Chapter 1. Can apprenticeships provide a useful contribution in every country?

Social partner involvement helps establish the core content of programmes

Employers are in a strong position to see if qualifications and curricula meet current labour market needs. They can also guide their adaptation to changing requirements. Apprenticeships are different from many forms of employer-led training as they prepare for an occupation and a career. To achieve this they must contain a large share of strong core content and develop skills specific to the occupation and sector. This is easier to achieve in sectors and occupations where employers (and often unions) are well represented and organised (see Box 1.1 for country examples). Defining the core content of each apprenticeship programme requires taking into account the diverse opinions of employers. Ad hoc consultative arrangements may give undue influence to a few random (often larger) companies (OECD, 2010[1]). At the same time, sometimes employers have incentives to create apprenticeships that narrowly fit a niche sector. However, although such programmes may be of interest of employers, they may create an artificial barrier to labour mobility as they disguise or develop few skills that are transferable to other occupations (Kuczera and Field, 2018[13]). Trade unions can usefully balance the influence of employers and champion interest in transferable skills. In some apprenticeship schemes, trade unions lead the development and running of apprenticeships (e.g. union apprenticeships in the United States).

Social partnership facilitates the delivery of high-quality training

Firms in sectors that have strong social partnerships have access to training know-how and institutional support not available to companies from other sectors and occupations. For example, training offices in Norway are owned collectively by firms and help the delivery of training by establishing new apprenticeship places, training apprentice supervisors and organising theoretical training for apprentices (Kuczera et al., 2008[14]). In Germany, chambers organise inter-company training centres, which complement training undertaken at school and within individual firms (BIBB, 2018[16]). Similarly, in Switzerland, professional organisations run courses in third-party training centres in most occupations, in addition to developing course content and training plans (FDEA, 2008[17]).

Apprenticeships often compete with school-based programmes

Apprenticeship is typically one of several pathways to skills and skilled jobs. When offered at upper secondary level, young people may have a choice between academic or school-based vocational programmes. For example, research found that in Austria, apprenticeships compete with school-based vocational programmes (driving up apprentice wages, as discussed in Chapter 3). Meanwhile in Switzerland, school-based vocational alternatives are less readily available, so the apprenticeship system faces little competition (Moretti et al., 2017[18]). Apprenticeship schemes that build on completed upper secondary education compete with post-secondary and tertiary education.

The nature of competition depends on the country context

In some education systems, young people are tracked into pathways depending on their school results, so choices may be limited to which kind of apprenticeship programme to pursue. At the other extreme, such as in Israel, an apprenticeship is in effect a second chance pathway for school dropouts, rather than a genuine option for young people (Kuczera, Bastianić and Field, 2018[19]). In countries where post-secondary and tertiary education requires paying sizable tuition fees, apprenticeships may be financially attractive (e.g. as in England [United Kingdom] and the United States). Sometimes, ensuring fair competition between apprenticeships and alternative options is a challenge. When apprentices are not entitled to the financial support offered to those pursuing other pathways, competition becomes biased. For example, a recent OECD study of England (United Kingdom) noted that young apprentices are treated as employees and are not entitled to social benefits offered to those in school-based programmes.

Employers also consider apprenticeships among other options

For employers too, apprenticeships are often one of several ways of training and recruiting skilled employees. Firms may see few reasons to offer apprenticeships if publicly funded vocational programmes provide a pipeline of skilled workers. They may prefer to hire unskilled workers and train them on the job or employ graduates of school-based programmes and top up their skills with training.

Apprenticeships must be of high quality to compete with alternative pathways

Beyond the immediate financial implications of different pathways, individual choices (and parental preferences) depend on the prospects that people feel they offer. Individual preferences and employer preferences can be part of a vicious cycle – or a virtuous one. If apprenticeships are of poor quality, employment outcomes for apprenticeship graduates will be weaker. For young people, apprenticeships then become a second choice and those who can, will pursue other options. With apprenticeships of poor quality, employers cannot rely on them as a proof of strong occupational skills, so it makes sense for them to prefer graduates of school-based programmes or those with a post-secondary or tertiary qualification. However, the cycle can also be virtuous: high-quality apprenticeships where apprentices develop useful occupational skills, which are reflected in credible qualifications, will lead to good employment outcomes. For individuals considering different options, an apprenticeship then becomes an attractive pathway to skills; and for employers, it becomes an attractive way of securing a skilled workforce. Chapters 2 to 6 focus on the challenges that arise with designing and implementing high-quality apprenticeships, and how they may be addressed.

Apprenticeships are easier to implement in regulated occupations

With a regulated occupation, the qualification delivered at the end of an apprenticeship is essential for both individuals considering pathways to skills and for employers in search of suitable employees. Without the qualification, skills learnt on the job would be of little use, as a skilled but unqualified person would not be allowed to work. However, in non-regulated occupations, other types of work-based learning may suit both learners and employers – an initially unskilled employee might pick up skills on the job and relevant work experience may be enough to prove their skills and progress throughout their careers.

Another factor that facilitates the implementation of apprenticeships is that the required qualification for an apprentice in a regulated occupation clearly sets out what is expected of a qualified person. Where occupational standards in terms of content are already explicitly or implicitly agreed in the labour market, apprenticeship programmes can build on these standards. This commonly agreed core skillset is at the heart of apprenticeship programmes – they ensure that, for example, an apprentice logistician in one firm develops the same core “logistician skillset” as those training in other firms.

The extent of occupational regulation varies across countries

Countries (and sometimes regions within a country) vary a great deal regarding which occupations require a particular qualification to practice (Koumenta et al., 2014[21]). Regulation is widespread in occupations where there are compelling health or safety concerns (e.g. electrician, occupations in healthcare), but some countries regulate access to occupations such as car mechanic, florist or manicurist, while others do not.

Collective agreements sometimes create qualification requirements

Sometimes, collective agreements established between social partners specify access requirements to a job or regulate promotion criteria, making a specific qualification necessary to reach the next step in the career ladder. The practical implications are similar to those of occupational regulation: a specific qualification will be necessary to fully pursue a career in the occupation concerned.

Employers are more likely to expect a relevant qualification when firing is hard

Stringent employment protection makes initial recruitment riskier for employers, because of the difficulty or cost of firing those who turn out to not be suited to the job. When regulation is most stringent for permanent jobs, employers may be particularly demanding when hiring. Research suggests that when employment protection is stringent, firms have higher hiring standards (Blanchard and Landier, 2002[22]; Kahn, 2016[23]), often in the form of expecting a given qualification (Breen, 2005[24]). Research also suggests that qualifications play a particularly important role in signalling people’s skills in countries with larger VET systems, and where schools and employers have close links (Breen, 2005[24]).

Employers can obtain benefits during the apprenticeship programme

Employers will normally provide apprenticeships when they believe that the benefits outweigh, or are at least equal to, the costs (Table 1.1 sets out the main types of costs and benefits to firms). The benefits emerge through two potential channels. First, during the apprenticeship apprentices can contribute to production, initially performing unskilled tasks and gradually undertaking more and more skilled tasks. Second, employers obtain benefits when the apprentice performs those tasks at a lower cost than a regular employee would do.

During apprenticeships, employers bear various costs

Apprentice wages typically represent the largest part of costs to employers (Chapter 3 focuses on apprentice wages). Other pay-related costs include, for example, social security contributions and the reimbursement of travel costs. The second largest cost is usually the cost of apprentice supervisors: skilled employees who spend time away from work to train and guide apprentices. One small research project in Flanders (Belgium) found that the main apprentice supervisors spend a third of their time looking after apprentices (De Rick, 2008[25]). Supervisor costs account for 38% of costs in Switzerland and 23% of costs in Germany (Strupler, Wolter and Moser, 2012[26]). Further costs for employers arise from paying for tools and equipment used by apprentices. Offering apprenticeships also involves administrative costs.

After the end of an apprenticeship, employers can reap benefits through recruitment

The second channel of potential benefit relates to longer-term returns. Upon completion, employers can select reliably productive apprentice graduates, rather than hire employees from the external market. Recruiting former apprentices means the company saves recruitment costs as they do not need to pay for job advertisements or organise interviews, and the company’s former apprentices can skip much of the initial training that external recruits need (Mühlemann and Leiser, 2015[27]). Retaining a former apprentice as a skilled worker also minimises the risk of wrong recruitment, as the employer will know how the person performs at work – something much harder to judge when considering external candidates. In addition, once a former apprentice is recruited, the company might choose to pay them a wage slightly below their productivity, because they have privileged knowledge of their performance (Acemoglu and Pischke, 1999[28]). Such “recruitment benefits” are a major factor in motivating firms to provide apprenticeships in many occupations and countries.

Several factors that affect the cost-benefit balance to employers can be subject to policy influence

Chapters 2-6 discuss in detail how the following factors influence the provision of apprenticeships and present related policy messages:

• Apprenticeship duration: Initially, apprentices tend to contribute little to productive work, and often cost more than they produce. However, at the final stages, apprentices can contribute to production with their skills but are still cheaper than skilled workers, which can allow employers to reap net benefits.

• How an apprenticeship is organised: While apprentices are off the job they develop job-relevant skills, but do not contribute to production. What exactly apprentices do while on the job is also important: productive work always benefits employers, whereas learning activities bring benefits later when apprentices use their newly learnt skills to work. With care, learning can often be integrated into productive work, yielding higher benefits for firms.

• Incentives: Firms may receive subsidies or benefit from tax breaks when they take on an apprentice. Some incentives may be non-financial, like linking the award of public procurement contracts to the provision of apprenticeships.

• Apprentice wages: Representing the largest share of costs to employers, how apprentice wages are set, and their amount, have a strong impact on the cost-benefit balance. While policy makers typically do not set apprentice wages, policy tools can influence them.

• Apprentice characteristics: Apprentices with stronger skills will be more productive throughout the apprenticeship than those with weaker skills, and will generate higher benefits for the employer.

The design of schemes can be adjusted to contextual factors

Some factors are part of the broader context and are not directly influenced by apprenticeship policy. They also affect the cost-benefit balance to employers and need to be taken into account when setting the parameters of apprenticeship schemes. These factors include:

• Wage context: Apprenticeships will be financially more appealing for employers if there is a large difference between the wages of apprentices and those of skilled workers. Minimum wage laws and collective bargaining agreements are often important as they affect the wage costs of workers and apprentices.

• Labour market features: There will be more room to reap “recruitment benefits” if hiring in the external labour market is hard and expensive. This is the case when the labour market is tight, so jobs are abundant and relatively few people are in search of a job (Mühlemann and Leiser, 2015[27]). Employment protection is also important: when it is costly to fire a recruit who turns out to be a poor choice, an apprenticeship can be a good way of reducing the risk of wrong recruitment.

• Occupation: How long it takes for an apprentice to become proficient at a job varies across occupations, as does the cost of equipment involved, so the cost-benefit balance during apprenticeships varies. Potential “recruitment benefits” also vary: hiring costs tend to be higher in jobs that require sophisticated technical skills (Mühlemann and Leiser, 2015[27]).

• Firm size: The cost-benefit balance during apprenticeships varies with firm size: larger firms exploit economies of scale (e.g. training several apprentices on the same equipment), and sometimes have better opportunities to train apprentices while involving them in production. On the other hand, larger firms tend to train more in technical occupations (with higher training costs) than smaller firms, which often hire apprentices in the crafts sector. Larger firms are more likely to realise “recruitment benefits” as they tend to face higher hiring costs and more often recruit their apprentices as skilled workers (Mühlemann, 2016[29]).

The attractiveness of an apprenticeship to potential apprentices depends on various factors

The apprentice wage and labour market prospects affect the attractiveness of apprenticeships to young people or adults considering training options. When apprenticeships are more attractive, employers will have a greater pool of better prepared and skilled applicants, and a lower risk of costly dropout.

Data reveal a great deal of variation in the cost-benefit balance of apprenticeships to employers

Empirical evidence shows that the cost-benefit balance varies across countries and across firm types and occupations within countries. Surveys have been conducted in Germany and Switzerland, and more recently in Austria (see Box 1.2), which reveal major differences between these three countries, which all have a long-standing tradition of apprenticeships. For example, an average Swiss firm generates a net profit, while an average firm in Austria and Germany incurs net costs while providing apprenticeships (Dionisius et al., 2008[30]; Moretti et al., 2017[18]). In terms of compensation for investments during apprenticeships, both Austrian and German companies are more likely to retain their apprentices as skilled workers, thus reaping benefits from recruitment (Mühlemann, 2016[29]; Moretti et al., 2017[18]). Austrian firms also receive subsidies. Within countries, empirical evidence reveals variations in the cost-benefit balance across firm types and occupations (see for example Figure 2.1 in Chapter 2).

Empirical evidence can help assess the implications of policy choices

Empirical evidence can be used to simulate different scenarios and inform choices regarding different parameters of apprenticeship schemes, for example, higher or lower apprentice wages, or changes in time spent in the workplace or in tasks performed by apprentices. For example, Moretti et al. (2017[18]) argue that if apprentice wages in Austria were set like those in Switzerland, and Austrian apprentices spent as much time at work as Swiss apprentices, an average Austrian firm would generate net benefits during apprenticeships.

Some studies have used apprenticeship data from countries where cost-benefit surveys have been conducted and combined these with contextual data (e.g. wages of skilled and unskilled workers) from another country. For example, a study using Swiss data in the context of VET in Spain (Wolter and Mühlemann, 2015[31]) concluded that three-year programmes yield more benefits to employers than shorter programmes, and that most apprenticeships can be offered with a high apprentice wage, while being still profitable for firms. Similarly, Wolter and Joho (2018[32]) used data from Switzerland to simulate the costs and benefits of apprenticeships and rates of return to individuals in the English context considering different scenarios. The analysis suggested, for example, that programmes that last at least three years and engage young apprentices have the most favourable cost-benefit balance for firms.