Government funding for tertiary education unfairly favours institutional learning over work-based training, the Industry Training Federation says.
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The federation says in 2016 universities received more than $1.9 billion from the government for facilities, tuition, staff and student loans compared with just $171 million for industry training services.
Industry Training Federation chief executive Josh Williams said more funding for industry training would help solve the labour shortage in New Zealand.
"The skilled trades are the areas in our labour market like construction, engineering, manufacturing, areas in the services industries, the primary sector that are screaming out for skills," he said.
He said students in work-based training would benefit from already being employed, learning as they go, and finishing their qualification much quicker than a degree.
"It's time to start re-balancing our education system and boost investment in workplace learning to make sure our people are ready to meet the challenges posed by changing technologies and shifting skill requirements," he said.
Mr Williams said a quarter of all new trainees and apprentices that entered the workforce last year already had a degree in their chosen industry.