Evaluating apprenticeship training programs for firms

Measuring costs and benefits of apprenticeship training

In Germany, measuring the costs and benefits of firms’ apprenticeship training has been an area of interest for several decades. This includes developing a conceptual framework and empirical operationalization of relevant cost and benefit measures in firm-level surveys [2]. This framework formed the basis for CBS in Germany, and subsequently, in Austria and Switzerland. One important reason for conducting these surveys was to obtain information about training costs, and thus, fill an important gap in the official statistics on education expenditure. Furthermore, an advantage of this framework and subsequent adjustments is that it offers a holistic concept of measurement which is directly applicable to representative firm-level surveys; this is a prerequisite for conducting comparative research [4]. Compared with continuous on-the-job training, which is typically completed within a year, evaluating apprenticeships is more complicated because they last for several years. Thus, alternative approaches, such as production function estimation techniques, are problematic because they need to account for the year of training as well as the training occupation. Furthermore, they cannot explicitly include training-specific indicators, such as training quality [7]. Finally, many firms employ the same number of apprentices each year, which makes identification impossible.

Measuring the costs of training personnel

The original concept of training costs includes wage costs (including voluntary benefits) and costs for training personnel, materials, and infrastructure (such as internal classroom training, separated training centers, tools, materials, and clothing). Firms can usually provide accurate information on accounting measures, such as an apprentice's wage, and the costs for the training infrastructure and organization. However, measuring the cost of training personnel is not straightforward. Many firms employ part-time trainers, who instruct and teach apprentices in addition to performing their regular jobs in the firm. Thus, instructors may have to stop working sometimes to train the apprentice; on other occasions, apprentices observe the behavior of their instructors as they complete certain tasks. While the former leads to a full productivity loss for the trainer, the latter induces lower or no productivity losses while still allowing the apprentice to acquire valuable skills.

To address such measurement issues, the CBS includes information about the amount of time trainers spend with apprentices and the amount of time during which they were unable to work productively due to training activities. Instructor training costs are then calculated by summing up the amount of time when instructors cannot carry out their regular tasks, priced at the corresponding training instructor's labor cost.

The Illustration depicts the relative importance of different cost components based on the German CBS in 2017 [8]. Apprentice wages comprise a large, but not complete, share of training costs. Other costs, particularly those for training personnel, must not be neglected when analyzing a firm's training behavior. Moreover, the relative importance of different cost factors shifts during an apprenticeship. While wage costs increase over the years, instructor personnel costs decrease as apprentices acquire more human capital and become more self-reliant. However, these two factors cancel each other out and the yearly total of training costs remains approximately constant. Thus, one important aspect is that CBS provide detailed information on the structure of training costs and their development at different apprenticeship stages.

Measuring the benefits during an apprenticeship for the training firm

Apprentices carry out productive tasks in the workplace that are valuable to a training firm. However, the types of tasks that can be assigned to apprentices change over the course of training. CBS include information about the number of days apprentices spend on productive work. Notably, apprentices perform two types of work. In the first part of an apprenticeship, they often carry out tasks that are otherwise assigned to unskilled workers. Then, with increasing expertise, apprentices carry out more and more skilled tasks. Initially, owing to their lack of experience, apprentices are not yet as productive in these skilled tasks compared to experienced workers. To account for this potential productivity difference, training instructors record their best estimate of the relative productivity of apprentices versus skilled practitioners. Note that the absolute productivity level of skilled workers is explicitly allowed to vary across firms (e.g. due to differences in a skilled worker's experience, match quality, or a firm's management practices). This approach considerably simplifies the calculation of training benefits as it circumvents the otherwise difficult task of directly estimating the productivity of individual apprentices. In summary, the value of an apprentice's tasks is calculated based on the wage costs that would have been incurred in the absence of apprentices.

A potential pitfall of measuring apprentices’ productivity is that subjective performance estimates always include noise. However, as long as training instructors provide best estimates from the information set available, random noise does not lead to biased results. For example, in anonymous CBS, instructors gain nothing from misreporting performance, as their estimates of subjective performance are not decisive for promotions, bonuses, or salary increases either for themselves or for their apprentices. However, it cannot be completely ruled out that firm representatives involved in training may subconsciously misreport the relative productivity of apprentices, as their judgment may be influenced by prior personal expectations, experiences, or other factors.

The Illustration depicts the development of returns over a three-year apprenticeship, showing that training benefits increase by more than 50% from the first to the third year of training. This is attributed to an increased amount of time spent on productive tasks and an apprentice's relative productivity. In the first year of training, the average relative productivity of an apprentice compared to a skilled worker is 40%; it increases to approximately 81% for those apprentices who remain with the firm after graduation (see Figure 1). The relative productivity is not 100% immediately after graduation because apprentices lack several years of experience compared to an average-skilled worker. Note that the relative productivity of apprentices who move to other firms directly after training may differ depending on whether those who leave are more or less productive than those who stay with the training firm.

Measuring post-apprenticeship benefits

Many firms, especially in Germany, train apprentices with the intention of retaining them as skilled workers. Consequently, firms can save on the often substantial hiring costs associated with filling a vacancy from the external labor market. These hiring costs can be divided into recruitment, adaptation, and disruption costs [9]. Recruitment costs are determined by the average costs of job postings; preparing, conducting, and evaluating interviews with candidates; as well as the costs for external advisors or placement agencies. Adaptation costs arise because a new hire from the external labor market is initially not fully productive. The corresponding production loss during the adaptation period can be calculated based on the average productivity difference between the new hire and existing skilled workers at the time of hiring, the duration of the adaptation period, and the wage of the new hire. Production loss is defined as the volume of unproductive work time valued at the new hire's wage. In addition, a firm may incur fees for external training courses and other direct expenses related to the onboarding process. Finally, disruption costs may arise because supervisors and colleagues instruct the new hire, and consequently, are not fully productive during those times. Measuring these hiring costs also provides information about the importance of firm-specific human capital [1].

Figure 2 shows that hiring costs to successfully fill a vacancy in Germany amount to more than €10,000 on average, with disruption costs accounting for more than half. However, considerable variation exists across occupations, which partly influences a firm's training behavior. Empirical research using Swiss CBS data finds that firms facing high external hiring costs offer more training positions, and subsequently, retain a higher share of apprentices as skilled workers [10].