Costs and Benefits of an Individual Learning Account (ILA): A Simulation Analysis for the Netherlands

This study analyses costs and benefits of a public-private funded individual learning account (ILA) for the labour force in the Netherlands. We consider an ILA that is funded by subsidies targeted at low- and medium-educated workers and co-funded by training levies as a share of the wage bill. We simulate two alternative steady-state scenarios about the uptake of resources and increase in training activity, using a lifecycle model of human capital investments. We derive predictions for gross earnings, income inequality and costs (training subsidies and tax deductions) and benefits (tax revenues and fewer unemployment benefits). Our results show how the balance of costs and benefits depends on the interplay between take-up rates, returns to training and the deadweight loss of subsidizing an ILA for the whole labour force. Our model and results contribute to policy tradeoffs about the introduction of ILA’s to stimulate the resilience of the labour force.