Costs and benefits - both financial and non-financial - of Quality Apprenticeships are different for each stakeholder - enterprises, apprentices and governments. Clearly, a number of costs and benefit factors are applicable in some countries, but not in others, depending upon the type of apprenticeship system in place. Moreover, it is also important, although difficult, to view the benefits and costs of Quality Apprenticeships over a broader time period - not just throughout the duration of the Quality Apprenticeship itself, because the positive impacts of training materialize in the short term, but predominantly in the long-run. In addition, there are also non-financial and latent benefits and costs, which are similarly hard to quantify.
Table 6 summarizes the costs and benefits of Quality Apprenticeships for enterprises and employers, apprentices themselves, and the public authorities, for the duration of the apprenticeship and the period following it.
Table 1: Summary of costs and benefits of Quality Apprenticeships, by stakeholder
|During the Quality Apprenticeship|| || |
|After the Quality Apprenticeship|| |
|During the Quality Apprenticeship*|| || |
|After the Quality Apprenticeship|| |
|During the Quality Apprenticeship|| || |
|After the Quality Apprenticeship|| |
Note: Italicised items represent non-monetary or latent costs or benefits.
* When the employers recruit apprentices after completion of training as employees.
** The ILO Human Resources Development Recommendation, 2004 (No. 195).
Quality Apprenticeship programmes vary in many aspects (e.g. duration, proportion of on-the-job and off-the-job training, technical complexity, the extent to which apprentices engage in the production process or the provision of services, geographical location), and as such their costs and benefits need to be considered on a case-by-case basis. Nevertheless, numerous studies, admittedly based on a restricted number of countries, demonstrate that they result in positive returns to apprentices, employers and governments.
Generally speaking, in the early stages of a Quality Apprenticeship, there is a net cost to enterprises because the initial expenditure of training (e.g. wages/ allowance, social security contributions, time for in-company mentors, training materials, etc.) outweighs the initial contribution of apprentices to the production of goods and services. As apprentices learn skills and become more productive, however, the costs and benefits start to even out, and employers recover the initial investment in training, as may be seen from a stylized cost-benefit analysis during and after a Quality Apprenticeship programme shown in figure 6. Some employers have positive returns within the apprenticeship period, while others only see their investment pay off after accounting for reduced turnover, recruitment and initial training costs.
Figure 1: Cost and benefit of Quality Apprenticeships to enterprisesSource: Lerman. 2014b, p. 1.
The most extensive recent studies of the costs and benefits of apprenticeship programmes have focused on German and Swiss enterprises and provide quite divergent results for the two countries. As may be seen from table 7, gross costs in Switzerland are higher, but enterprises on average obtain significantly higher benefits when training apprentices, and this turns into a net benefit of 2,739 Euros per apprentice over a three-year period. In Germany, on the other hand, enterprises have lower gross costs, but significantly lower benefits - and this results in a substantial net cost of 22,584 Euros per apprentice over a three-year period. Moreover, 60 per cent of all training enterprises in Switzerland achieve positive net benefits, while in Germany 93 per cent of training enterprises incur net costs. This difference can be explained by a combination of three considerations: the relative pay of apprentices, which is higher in Germany than in Switzerland; the differences in the tasks when on-the-job, as Swiss apprentices do more productive work (83 per cent compared to 57 per cent for German apprentices); and the amount of time apprentices spend on-the-job, which is higher in Switzerland than in Germany (Wolter and Ryan, 2011). Over a period of three years, Swiss apprentices are at work for an average of 468 days compared to 415 in the case of German apprentices), and they spend only 13-21 pre cent of their time having no direct value to the company compared with 31-57 per cent of German ones (Lerman, 2014b).
Table 2: Net cost to the firm of training an apprentice (three-year programme) in Germany and Switzerland (in Euros for year 2000)
|Gross costs||Benefits||Net Costs|
Source: Wolter and Ryan, 2011.
According to another study of apprenticeships covering a sample of 100 German firms, the majority of enterprises recover their investment during the training period. However, the net costs differ widely, some firms gaining more than 10,000 Euros and others experiencing net costs. It was also found that the net costs are inversely related to the quality of the apprenticeship: the higher the quality of training, the higher the probability of recovering costs during the training period (Rauner et al., 2011).
A study of four-year apprenticeships in Canada estimated that the average gross costs ranged from about C$78,000 for cooks to C$275,000 for construction electricians, while the average revenue generated by the apprentices ranged from C$120,000 for cooks to C$338,000 for construction electricians. This means that employers earned a positive return on their apprenticeship investments during the training period: the average benefit was 1.38 times the average cost (Canadian Apprenticeship Forum, 2006).
Another study, this time relating to a developing country – India - examines the costs and benefits of short- and long-term formal apprenticeships, as defined by the Indian Apprentices Act 1961, in a limited number of case studies in the light and heavy manufacturing sector and retail and hotel industry. The study concludes that ‘the cases re-affirm that apprenticeships create more benefits than costs; investments are in fact recovered during the apprenticeship period or immediately within the first year itself when apprentices are retained’ (ILO, 2014b, p. viii).
A recent comparative study published by a consortium representing European employers’ associations, The cost-effectiveness of apprenticeship schemes – Making the business case for apprenticeships, came up with the following key messages:
- In well-functioning apprenticeship systems, enterprises recoup their investments over time in terms of a better skills fit and through the partial productive activation of learners during training. If apprentices are then hired into regular employment, additional payback comes in terms of immediate productivity upon graduation, fostering of enterprise culture, and higher employee loyalty, therefore making apprenticeships an effective means of recruitment.
- The return on the enterprise’s investment in apprenticeships will be reached earlier when schemes are demand-driven and when employers can select the candidates, contribute to curriculum design, and deliver parts of the training. For SMEs, notably micro-enterprises, the cost/effectiveness of apprenticeship schemes depends on additional factors such as duration of the scheme and time spent in the enterprise; retention of apprentices or support in administrative management (BusinessEurope, 2016, p.3).
These studies refer to countries that already have existing apprenticeship systems. Often employers in countries with little or no experience of apprenticeship training are reluctant to embark on such developments because the net costs are unknown and/or incalculable. A detailed study commissioned by the Bertelsmann Foundation provides a response for one country – Spain - a country with very little experience of apprenticeship training. The study develops three models: one that is close to the Swiss model transposed to Spain lasting three years (Model 1); one that is close to the existing Spanish model lasting two years (Model 2); and an extension of Model 2 lasting three years (Model 3). It applies them to ten different occupations in six sectors of the Spanish economy and, in addition, includes two different wage variables, 300 Euros per month and 530 Euros per month. The results show that training programmes in all occupations are capable of generating net benefits to employers before the end of a training period, and that key variables are the level of the apprentice’s wage, the length of the apprenticeship and the size of the enterprise (Walter and Mühlemann, 2015, pp.74-75).
The most important benefit of Quality Apprenticeships for apprentices is to be found in better employment opportunities and career prospects, thanks to the relevant knowledge, skills and competence acquired. In financial terms, apprentices receive some wages/allowances even during training, whereas young people who join TVET institutions and/or universities may pay fees.
Table 8 presents some of the benefits that apprentices may obtain in eight different countries – Australia, Austria, Denmark, England (United Kingdom), Germany, Netherlands, Norway and Switzerland. In all countries, they receive a wage during the on-the-job period, and, with the exception of Australia and Norway, a wage for the off-the-job period. The apprentice wage is 50 per cent of a skilled worker’s wage in Austria; 30-70 per cent in Denmark; 63 per cent in England (on the basis of the metalworking industry); 25-33 per cent in Germany, 30-80 per cent in Norway and 20 per cent in Switzerland, depending upon the year of the programme. The enterprise covers the social security costs of apprentices in Austria, Germany, Netherlands, Norway and Switzerland.
Table 3: How apprentices’ wages and social security contributions differ across countries
|Do apprentices receive a wage during the on-the-job period?||Do apprentices receive a wage during the off-the- job period?||What is the apprentice’s wage compared to the skilled worker’s wage?||Who defines the minimum apprentice wage?||Do employers pay social security contributions for an apprentice?|
|Australia||Yes||No||Depending on the programme, the wage is defined by sectors at national and regional levels. In some cases it is up to individual enterprises.|
|Austria||Yes||Yes||On average 50% of the skilled worker wage.||Sectors at regional level.||Yes, but the state covers parts of the insurance costs.|
|Denmark||Yes||Yes||30-70% of the skilled worker wage, depending on the year of the programme.||Sectors||No|
|England (UK)||Yes||Yes||On average 63% of the skilled worker wage (metalworking industry).||Individual company according to the national regulations.||No (for apprentices under the age of 25).|
|Germany||Yes||Yes||25-33% of the skilled worker wage, depending on the year of the programme.||Sectors at regional level.||Yes|
|Norway||Yes||No||30-80% of the skilled worker wage, depending on the year of the programme.||Sectors at national level.||Yes|
|Switzerland||Yes||Yes||On average 20% of the skilled worker wage, depending on the year of the programme.||Individual company but employer/ professional associations provide recommendations. As a result apprentice wage varies by sector.||Yes|
Source: Kuczera, 2017, pp. 27-28.
In other countries - in France for example - apprentices are paid a proportion of the statutory minimum wage, which is also contingent upon age and progress within the apprenticeship. As of January 2017, the apprenticeship wage varied considerably from 370.07 Euros in the first year for under 18 year-olds to 1,154.61 Euros in the third year for those aged over 21 years.
Table 4: Minimum monthly pay rates for apprentices (% of the minimum wage in Euros) - France
|(as of 1.1.2017)||Under 18||Age 18-20||Over 21|
|First year||25% €370.07||41% €606.91||53% €784.54|
|Second year||37% €547.70||49% €725.33||61% €902.96|
|Third year||53% €784.54||65% €962.18||78% €1,154.61|
Source: L’apprenti, 2017.
In India, trade apprentices are paid a monthly stipend as a proportion (70-90 per cent) of the minimum wage of semi-skilled workers (table 10), which varies with progression in training to enable them to sustain their day-to-day expenses. The stipend does not vary with age. The expenditure on the stipend for trade apprentices is borne by the employers (Government of India, 2017b).
Table 5: Rates of stipend for trade apprentices - India
|Period of apprenticeship training||Rates of stipend (per month)|
|First year||70% of minimum wage of semi-skilled workers|
|Second year||80% of minimum wage of semi-skilled workers|
|Third and fourth year||90% of minimum wage of semi-skilled workers|
Among the Latin American countries, Mexico and Costa Rica1 do not provide wages to apprentices; Brazil and Peru provide apprentices with the respective country’s minimum wage; Peru requires employers to pay apprentices a monthly wage of no less than 50 per cent of the minimum wage; and Chile provides apprentices with wages above the minimum wage. In Colombia apprentices receive a stipend that varies and is inversely proportional to unemployment rates (about 50 per cent of the minimum wage during the classroom training phase, 75 per cent of the minimum wage if the national unemployment rate is above 10 per cent, and 100 per cent of the minimum wage if the unemployment rate is below 10 per cent during the on-the-job training phase (Fazio et al., 2016)).
To sum up, most countries recommend wages/ allowance to apprentices that are a percentage of the minimum wage - increasing as the apprenticeship progresses (as does their productivity). Few countries consider age and unemployment rate as criteria. Figure 7 gives an analysis of wage dynamics for some countries.
Figure 2: Apprenticeship wages as a percentage of countries’ minimum wage
Notes: *Colombia and Germany apprenticeships’ remuneration increases along the different phases of the programme. **Peru data refers to a pilot programme.
Source: Fazio et al., 2016, p.43.
Another financial benefit for apprentices accrues through future earnings. There is evidence that apprentices go on to earn more than TVET students. The Netherlands provides a clear point of comparison, given that apprentices and TVET students obtain the same qualification, which is of the same value. The gross hourly wage for entry-level jobs for apprentices (at level 4) stood at 13.40 Euros, but for TVET students (at level 4) it was 10.05 Euros (Government of the Netherlands, 2014). These figures on differentials in pay are also reflected in an American study. In the short term, defined as the sixth year after enrolment, participation in registered apprenticeships was associated with an average gain of earnings of US$ 6,595 over the earnings of non-participants (Reed et al., 2012). In addition, the American study estimated that, over the career of an apprentice, the average earnings gain associated with completing the registered apprenticeship programme would be US$ 240,037 (US$ 301,533 including benefits) than non-participants over their careers (Ibid.).
Costs and benefits are even more difficult to calculate for governments, as the expenditure on apprentices in TVET institutions is often not identified separately within the overall costs of TVET training. Given that Quality Apprenticeship schemes generally lead to lower unemployment and higher earnings for young workers, governments also save on social security and active labour market policy-related expenditures (e.g. unemployment benefit) and gain more tax revenue (e.g. payroll tax, value-added tax). While the scale of savings depends on the cost of labour market policies and welfare schemes, recent studies confirm a significant economic return to governments investing in Quality Apprenticeships.
In the aforementioned United States example, the total State and Federal costs of administering the registered apprenticeship programme for five States (Florida, Georgia, Missouri, Pennsylvania and Texas) was estimated at an average of US$ 131 per apprentice, and the cost related to the TVET institutions (Community Colleges) were estimated at US$ 587 per apprentice. This comes to a total average cost of US$ 718 per apprentice. Over the career of a skilled worker it is estimated that this investment will bring in an average of US$ 19,875 in tax benefits, which works out to a return of US$27.7 for every dollar invested - and if other potential costs (unemployment insurance, food stamps, welfare and administration costs) are taken into consideration, the total benefits are just under US$ 36 per dollar spent (Ibid.).
A study about costs of different modes of TVET delivery in Burkina Faso, conducted by the French Development Agency (AFD), clearly showed that dual training apprenticeships were the least costly compared to centre-based training or centre-based training with industry attachments (table 11).
Table 6: Comparison of CAMA’s2 annual training costs - Burkino Faso
|Type of training||Duration||Level of entry||Cost of training (in CFA francs)|
|Apprenticeship or dual training hairdresser (CFA)||2 years||Primary level, little or no schooling||35 000 (literate) 50 000 (non-literate)|
|Residential training hairdresser (CCP)||2 years||Last year of primary minimum||200 000|
|Residential training hairdresser (CACP) with internships||2 years||4th year of college||350 000|
Source: Richard and Boubakar, 2010.Given that Quality Apprenticeships represent a cost-effective way of developing workforce skills and facilitating the smooth transition of young people from the world of education to the world of work, there are good policy reasons for governments to encourage and support employers financially. Where employers are reluctant to offer apprenticeship places, governments may decide to promote apprenticeships through a range of incentives - financial (direct subsidies or tax benefits) or non-financial (measures to support employers in their administrative procedures). But there is, of course, a risk that some employers will be more interested in having access to subsidized cheap labour and in employing apprentices rather than other workers.
1 Even though Costa Rica’s proposed apprenticeship legislation does not suggest full integration with the education system and instead mostly targets the out-of-school population, the current debate in Congress establishes that the apprentice will be considered a student and not an employee. As such the apprentice will not receive a wage (currently under the most widely accepted law project 19.019).
2 CAMA = Learning Centre for Crafts (Centre d’apprentissage des métiers de l’artisanat)