Human capital theory and UK vocational training policy

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Abstract
Since the Industrial Training Act of 1964, the UK government has adopted a variety of policies intended to redress a problem of under-investment in vocational training. In the 1960s and 1970s it attempted to regulate the training provided by firms, through a levy scheme. More recently, subsidised training schemes have been the centrepiece of policy. This paper examines the explanations for market failure in vocational training, and explores the rationale for such policies. Under-investment can arise from credit constraints and uncertainty facing trainees, and from imperfect competition in the labour market which creates external benefits for firms. Both subsidies and regulation can be effective in dealing with these problems, although it is argued that the training levy scheme, as implemented in the UK and other countries, should be viewed mainly as a mechanism for releasing credit constraints.

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