-term needs. Rather, it must also be based on a comprehensive strategic plan developed by the government (the strategy department of the ministry in charge of the matter). This is because long-term planning of training needs must be based in part on forecasts of overarching trends by international organizations, such the anticipated demand for ecofriendly fields in view of the expected switch to a low-emission economy, the anticipated increase in demand for nursing and care workers in view of the aging of the population, and the widespread use of artificial intelligence in the labor market, for which all workers in the country will require training. The government must ensure that the VET system addresses these overarching trends in time.

On the whole, the writers of the report were impressed that the Administration’s activity had contributed greatly to improving the activity of the VET Department of the Labor Branch by helping the department’s staff “speak” the employers’ language. In this respect, the Administration’s activity was effective thanks in part to the openness of the VET Department of the Labor Branch to collaborating with the Administration and to the introduction of a work culture that is attentive to insights gained by the Administration regarding employers’ actual needs. Without the mutual cooperation of the Administration and the VET Department, the achievements of these two bodies would not have been possible.

In addition, the Administration worked with employers, encouraging them to become involved in and accept greater responsibility for the training—both the content and the subsequent implementation. The Administration quickly became the major player accessible to employers with respect to training programs, took action to improve employer-government relations, and promoted improvement and streamlining of the provision of digital and other services to employers (service-level agreement, or SLA), including aid and ongoing assistance to employers in all stages of the funding process for training programs. From the interviews with all the stakeholders, it emerges that most of them believe that the Administration contributed to improving the synchronization between the VET Department and the employers’ needs.

However, until the signing of the coalition agreements in late 2022, the budget for professional training programs was under the Labor Branch, which also had authority and responsibility for the entire system of government-funded VET programs, including oversight and monitoring, policymaking and formulation of professional standards, specifications for regulation, and the transfer of funds. According to the coalition agreement in late 2022, the Labor Branch, including the VET Department, was taken out of the Ministry of Economy and moved to the Ministry of Labor, whereas the Employers Administration remained in the Ministry of Economy. This unnatural split caused uncertainty regarding the division of responsibilities and powers between the ministries, which severely harmed the functioning of VET activity in the entire first half of 2023. In the 2023/24 budget, approved in late May 2023, it was decided that the budget VET in conjunction with employers would be transferred to the Ministry of Economy along with the Employers Administration, whereas the VET Department, which until then had all administrative authority for the training system, remained in the Labor Ministry with a reduced budget for the vouchers plan and so on. As of the writing of these lines, it is not clear to everyone involved (including the Ministry of Labor, Ministry of Economy, and Employers Administration) which of them is responsible for planning, overseeing, and implementing the training system. This situation is not tenable, as it causes severe harm to the workers and employers who are waiting for training programs and to the potential for increasing labor productivity in Israel.

Action must be taken urgently to rectify the situation. We urge that the Administration be kept under the same ministry as the VET Department. Alternatively, if the problematic split remains in effect, work mechanisms should be created that will enable the VET system to function properly again and eliminate the uncertainty that has led to a total freeze on government-funded training programs.

To sum up, the establishment of the Administration, together with the reform initiated in the VET Department of the Labor Branch, enabled Israel to embark on the right path toward the comparison countries that we hope to emulate—countries with high labor productivity, low inequality, and a relatively low mismatch between supply and demand (e.g., Switzerland, Germany, and Finland). In our estimation, improving the activity of the Administration in accordance with the recommendations presented in this report will move Israel another step in the direction of those countries.

Despite the successes and the importance of the establishment of the Administration, the overview of the present situation indicates numerous challenges—as expected of a new body established rapidly in response to the Covid-19 crisis. The following are the recommendations for improvement.