The Costs and Benefits of Apprenticeship. Training: Evidence from Swiss Firms

Transcription

1 The Costs and Benefits of Apprenticeship Training: Evidence from Swiss Firms Abstract Dual apprenticeship training, which combines vocational education at school and training at the workplace, is of great importance in Switzerland. More than half of each cohort of school leavers at age 15 enrols in such a program every year. Apprentices spend the majority of their time in a firm; thus economic aspects may play an important role in a firm s training strategy. The results of a representative firm-level survey in Switzerland show that on average the apprentices productive contributions exceed the firm s training expenses by roughly 10%. However, one third of all apprenticeships constitute a net investment to the firm, suggesting potential post-training returns to apprenticeship training. Introduction Dual apprenticeship programs are the most widely applied approach to preparing young adults for the workforce in Switzerland. However, despite its importance and the fact that an apprentice spends the majority of the training program within a firm, a fundamental focus of economic analysis has been long neglected: the economics of apprenticeship training. This may seem somewhat surprising, as economic theory provides suitable tools to analyze important questions that arise in the context of the dual vocational education and training system. Economic factors have a direct and potentially very strong effect on dual apprenticeship training programs. First of all, in contrast to full-time school-based education, where institutions charge tuition for students to attend classes, firms must pay a salary to each 1

2 apprentice, as in doing so they are also in fact employing this trainee. Secondly, in order to provide adequate training, firms must also pay out costly wages of their training personnel for their time spent instructing the apprentice. As well, firms are likely to receive a benefit from participating in training programs due to the potential for apprentices to perform productive tasks for which the firm would otherwise require additional workers. It can be said, therefore, that apprenticeship training creates not only additional costs to a firm, but also generates benefits in return. In this context a natural question arises: do the benefits of training programs to a firm outweigh the expenses they incur? In other words, is engaging in apprenticeship training programs costly or profitable for a firm? Given that private firms are motivated by private interest and freely choose to train apprentices or not, economic theory suggests that firms will train apprentices only if it is profitable to do so. It is clear that training is profitable if training expenses are covered by the value of the apprentice's productive work during the apprenticeship, which is also known as the production motive for apprenticeship training. 1 However, training apprentices might still prove to be profitable to a firm in the long term, even if the training itself is a short-term cost. The reason is that a firm can potentially generate a benefit by employing a former apprentice as a skilled worker. For example, a firm can save on search and recruitment costs that would have arisen otherwise by seeking out a skilled worker on the external labour market. 2 In addition, apprenticeship training might serve as a screening device to reduce the instances of imperfect information about the quality of skilled workers. In this case, firms might want to train apprentices in order to retain those most talented for skilled workers. Through such training, firms are able to recruit and nurture highquality workers that may be difficult to find on the external labour market. 1 Robert M. Lindley, The Demand for Apprentice Recruits by the Engineering Industry: , Scottish Journal of Political Economy 22, no. 1 (1975): William J. Merrilees, Alternative Models of Apprentice Recruitment: With Special Reference to the British Engineering Industry, Applied Economics 15, no. 1 (1983):

3 The importance of vocational education and training has also been recognized by the Organization for Economic Co-operation and Development (OECD). In the last two years, eight countries, including Switzerland, participated in the OECD Policy Review of Vocational Education and Training. The costs and benefits of vocational education and training are recognized as a key topic by the OECD. In 2009 and 2010, such reviews will take place in several other countries. The aim of this article is twofold. Firstly, I provide a detailed description of the methodology that was used to estimate the costs as well as the benefits of apprenticeship training in Switzerland. Secondly, I use a representative data set of Swiss firms to estimate the costs and benefits of apprenticeship training from the perspective of the firm. The results show that apprenticeship training is in fact profitable for the average training firm in the short-run, i.e., by the end of the training period. This means that the costs of apprenticeship training are outweighed by the productive contribution of the apprentice. However, there are about one third of training firms who make a net investment in training. These firms need to rely on some kind of post-training benefits in order to recoup their training investments, which can only be achieved by employing former trainees as skilled workers within the firm. The dual apprenticeship system in Switzerland The dual apprenticeship system 3 in Switzerland has a long tradition in successfully providing young people with formal education and practical training, such that they become productive participants in the labour market. The Swiss apprenticeship system, in contrast to (short-term) on-the-job training programs, provides young people with a substantial amount of human capital over a period of three to four years and with a nationally recognized educational 3 Dual refers to the fact that apprenticeship training takes place at two learning sites; the vocational school and the training firm. 3

4 degree. 4 This certification of skills is very important for the functioning of an apprenticeship system, as it enables apprentices to successfully find employment in other firms. 5 While salaries of apprentices are usually rather low and well below the average wage of an unskilled worker, young people still have a big incentive to enrol in such programs, because their expected earnings after completing an apprenticeship program more than compensate for their low wages during the training period. Completing an apprenticeship in Switzerland increases yearly earnings by 6% for male and 9% for female graduates compared to individuals without any type of post-compulsory education degree. 6 The Swiss (youth) unemployment rate is among the lowest in OECD countries, which might partly be due to the features of the Swiss vocational training system. 7 The dual apprenticeship system is characterized by the fact that apprentices receive part-time education in state-financed vocational schools one to two days a week, where apprentices attend general education classes and also acquire theoretical knowledge about occupation-related topics. In the remaining time, apprentices receive further (formal) training within the training company or participate in the firm s production process. The firm s training personnel are required to complete courses in order to be eligible to instruct apprentices at the workplace, which should guarantee a minimum quality standard of firm-based training. 8 There are some 235 different training occupations to choose from, which are spread across all sectors of the Swiss economy. 9 The firm and the apprentice are required by law to sign a binding apprenticeship contract before the start of training, in which the firm s obligations, including apprentice pay and the provision of formal training at the 4 Similar apprenticeship systems co-exist in Germany, Austria and some Northern European countries, such as Denmark or the Netherlands. 5 Christian Dustmann and Ute Schönberg, Apprenticeship Training and Commitment to Training Provision, Economics of Education Working Paper Series 32 (University of Zurich, 2007). 6 Stefan C. Wolter and Bernhard A. Weber, La rentabilité de la formation: un indicateur économique essentiel à l enseignement, La Vie économique: Revue de politique économique, no. 10 (2005): For an international perspective on the performance of apprenticeship systems, see Paul Ryan, Is apprenticeship better? A review of the economic evidence, International Journal of Training and Development 50, no. 2 (1998): Kathrin Hoeckel, Simon Field and W. Norton Grubb, Learning for Jobs. OECD Reviews of Vocational Education and Training Switzerland (Paris: OECD, 2009). 9 OPET, Vocational Education and Training in Switzerland 2008 Facts and Figures (Berne: Federal Office for Professional Education and Technology, 2008). 4

5 workplace, are specified. It should be noted that this contract cannot be terminated unilaterally by the firm or the apprentice. However, the contract is automatically terminated by the end of the last year of training. Apprentices who pass the final examinations which test practical skills as well as theoretical knowledge receive a federal diploma, attesting to their ability to conduct skilled work in the respective training occupation. Observed mobility of Swiss apprentices is rather high, as roughly two thirds of apprentices leave the training firm within the first year after the end of their apprenticeship program. 10 A further distinctive feature of the Swiss apprenticeship program is that apprentices have the possibility to obtain a professional baccalaureate through a school-based program either parttime during their apprenticeship training, or full-time, after successful completion of their apprenticeship. The share of apprentices that have obtained this professional baccalaureate has increased significantly in recent years and is equal to somewhat more than 10%. A professional baccalaureate provides access to all universities of applied sciences. In 2003, half of all individuals who obtained a professional baccalaureate enrolled in a program at such an institution. In addition, it may even be possible to gain access to universities by satisfying some special admission requirements. However, an apprenticeship certificate on its own grants access to any vocational education program at the tertiary level (ISCED 5B), for example, to become a foreperson or a master. The methodology of cost-benefit surveys The first cost-benefit studies of apprenticeships known to the author have been designed in the 1970s by the so-called Edding-Commission in Germany. 11 Since then, a number of largescale surveys have been regularly carried out to estimate the private-sector expenditures on 10 Samuel Muehlemann, The Economics of Vocational Education and Training from the Perspective of the Firm (Berlin: dissertation.de, 2009). 11 Sachverständigenkommission Kosten und Nutzen der beruflichen Bildung, Kosten und Finanzierung der ausserschulischen beruflichen Bildung (Bielefeld: Bertelsmann, 2004). 5

6 apprenticeship training in Germany. 12 In 2000, the first cost-benefit study was conducted in Switzerland. 13 This survey was carried out in tandem with Germany 14 and, importantly, the same methodology was applied to both studies. Interestingly, the studies showed that apprenticeship training constitutes a net investment for training firms in Germany, whereas it is profitable for an average training firm in Switzerland. Cost-benefit studies in Germany and Switzerland have proven to be important in order to better understand the functioning of apprenticeship systems, especially with respect to the underlying economic factors of the firm s training decision 15 and the firm s demand for apprentices. 16 The empirical results of this article are based on the latest cost-benefit study from Switzerland, which took place in Representative sample of training firms The establishments that were part of the cost-benefit survey were chosen at random from the Swiss establishment register, which is an administrative database of the Swiss Federal Statistical Office that contains all establishments in Switzerland. This approach is necessary in order to obtain a representative sample of training firms, such that the calculated costs and benefits of apprenticeship training are representative for the entire Swiss apprenticeship system and not only a sub-group of specific firms and/or training occupations. In addition to obtaining consistent point estimates, a randomized sampling of firms also allows one to 12 For a detailed literature review on cost-benefit studies and other relevant literature please refer to Regina Dionisius and others, Cost and Benefit of Apprenticeship Training: A Comparison of Switzerland and Germany, Applied Economics Quarterly 55, no. 1 (2009): Stefan C. Wolter and Jürg Schweri, The cost and benefit of apprenticeship training The Swiss Case, Applied Economics Quarterly 48, no. 3 4 (2002): Ursula Beicht, Günter Walden and Hermann Herget, Kosten und Nutzen der betrieblichen Berufsausbildung in Deutschland, (Bonn: Bundesinstitut für Berufsbildung, 2004). 15 Stefan C. Wolter, Samuel Muehlemann and Juerg Schweri, Why Some Firms Train Apprentices and Many Others Do Not, German Economic Review 7, no. 3 (2006): Samuel Muehlemann, Jürg Schweri, Rainer Winkelmann and Stefan C. Wolter, An Empirical Analysis of the Decision to Train Apprentices, LABOUR: Review of Labour Economics and Industrial Relations 21, no. 3 (2007): First results in German have been published in Samuel Muehlemann and others, Lehrlingsausbildung ökonomisch betrachtet (Zurich: Rüegger Verlag, 2007). Detailed results in English, including a comprehensive literature review are published in Samuel Muehlemann, The Economics of Vocational Education and Training from the Perspective of the Firm (Berlin: dissertation.de, 2009). 6

7 generate survey weights and to calculate confidence intervals around the population estimates of the costs and benefits of training. This is particularly useful in assessing whether average net costs (net benefit) of training in a certain occupation are statistically different from zero, as well as to make a projection of the total private-sector expenditures in Switzerland (which are part of the official OECD statistics on education financing 18 ). The total sample includes 2413 training firms that employed a total of 13,454 apprentices in 2004, as well as 1853 firms that did not train any apprentices in The inclusion of non-training firms in the survey allows analyzing the training decision of a firm; however, for reasons of space, this is not a topic in this article. 19 The cost-benefit model The cost of apprenticeship training can be separated into six different categories: 1. Wages of apprentices: Regular wage payments, irregular wage payments, compensation for food, travel cost or living expenditures. 2. Cost for training personnel: Cost for full-time, part-time and external training personnel for the time that they could not work productively because they instructed apprentices. 3. Recruitment and administrative costs: Wage costs for administrative tasks and recruitment related to apprenticeship training. 4. Cost for infrastructure: Machinery/appliances for apprentices at the workplace, rent for premises because of apprenticeship training, cost for premises and infrastructure of company training centres OECD, Education at a Glance 2009 (Paris: OECD). An analysis of the training decision of Swiss firms as well as the estimation of expected training costs for non-training firms is provided in: Samuel Muehlemann, The Economics of Vocational Education and Training from the Perspective of the Firm (Berlin: dissertation.de, 2009). 7

8 5. Cost for supplies: Cost for supplies used for non-productive activities at the workplace, cost for books, learning software and videos, cost for working equipment. 6. Other costs: Cost for fees (e.g. exams), capital cost for recruitment/administration related to apprenticeship training, cost for external courses, duties and taxes to third parties. The costs of apprenticeship training are defined as the expenses of an establishment that would not have occurred in the absence of apprenticeship training. For example, firms were asked how many hours per week training personnel were not able to work productively due to training apprentices. The cost for infrastructure was calculated similarly. Of interest are only those costs for infrastructure that would have been used for productive tasks by skilled workers within the firm otherwise. As an example, if an apprentice uses a machine for practicing purposes during which time the machine was not available for production to the firm, then the relevant cost rises. However, if the apprentice uses the machine for productive purposes, the costs are not included as expenses because the apprentice would have had to be substituted by a skilled worker. More formally, the cost of training apprentices C of firm i are given by where T is the duration of an apprenticeship program in years, the yearly wage cost for an apprentice in year t, cost for infrastructure, cost for supplies, and other costs. Furthermore, represents the number of training hours per apprentice and the wage of the training personnel in worker category j, which is either training personnel in management positions, skilled workers (administrative, social/technical, crafts) or workers without a professional degree. This distinction is important, since the cost of training can vary 8

9 substantially with regards to the wages of training personnel. 20 Finally, denotes the time spent by different worker groups for recruiting apprentices, which occurs at the beginning of an apprenticeship program, as well as administrative tasks that occur in each year of the program. The production benefit of apprenticeship training arises due to the value of the productive work of an apprentice. 21 The main underlying assumption is that apprentices perform productive work that would have arisen for the firm independently of apprenticeship training. Hence, if a firm did not employ apprentices, their share of allocated work would have to be done by other skilled and/or unskilled workers. Hence, the benefit b of training apprentices for firm i is given by where denotes the number of hours that an apprentice works productively in year t. Working hours at the workplace have been divided into two categories. The first category is productive work that is usually performed by unskilled workers, whereas the second is defined as productive work usually performed by skilled workers within the firm. Hence, denotes the share of unskilled tasks and (1 - ) the share of skilled tasks, respectively. To calculate the value of an hour of unskilled work, it is assumed that an apprentice has the same productivity as an unskilled worker within the firm. However, if an apprentice performs skilled work, it is no longer sensible to assume that his productivity is equal to the productivity of an unskilled worker. Hence, training personnel were asked to report a relative 20 As an example, personnel costs for training dental assistant apprentices are much higher if the dentist instructs apprentices himself compared to the situation when a dental assistant is in charge of training, because the wage of the latter is much lower. 21 Notice that training benefits from such things as efficient screening, are not captured in the production benefit of apprenticeship training. 9

10 productivity measure for an apprentice compared to an average skilled worker within the firm for each year of training. The firm's benefit if an apprentice performs an hour of skilled work is given by multiplying the hourly wage of a skilled worker with the relative productivity of the apprentice. Some firms that have company training centres in a separate location might also benefit from productive work that apprentices perform at that location. The value of such work was reported by the person in charge of the training centre and is denoted by. The net cost (benefit) of training is simply the difference between the cost and the benefit of training apprentices: 10

11 Empirical results Costs of apprenticeship training The wage costs for apprentices and the cost for training personnel account for most of the firm s training expenditures (Table 1). The wage costs for apprentices take on the largest value in three-year programs in absolute values, whereas they are highest in relative terms for two-year apprenticeships. The latter result reflects that firms offering two-year apprenticeships invest fewer resources in the actual training of apprentices. The cost for training personnel is most important in four-year programs. The reason is that apprentices are instructed more intensively at the workplace. An apprentice in a four-year program receives on average one extra hour of workplace training in a regular week (5.8 hours per week) compared to an apprentice in a two-year program (4.8 hours per week). At the same time, wages of training personnel are higher in firms offering three and four-year programs; therefore, a multiplicative effect of training hours and cost of training personnel increases training costs. In addition, costs for infrastructure and supplies are also highest in four-year programs, where expensive machinery and other material are often used in the firm's production process. Training firms offering such apprenticeships frequently belong to the metalworking, car manufacturing or information technology industry. The training durations of the most popular apprenticeship occupations in Switzerland are provided in Table A1 in the appendix. 11

12 Table 1: Cost of apprenticeship training by training duration (per average year of training, in Canadian dollars [CAD] 22 ) Cost of training (in CAD) Duration of training program 2 years 3 years 4 years Wages of apprentices 10, % 12, % 11, % (351) (385) (104) Cost for training personnel 7, % 9, % 10, % (595) (323) (313) Recruitment and administrative costs 1, % 1, % 1, % (260) (113) (119) Cost for infrastructure % % 1, % (50) (36) (100) Cost for supplies % % % (64) (40) (77) Other costs 1, % 1, % 2, % (116) (128) (143) Total % 26, % 28, % Observations (firms/apprentices) 78/178 1,591/8, /4,679 Note: Standard errors in parentheses. Figures correspond to the year Discounting has not been applied. Benefit of apprenticeship training The benefit of apprenticeship training, or the value of the productive activities of apprentices, can be interpreted as the wage cost that a firm would have incurred in the absence of apprenticeship training. Table 2 shows the average benefit of training categorized by the type of productive work performed by apprentices. Three-year training programs yield the highest 22 To convert the results of the Swiss survey, which are reported in Swiss francs (CHFs) into CAD, I used the exchange rate on August 1, 2009 (1 CHF = CAD). 12

13 yearly average value of productive activities. The reason for this outcome is that, on the one hand, wages of skilled workers are lower in two-year programs, which lowers the value of apprentices performing skilled work. On the other hand, apprentices in four-year programs often have a relatively low degree of productivity in skilled tasks at the beginning of the training. In some occupations, apprentices spend the entire first (and in some cases even the second) year away from the workplace in a training centre, and therefore do not make any productive contribution to the firm. Table 2: Benefit of apprenticeship training by training duration and average year of training (in CAD) Benefit of training (in CAD) Duration of training program 2 years 3 years 4 years Benefit from unskilled labour 16,922 60% 17,468 56% 14,475 50% (1,101) (631) (513) Benefit from skilled labour 11,232 40% 13,572 44% 14,397 50% (1,009) (457) (541) Total Benefit 28, % 31, % 28, % (1,113) (719) (466) No. of observations (firms/apprentices) 78/178 1,591/8, /4,679 Note: Standard errors in parentheses. Figures correspond to the year Discounting has not been applied. The share, and therefore the value of unskilled work, generally declines towards the end of the program. This is to be expected, since the relative productivity of apprentices in skilled work increases with training time (Figure 1). Therefore, it is more sensible for firms to allocate a higher share of skilled work to their apprentices towards the end of training, as the value of skilled work increases with relative productivity. Allocating skilled work to apprentices is also more beneficial if the wage differential between skilled and unskilled workers is large. It is then to the advantage of the firm that apprentices carry out skilled work 13

14 if their relative productivity is high, because their wage is only a small fraction of the corresponding wage of a skilled worker. The relative productivity of apprentices in the last year of the training program is roughly 75%, independently of the program duration (Figure 1). This means that the length of a training program is determined such that the performance of an apprentice in the last year of training compared to a skilled worker in the firm equals about three quarters. This implies that the program duration should not be shortened or lengthened without a specific reason, since the former action would lead to an average relative productivity of apprentices that was too low, while the latter would imply that firms could exploit apprentices for cheap labour, as they already have a very high productivity, but receive a low wage. Figure 1: Relative productivity of apprentices Net costs of apprenticeship training On average, firms that offer two- or three-year apprenticeship training programs can generate a net benefit in each year of training (Table 3). Firms that offer four-year programs make a net 14

15 investment in their apprentices in the first half of an apprenticeship, but then generate a net benefit in the second half of the training period. On average, the benefits in the last two years of training are sufficiently high to cover the net investment in the first two years. 23 Table 3: Net benefit of apprenticeship training by training duration and year of training (in CAD) Duration of training program 1st year 2nd year 3rd year 4th year Total 2 years 6,019 7,322 13,341 (1,533) (1,625) (2,678) 3 years 2,012 3,831 6,407 12,251 (980) (981) (962) (2,694) 4 years -7,407-3,299 4,211 8,594 2,099 (1,319) (1,252) (915) (1,033) (2,696) Note: Standard errors in parentheses. Figures correspond to Discounting has not been applied. Looking at the distribution of net costs, it is apparent that about two thirds of apprentices generate a net benefit for the firm, whereas one third of all apprenticeships result in net costs from the firm's perspective (see Figure 2). Analyzing net costs by training occupation shows that firms training apprentices have to expect net costs in some occupations, whereas other occupations yield a net benefit to firms on average (Table A1). Some occupations require a much higher training investment than others; e.g. the two-year program of sales clerk requires an investment of $41,343, whereas a program to train a polymechanics technician makes it necessary for a firm to invest $140,384 over a four-year period It should be noted that training costs and benefits have not been discounted. While this could be easily incorporated in these figures, there is a problem that individual firms are likely to face different discount rates. However, one should keep this in mind when interpreting the results. In four-year apprenticeships, discounting would decrease the net benefit, as the production benefit generally arises in the second half of the training period, whereas the training costs arise in the first two years. 24 Similar costs are observed for other related occupations, such as IT specialist, electronics technician or automatician. 15

16 Figure 2: Histogram of net benefits of apprenticeship training contracts Furthermore, the benefit by training occupation (Table A1) also varies considerably. For example, the three-year apprenticeship program of a bricklayer on average generates a benefit of $113,318. This benefit is as high as the productive value of a polymechanics technician, even though the latter training program lasts one year more. The main reason for this difference is that bricklayers are allocated a higher share of skilled tasks much earlier in their training compared to polymechanics technicians. However, it should be noted that the training wage of a bricklayer is on average still below the net productive contribution, i.e., the difference between the apprentice s productivity and the firm s training expenses. There are at least three reasons that can explain such an outcome. First, no discounting has been applied to these figures. Therefore, firms that use discount rates greater than zero will never offer a training wage equal to net productivity. Second, there is a relatively large variation of net benefits even within a given training occupation, which can arise, e.g. due to heterogeneity in the ability of apprentices. Hence, training apprentices is a risky investment, as it may well 16

17 result in net costs from the firm s perspective, even if training is profitable on average. This means that firms want to be compensated with a corresponding risk premium, as is the case for other types of risky investments, e.g. stocks. Third, training also generates a net benefit for the average apprentice, as it results in 6% to 9% higher lifetime earnings. 25 Hence, how the overall gain from apprenticeship training is shared between the firm and the apprentice is subject to the relative bargaining power of the two parties. As apprentice pay in Switzerland is not subject to collective bargaining agreements, it may well be plausible that the bargaining power of the firm is higher than that of an apprentice at age 15. In addition, apprentice pay is determined at the beginning of training, at which point the apprentice may not have a very good estimate about his or her own productivity over the entire training period. As there are large differences in costs and benefits across different training occupations, it follows that net benefits differ accordingly (Table A1). The highest net benefit of $45,087 is associated with training electricians, whereas firms that train IT specialists have to bear the highest net cost, amounting to $32,760 on average. Retention rates of apprentices, i.e., the share of apprentices offered a position as a journeyperson after graduation, are higher in apprenticeships associated with higher net costs of training. The results of an ordinary least squares regression (Table 4) show that an increase in net costs by C$10,000 increases the three-year retention rate of apprentices, i.e., the share of apprentices who completed a training program and are still employed as a journeyperson in the same firm three years later, by 0.73%. This is equal to an increase of roughly 5%, as the average three-year retention rate is equal to 15.5%. Furthermore, the retention rate increases according to the number of skilled workers in the training occupation and the overall size of the firm, which is a reflection of higher labour demand by such firms. 25 Stefan C. Wolter and Bernhard A. Weber, La rentabilité de la formation: un indicateur économique essentiel à l enseignement, La Vie économique: Revue de politique économique, no. 10 (2005):

18 Table 4: Regression analysis of retention rates Dependent variable: 3-year retention rate Net cost of apprenticeship training (in thousands) 0.073** (0.027) Number of workers in training occupation 0.023** (0.008) Firm size: employees 8.124** (2.031) Firm size: employees 7.204** (2.731) Firm size: 100+ employees ** (3.153) Occupation controls Yes Industry controls Yes Constant ** (2.539) Observations 1,986 2 R 0.09 Robust standard errors in parentheses. *: 1% significance level. The reference category is a firm with 1-9 employees. Notice that these regression results merely provide empirical correlations and that they should therefore not be interpreted as causal effects. However, the findings suggest that a higher net investment of firms in apprenticeship training goes hand in hand with a higher retention rate. Similarly, it can be shown that firms face higher average hiring costs to recruit workers on the external labour market in those occupations that are associated with substantial net costs, such as polymechanics technicians or IT specialists. 26 Conclusions Analyzing the costs and benefits of apprenticeship training is important in order to understand the functioning of apprenticeship systems. As firms are free to provide apprenticeship training 26 Marc Blatter, Samuel Muehlemann and Samuel Schenker. The Costs of Hiring Skilled Workers, Economics of Education Working Paper Series 15 (University of Zurich: 2008, revised November 2009). 18

19 positions, they will only decide to hire apprentices if the return on training investment is sufficiently high. In countries with a relatively competitive labour market and a low degree of employment protection, such as Switzerland or Canada, firms may want to generate a sufficiently high return on their training investment by the end of the training period, as any type of post-training benefit may be small and uncertain. However, firms will generally not be able to exploit apprentices as cheap labour by paying a low apprentice wage and not providing a sufficient amount of training in return. Individuals will only enrol in (and complete) apprenticeships that they have to finance themselves by accepting a low training wage if they can expect a sufficient improvement in their labour market situation after training, e.g. in the form of higher wages and/or a lower risk of unemployment. In Switzerland, individuals rates of return to apprenticeship training average 6% and 9% higher lifetime earnings for male and female workers, respectively. In contrast, the results from a representative firm-level survey in Switzerland show the firms benefit from employing apprentices in 2004 exceed the training costs by roughly 10%. These findings indicate that apprenticeship training, on average, is profitable for both firms and workers. However, the results also show that roughly one third of Swiss firms make a substantial net investment in training. Hence, apprenticeship training in Switzerland may also serve as a screening device for firms to recruit qualified workers, which are otherwise difficult to find on the labour market. References Beicht, Ursula, Günter Walden and Hermann Herget. Kosten und Nutzen der betrieblichen Berufsausbildung in Deutschland. Bundesinstitut für Berufsbildung. Berichte zur beruflichen Bildung. Bertelsmann: Bielefeld,

20 Blatter, Marc, Samuel Muehlemann and Samuel Schenker. The Costs of Hiring Skilled Workers. Economics of Education Working Paper Series 15. University of Zurich (2008) (revised November 2009). Canadian Apprenticeship Forum - Forum canadien sur l apprentissage. Calculating the Return on Training Investment for Skilled Trades Employers in Canada Phase II Final Report (2009). Dionisius, Regina and others. Cost and Benefit of Apprenticeship Training: A Comparison of Switzerland and Germany. Applied Economics Quarterly 55, no. 1 (2009): Dustmann, Christian and Ute Schönberg. Apprenticeship Training and Commitment to Training Provision. Economics of Education Working Paper Series 32 (2007). Hoeckel, Kathrin, Simon Field and W. Norton Grubb. Learning for Jobs. OECD Reviews of Vocational Education and Training Switzerland. Paris: OECD (2009). Lindley, Robert M. The Demand for Apprentice Recruits by the Engineering Industry: Scottish Journal of Political Economy 22, no. 1 (1975): Merrilees, William J. Alternative Models of Apprentice Recruitment: With Special Reference to the British Engineering Industry. Applied Economics 15, no. 1 (1983): Muehlemann, Samuel. The Economics of Vocational Education and Training from the Perspective of the Firm. Berlin: dissertation.de, Muehlemann, Samuel and others. An Empirical Analysis of the Decision to Train Apprentices. LABOUR: Review of Labour Economics and Industrial Relations 21, no. 3 (2007):

21 Mühlemann, Samuel and others. Lehrlingsausbildung - ökonomisch betrachtet. Zurich: Rüegger Verlag, OPET. Vocational Education and Training in Switzerland 2008 Facts and Figures. Berne: Federal Office for Professional Education and Technology, OECD. Education at a Glance Paris: OECD, Ryan, Paul. Is apprenticeship better? A review of the economic evidence. International Journal of Training and Development 50, no. 2, (1998): Sachverständigenkommission. Kosten und Finanzierung der ausserschulischen beruflichen Bildung. Bielefeld: Bertelsmann, Statistics Canada. Registered Apprenticeship Information System (RAIS), Wolter, Stefan C., Samuel Muehlemann and Juerg Schweri. Why Some Firms Train Apprentices and Many Others Do Not. German Economic Review 7, no. 3 (2006): Wolter, Stefan C. and Bernhard A. Weber. La rentabilité de la formation: un indicateur économique essentiel à l enseignement. La Vie économique: Revue de politique économique, no. 10 (2005): Wolter, Stefan C. and Jürg Schweri. The cost and benefit of apprenticeship training The Swiss Case. Applied Economics Quarterly. Konjunkturpolitik (2002):

22 Appendix Table A1: Costs of apprenticeship training by training occupation (per average year of training, in CAD) Training occupation Duration (in years) Costs Benefits Net costs Std.err. Obs. Cashier 2 41,343 56,827-15,484 3, Other 2-year programs 2 50,922 53,482-2,560 3, Administrative assistant 3 87,209 93,297-6,088 2, Sales clerk 3 70,080 76,440-6,360 4, Cook 3 87,696 88, Hairdresser 3 63,730 70,612-6,882 3, Auto mechanic 3 75,560 78,196-2,636 5, Bricklayer 3 98, ,318-15,089 6, Painter 3 92, ,404-10,207 8, Carpenter 3 76, ,620-31,910 5, Health specialist 3 86,260 64,023 22,237 6, Pharmaceutical assistant 3 64,991 82,676-17,686 4, Logistics assistant 3 72, ,946-31,302 5, Plumber 3 65,511 91,235-25,723 5, Medical assistant 3 62,479 78,770-16,292 3, Dental assistant 3 71, ,632-36,674 4, other 3-year programs 3 80, ,297-19,374 6, Electrician 4 94, ,023-45,087 5, Polymechanics technician 4 140, ,544 25,840 4, IT specialist 4 129,739 96,979 32,760 8, Joiner 4 96, ,345-34,451 7, Auto mechanic 4 98,387 93,571 4,817 8, Draftsperson 4 118, ,392 4,865 8, Automatician 4 126, ,685 11,481 14, Electronics technician 4 132, ,278 29,154 7, Other 4-year programs 4 110, ,308-2,738 3, Notes: Standard errors correspond to occupation mean of net training costs. 22