The EPI have released this report today exploring how cost effective the government’s apprenticeship training plans will be. Promoting more apprenticeships is designed to improve England’s skill base – a policy priority given the relatively low level of skills and educational qualifications amongst a large part of the country’s workforce.
The report questions if such a policy makes sense in an English context, with a historically limited participation of many employers in work related formal training?
Is additional spending on apprenticeships likely to lead to positive economic returns for employers, workers and for England itself? And how varied are the net economic returns by employer and by sector? What works for one category of employment may not bring positive gains where returns to training are much lower.
The report is a collaboration between JPMorgan Chase Foundation, the Education Policy Institute, the Bertelsmann Stiftung and partnered with economist Prof. Dr. Stefan C. Wolter to explore the costs and benefits of apprenticeship training for companies in England.
Recommendations – what does the report mean for English policy?
The report examines what the benefit for firms would be if a Swiss-style apprenticeship model was adopted. The Swiss model is recognised for smoothing the transition from school into the labour market, and helps the country outperform most EU countries against a number of skills-related indicators.
Although the current system in England differs from the models proposed in some regards, this research has important implications for the development of apprenticeship policy in England (see report for more detail):
- Big companies may be more likely to experience net benefits from hiring apprentices than SMEs, due to economies of scale and a different salary structure. It is therefore crucial that small businesses are properly supported, especially in sectors or regions dominated by SMEs.
- Apprenticeships of longer duration are likely to bring higher returns for both employers and apprentices, due to productivity increases over the course of training. In England, where apprenticeships are not required to be longer than 12 months, short apprenticeships dominate. Both companies and young people could therefore benefit from longer apprenticeships.
- The report suggests that, when it comes to apprenticeships, one size won’t fit all, as benefits vary across sectors and company sizes and depend on parameters such as the apprentice’s salary. England pays higher minimum wages to apprentices than other countries, so flexibility in other parameters, such as in how and on what they can spend the levy, might be advisable.
- The returns to apprentices are higher if they start their apprenticeship at a younger age. This is a concern for England, where 60 per cent of new apprentices are aged 19 or older (2017/18). There is a case for the government to expand apprenticeships among 16 to 18 year-olds, in line with other advanced economies.
- The report warns that for apprenticeships to be profitable for employers, companies need to retain a substantial proportion of apprentices after they complete the program. This would allow companies to save in hiring costs and would provide them with professionals who are already familiar with the company’s environment. To this end, it is crucial that dropout is tackled, as apprenticeship completion rate is only 67 per cent.
- In sectors dominated by low-skilled employment, the returns of apprenticeships for students and employers may be low. If training is of high quality, apprenticeships could help raise productivity in these sectors, which could also drive increases in wage levels.
- Whenever companies face net costs from hiring apprentices, the employer should assess whether an apprenticeship could be regarded as an investment in future middle management positions, meaning that benefits can be reaped later in time and short-run costs are acceptable.