KfW Research: Just over a third of SMEs continue upskilling their employees

• Coronavirus crisis is dampening businesses’ activities
• In 2020, companies spent EUR 1,300 per employee and only EUR 10 billion in total on continuing education
• Transition to digital and climate-neutral economy also requires a new continuing education culture

The transition to a digital and climate-neutral economy requires extensive changes to workforce skills. Companies are important actors in both the dual vocational education and training system and in-service training. However, an analysis conducted by KfW Research on the basis of the representative KfW SME Panel revealed that the coronavirus crisis in the year 2020 put a damper on continuing education and training activity. Only one in three (36%) of small and medium-sized enterprises offered their workforce continuing education and training. Before the crisis, that figure was 50-55%.

The new analysis of KfW Research also shows that of the 36% of companies offering training, 24% conducted such training themselves, 22% paid for the costs of external training and 15% allowed their workers to leave the workplace for training. Of all the 32.5 million employees in the German SME sector, just under one fourth (23%) attended in-house training and education events in 2020. On average, companies spent EUR 1,300 on each training participant. Aggregate expenditure on continuing education and training in the SME sector thus amounted to around EUR 10 billion. This investment in human capital represented roughly 5% of total SME investment in plant, equipment and buildings (EUR 204 billion).

A look at the continuing education rates of the individual federal states shows that most were close to the national average. Positive exceptions were the eastern German states of Brandenburg, Saxony-Anhalt and Thuringia, as well as Hessen, with 40–42% each. In the North, the continuing education rate was well below average: Hamburg and Schleswig Holstein were at 25% and 27%, respectively.

Businesses mention lack of IT skills time and again as one of the most frequent barriers to digitalisation. Thus, courses included digital skills in the vast majority (84%) of enterprises offering training and education in the year 2020. These skills even played a key role in half the companies (49%). Basic digital skills such as knowing how to use computers and standard software were the most common subjects of courses (in 77% of companies offering training and education). Advanced digital skills such as programming and statistical analysis skills were addressed by almost half the SMEs offering continuing education and training (47%).

“The data from the KfW SME Panel on the topic of continuing education and training reflect the situation in the midst of the coronavirus crisis. Hope remains that they mark a low point and that continuing education and training activities will pick up pace quickly”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “After all, continuing education is becoming increasingly important in the structural transformation – both for individual success in the job market and for the productivity of the whole economy.”

But even a rapid return to the pre-crisis level would not be sufficient to overcome the current challenges. Digitalisation and the urgent transition to climate neutrality are constantly changing the demands on workforce qualifications. A crucial problem is that in its current state, the continuing education sector is too complex and informal, with supply gaps and insufficient participation. “In order to successfully transition to a digital and climate-neutral economy, we need a new continuing education culture, we need systematic and high-quality continuing education on a broad scale”, added Köhler-Geib. “To achieve this, we need to address three issues: 1. Improve the supply by setting minimum state standards and giving tertiary and vocational education providers a key role as providers of continuing education and training. 2. Expand financial support, 3. Provide freedom from time constraints through digital learning and improved support infrastructure to reconcile work, family life and education.”

The current analysis can be retrieved at
www.kfw.de/fokus

The dataset:
The analysis of continuing education and training activity in the SME sector is based on regular supplementary surveys under the KfW SME Panel. It has been conducted since 2003 as a tracking survey of small and medium-sized enterprises in Germany. It is the only representative survey of the German SME sector, making it the most important source of data on issues relevant to the SME sector and for informing policymakers. The survey of the 19th wave of the KfW SME Panel was conducted in the period from 15 February 2021 to 25 June 2021. Responses from approx. 10,600 enterprises were used for the assessment of continuing education and training.