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Costs and Motives in Apprenticeship Training Term Paper

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Introduction

Developing an effective and efficient labor force is essential in organizations’ pursuit to achieve long-term excellence. Acemoglu and Pischke are of the opinion that human capital is the engine of achieving the desired growth (112). Human resource managers should ensure that their workforce has the right skills in order to improve the organizations’ performance.

The effectiveness of an organization’s human capital will play a vital role in enhancing its competitive advantage and efficiency. Organizations characterized by quality-oriented employees will outdo quantity-oriented workforce.

One of the ways through which an organization can transform its labor force into being quality-oriented is by investing in apprenticeship training. Investing in apprenticeship is an effective way through which an organization can enhance employee development by instilling the desired skills and competence. This aspect increases the employees’ level of effectiveness and efficiency (Ryan The economics of training 56).

Additionally, the skills acquired must be utilized effectively in order to achieve the desired growth. Acemoglu and Pischke contend that the long-term success of an organization is subject to the degree to which employees are committed in developing specific skills (112). Some of the specific skills cannot be acquired through general-purpose education.

Currently, organizations are operating in a vibrant environment arising from the high rate of economic, social, political, and technological changes. Vemic asserts that the increase in the level of uncertainty, turbulence and complexity arising from the environment demands organizations to invest in knowledge (209).

Subsequently, organizational managers have an obligation to invest in continuous learning, which is effectively achieved through workplace training.

In an effort to achieve the desired level of efficiency, policy makers including governments are increasingly appreciating the significance of apprenticeship. For example, during his first term in office, Clinton made skills development through training a key policy issue. The objective was to improve the efficiency and effectiveness of the less skilled employees.

Acemoglu and Pischke are of the opinion that the “increase in the returns to a college degree and other skills experienced in the OECD countries over the past 20 years has added the sense of urgency to concerns regarding skills” (112).

Considering the importance of apprenticeship in organizations’ efforts to achieve long-term survival, this paper evaluates the costs and motives of apprenticeship training on the employers’ perspective. In order to understand the significance of apprenticeship, the paper assesses its application in Germany and Switzerland.

Cost analysis of apprenticeship training

Mohrenweiser and Zwick are of the opinion that an “increase of the apprenticeship share in trade, commercial, craft, or construction occupations has a positive impact on establishment performance; however, apprenticeship training increases the net cost of operation during the apprenticeship period” (631). Subsequently, employers incur a number of costs by investing in apprenticeship training.

Nechvoglod, Karmel, and Saunders cite apprentice wages as one of the major costs incurred by employers in their efforts to invest in apprenticeship (10). The apprentices’ remuneration increases due to the different aspects such as workers’ compensation, payroll tax, superannuation, and wages. Employers have an obligation to make payment to the apprentices’ superannuation fund (Wolter and Ryan 550).

Acemoglu and Pischke assert that different countries have formulated extensive and complex legislations, which aim at protecting workers (119). During the apprenticeship period, employers have the duty of safeguarding the apprentice in the workplace.

Consequently, the employer must ensure health and safety of the apprentices. In the event of an accident or injury, the employer has the responsibility of meeting the apprentices’ hospital bills. In a bid to safeguard against such issues, employers are required to include the apprentices in the workers compensation plan within the organization.

Various governments have made it mandatory for organizations to ensure that apprentices receive a fair remuneration during their apprenticeship. The amount of remuneration is dependent on a number of factors. Some of these factors relate to the years of training, nature of apprenticeship, and year of school completion. Entry-level apprentices receive a relatively lower remuneration as compared to mature age apprentices.

The differences arise from the view that mature apprentices are more productive as compared to their young counterparts, which contributes to higher organizational performance. For example, the UK government has made it mandatory for employers to pay apprentices during the entire period of their apprenticeship.

According to the UK government policy, the payment has to be equal to the set national minimum wage. Apprentices serving for the first year and whose age is above 16 years are entitled to a minimum wage at the rate of £ 2.68 per hour.

After one year, the employers have an obligation to pay the apprentices at the rate applicable to their age. Furthermore, the remuneration is also pegged on the trainees’ educational grade. The remuneration paid has to reflect the training received, which reflects their responsibility.

Booth and Snower argue that employers have an obligation to treat the apprentices in a similar manner as employees (19). This aspect means that the apprentices are entitled to other benefits similar to other employees in an organization.

Some of these benefits include allowances and any other financial benefits that the employer may be required to pay over and above the set gross wages. In Australia, employers are required to pay apprentices all the benefits as outlined by the workplace agreement and the industry award.

In addition to remuneration, employers also incur substantial costs in paying the training personnel (Stevens 37). In an effort to ensure that employees are trained adequately, an organization may decide to outsource the training function. Outsourcing the training function may be expensive for an organization.

The outsourced firm may charge high training fees especially in training executives, which hikes the cost of outsourcing the training function. This assertion holds if an organization is required to train its workforce constantly. Furthermore, the organization may decide to source the training function in-house. Despite this aspect, the internal trainer may charge a high fee.

Mohrenweiser and Backes-Gellener define training fees as the costs incurred by an organization in paying an internal or external trainer (5). It is imperative for organizations to conduct a cost-benefit analysis to determine whether outsourcing the training function or conducting it in-house (Ryan The institutional requirements 12).

Nechvoglod, Karmel, and Saunders further assert that employers incur a number of indirect costs (10). Examples of such costs include administration costs, material wastage and extra maintenance, and apprentice supervision costs. During the apprentice period, the employer has an obligation to ensure that the apprentice receives appropriate qualification.

Subsequently, the employer should ensure that the apprentice is supervised effectively during the entire apprenticeship program. Clark asserts that organizations should not assume that the apprentice is conversant with the responsibilities being allocated with time, hence diminishing the intensity of supervision (245).

This assertion arises from the view that the apprentice will encounter new challenges in the course of undertaking the on-the-job training.

In most cases, the supervisory responsibility is allocated to a qualified employee, who is charged with the responsibility of constantly reviewing the apprentice’s practices in order to ensure that he meets the intended quality, thus ensuring that his/her safety at the workplace is guaranteed. Therefore, the amount of time that the supervisor is actively involved in the operation of the firm is affected, which reduces his productivity.

Nechvoglod, Karmel, and Saunders further argue that the cost incurred is relatively high if the apprentice does not complete the apprenticeship (10). This assertion emanates from the view that the employer does not enjoy the apprentice’s productivity later during his or her time in the organization. Substantial administration costs are involved in planning apprenticeship.

For example, human resource managers spend a lot of time scheduling work and planning off-the-job training. The apprentices have the right to attend off-the-job training. In addition to the above costs, the employer also incurs a substantial costs originating from material wastage and extra maintenance.

An organization may be required to purchase additional equipment and materials in order to undertake the training process successfully.

An analysis of how the costs of apprenticeship are shared between employers, apprentices and the government

Most governments are cognizant of the role of organizations in enhancing organizational performance. Subsequently, governments are increasingly supporting organizations in their operations. Dustmann and Schonberg contend that industrialized countries are appreciating vocational training as an important aspect in strengthening their growth and competitiveness (36).

One of the avenues through which this goal is being achieved is by supporting organization’s apprenticeship programs. For example, Sweden, the US, Australia, Canada, Germany, and the UK are some of the economies that have advocated organizations to invest in apprenticeship. In an effort to support such initiatives, governments are contributing a substantial amount in supporting the apprenticeship schemes.

Nechvoglod, Karmel, and Saunders cite incentive payments as one of the ways through which governments are supporting apprenticeship schemes (24). One of the requirements that organizations are required to invest in includes off-job training such as in-class training.

In a bid to support organizations, governments are increasingly paying the tuition fee for organizations that have incorporated a comprehensive apprenticeship-training program.

Nechvoglod, Karmel, and Saunders assert, “The tuition fees charged to students make up a very small part of the overall apprenticeship cost” (24). However, governments support organization in order to sustain such apprenticeship programs in organizations.

Dustmann and Schonberg argue that the appreciation of apprenticeship in some industrialized countries such as Austria, France, the US, and Italy have led to significant increment in support of apprenticeship programs through school-based and full-time apprenticeship colleges (36).

Similarly, countries such as Switzerland and Germany have adopted firm-based apprenticeship programs. These schemes are designed to train employees through a combination of on-the-job training and school-based training. The programs last for 2 to 3 years (Dustmann & Schonberg 36).

In Canada, the provincial and federal governments are involved in funding the apprenticeship program. For example, during its “2011/2012 fiscal year, the Canadian federal government provided direct support to apprenticeship program amounting to approximately $185 billion” (Dustmann & Schonberg 38).

Furthermore, the government supported organizations that have adopted apprenticeship schemes through a $ 172 million fund, which was specifically set aside for the apprentices’ insurance. In Ontario, Canada, the provincial government provides employers, who have adopted the concept of apprenticeship, with a tax credit amounting to 35% to 45% of the total cost of recruiting an apprentice (Lerman 4).

Other governments support apprenticeship by incorporating a subsidy on the training firms. For example, the UK government has developed a fund through the National Apprenticeship Service. The fund covers the total costs incurred by organizations through off-the-job training. However, the fund only supports apprentices aged between 16 and 18 years.

Furthermore, the UK government supports organizations that have adopted an apprenticeship-training program for individuals aged between 16 and 17 years through the Apprenticeship Grants for Employees, which was established in 2010. Employers who incorporate apprentices within the 16 to 17 years range receive £2,500 grant.

In Australia, training firms receive $ 1,250 support, which is increased to $ 4,000 upon completion of the training. This aspect highlights the extent to which governments are committed in supporting organizations to invest in developing their workforce through apprenticeship.

Therefore, it is imperative for organizational managers in such economies to consider investing in employee development by investing in apprenticeship programs.

Governments’ support for apprenticeship training is also applicable in Germany and Switzerland. However, Dustmann and Schonberg assert that public funding in Switzerland and Germany is only applicable to part-time vocational education (36). This aspect means that Swiss and German companies receive minimal direct public funding as opposed to British firms, which receive substantial direct public funding.

Comparison of apprenticeship training; Switzerland and Germany; cost and benefit analysis

Soskice assert that a number of studies have been conducted in an effort to assess costs and benefits of apprenticeship training practices in Switzerland and Germany (25). These studies provide significant insight on the apprenticeship systems implemented in the two countries (Soskice 25).

Available empirical research shows that apprenticeship training in Switzerland is subject to the net cost of the training program (Hanushek and Welch 618). Similarly, another study conducted in Germany shows that the costs and benefits associated with training have a significant influence on apprentice training in Germany.

Dionisius et al. assert that Germany and Switzerland “have adopted dual vocational education and training [VET] system” (1). Therefore, the apprenticeship system is comprised of school-based education [training through special vocational institutions] and through on-the-job training.

Subsequently, the two countries are effective in enhancing apprenticeship training (Wolfgang and Soskice1). However, the costs and benefits associated with the apprenticeship training behavior amongst the two countries vary significantly.

Apprenticeship training in Switzerland is usually beneficial to an organization during the training period. German firms incur significant net costs in the course of training apprentices.

The difference between the two countries emanate from the prevailing “structural differences such as industry structure, wage levels, and firm characteristics” (Dionisius et al. 1). Moreover, the differences between the two companies arise from the prevailing labor market regulations.

The study conducted by Dionisius et al. shows a significant difference with regard to cost-benefit ratio from the employers’ perspective between the two countries (5). According to the study, “the average annual cost of apprentice training in Germany amounts to €15,537 and that of Switzerland is estimated to be €18,131” (Dionisius et al. 5).

During the three years of the apprenticeship training, the total costs amounts to €7,785, thus making a substantial impact on the organizations’ wage bill. Despite this aspect, an organization can gain significant benefits during the apprenticeship program.

Dionisius et al. assert that the “value of productive contribution of apprentices is high in Switzerland, where the average benefit amounts to € 19,044, and thus the average benefit accrued by training a single apprentice in Germany amounts to € 8,008” (5). Apprenticeship training in Germany leads to higher net costs of approximately € 7,528 per year as compared to a net benefit of €913 per apprentice in Switzerland.

Consequently, the change between Germany and Switzerland with regard to a 3-year apprenticeship-training program amounts to €25,323. The net costs of apprenticeship training amongst German firms are relatively higher as compared to Swiss firms.

The high net cost of apprenticeship arises from the costs of the training personnel and the apprentices’ wages (Ryan Apprenticeship 102). The cost of “training an apprentice at the managerial level is 46% higher while that of a full-time trainer is 24% higher in Switzerland as compared to Germany” (Dionisius et al. 7).

Similarly, wages of training specific skill such as technicians, artisanship, and administrative skills are 53%, 71%, and 60% higher in Switzerland as compared to Germany. Additionally, training an apprentice who does not have any vocational qualification is 59% higher in Switzerland as compared to Germany (Dionisius et al. 5).

Despite the above comparison, the wage costs incurred in training apprentices are higher in Germany as compared to Switzerland (Hanushek and Welch 618). Wage costs are higher during the first year, but they decrease significantly through the second and the third year. The chart below illustrates the change in wage costs for apprenticeship training during the 1st to the 3rd year.

Year Change
1 € 1,344
2 € 456
3 -€ 981

Table 1:

The change in wage costs of apprenticeship in Germany

Graph 1

Source: (Dionisius et al. 6)

The differences are as a result of the duration that an apprentice spends at the vocational school, which varies significantly between Switzerland and Germany. The difference is estimated to be “15 days, 10 days, and 8 days during the 1st, 2nd, and 3rd years in Germany” (Dionisius et al. 6).

This aspect explains why apprentices in Germany spend a relatively long durations in undertaking external and internal courses and in undertaking internship programs in diverse establishments (Hanushek and Welch 619).On the other hand, Swiss apprentices spend most of their time at the workplace, which increases the performance and productivity of the training firm.

Dionisius et al. assert that Swiss apprentices spend an additional 23 days during the 1st year, 18 days during the 2nd year, and 13 days during the 3rd year in of their apprenticeship training in the workplace (6).

In addition to the above differences, the variation in the costs and benefits between Germany and Switzerland arises from the nature of training within a particular firm. Firms have the discretion in allocating tasks to apprentices during their training program.

This aspect leads to the development of specific skills, and thus they can be allocated productive activities, which are usually undertaken by skilled employees or other tasks undertaken by unskilled employees (Wolfgang and Soskice12).

Previous studies show point to a significant difference on the allocation of duties between Swiss and German firms. The amount of time that apprentices in German firms are engaged in non-productive tasks is higher as compared to Swiss firms (Hanushek and Welch 618).

The table below illustrates the extent to which duration within which apprentices are engaged in unproductive tasks in German firms exceed Swiss firms during the 3-year apprenticeship-training program.

Year Points
1 +36%
2 +28%
3 +18%

Table 2

Differences in duration within

Graph 2

Source: (Dionisius et al. 7)

It is estimated that Swiss “apprentices spend over 468 days of their entire apprenticeship period at the workplace” (Dionisius et al. 7). Eighty three percent (83%) of this period is undertaken by productive activities. On the other hand, German apprentices use “approximately 415 days at the firm offering the apprenticeship training of which 57% of this time is consumed by productive activities” (Dionisius et al. 7).

The net cost of “apprenticeship training between German and Swiss firms is estimated to be € 25,000 during a 3-year training program” (Dionisius et al.17) and this difference arises from a number of factors, which include the countries’ vocational education training systems, relative wages, and allocation of tasks amongst apprentices.

The above comparison shows that German and Swiss firms can be in a position to influence the costs and benefits associated with apprenticeship training. Hanushek and Welch accentuate that most firms in Germany are willing to cover the net costs incurred in apprenticeship training (617).

This assertion arises from the view that the German government has instituted effective employment protection legislations, which is not the case in Switzerland. Consequently, “Swiss firms are forced to train apprentices in a cost-efficient manner” (Hanushek and Welch 618).

However, the wage difference for apprentices between “skilled and unskilled apprentices is an additional motivation for Swiss firms to adopt production-oriented strategy rather than investment-oriented strategy in developing their apprenticeship-training program” (Hanushek and Welch 618).

Incentives and disincentives of apprenticeship training to employers

An organization can accrue a number of benefits through apprenticeship training. Acemoglu and Pischke argue that apprenticeship enables an organization to enhance firm-specific skills amongst its workforce (124). This move enhances the quality of output amongst the employees.

Acquisition of firm-specific skills influences the efficiency and effectiveness with which an employee utilizes the general skills. Furthermore, adopting such skills fosters the effectiveness with which employees execute their duties effectively, which minimizes instances of injury and other safety hazards. Moreover, investing in apprenticeship training enhances the quality of work amongst employees.

Subsequently, one can argue that apprenticeship increases the productivity of employees. For example, possessing knowledge on the application of certain software is beneficial to an organization if the employee uses the software to execute tasks specific to his division, which makes the general and specific skills to complement each other (Acemoglu and Pischke 124).

Therefore, one can argue that investing in apprenticeship training increases the probability of an organization developing a pool of experienced human capital. This aspect culminates in significant improvement in an organization’s competitiveness, performance, and growth.

Investing in human capital development through apprenticeship training presents employers with an opportunity to access government support. However, an organization must invest in in-class training. In addition, organizations may access future government support.

One of the benefits that the organization may access relates to tax credit. For example, the government may waive a certain percent of the corporate tax during the period of apprenticeship. Such government support may improve the organizations’ long-term performance.

By investing in apprenticeship, the employer is in a position to develop a strong human capital base. One of the ways through which this end is realizable is by incorporating the concept of diversity. The apprenticeship program incorporates apprentices of different demographic characteristics such as age and educational qualification.

This aspect improves the effectiveness and efficiency with which the organization develops a pool of experienced workforce. Workforce diversity is one of the most important organizational assets as it enhances the development of a knowledge-based organization through information sharing (Organization for Economic Cooperation and Development 111).

Adopting apprenticeship as a way of recruiting employees can improve the effectiveness and efficiency with which an organization achieves competitive advantage with regard to human capital base. Subsequently, the likelihood of achieving business excellence increases, as apprenticeship training provides employees with an opportunity to progress through their career path.

Consequently, the likelihood of achieving their desired career goals improves significantly. This aspect leads to a significant improvement in an organization’s corporate image, which further improves its competitiveness in the labor market. Saks and Haccoun are of the opinion that the image of an organization is fundamental in its quest to develop competitiveness with regard to human capital (209).

This assertion arises from the view that potential employees prefer associating and working with such a company. Subsequently, the likelihood of such a firm succeeding in its recruitment drives is high. Soskice asserts that apprenticeship training increases the employee retention rate significantly (37).

Despite the attractiveness of apprenticeship training as illustrated above, a number of aspects de-motivate employers from investing in such programs. One of the main disincentives relates to the cost involved in hiring and retaining apprentices. Different economies have stipulated a comprehensive bill of rights, which is applicable to apprentices.

Some of the issues articulated in such bills relate to the right to fair and equitable remuneration. For example, apprentices have the right to all the benefits applicable to other employees. Subsequently, most organizations perceive the cost of apprenticeship training as a major factor in their operations.

The other disincentive arises from the view that organizations are not guaranteed of the continued service of the apprentice in the organization. Some apprentices may leave the organization after or before completion of the training program, which is a major cost to the organization.

Conclusion

The above analysis identifies apprenticeship training as one of the most important elements in organizations’ efforts to develop competitive advantage with regard to human capital. Subsequently, governments are increasingly formulating policies advocating integration of apprenticeship training amongst firms.

Furthermore, different governments are supporting apprenticeship programs directly or indirectly either through tax credit or by paying the tuition fee for apprentices. However, the paper shows that firms encounter a number of costs and benefits through apprenticeship training. Some of the major costs are associated with the “apprentices’ wages, costs of paying the training personnel, and wastage of materials” (Booth and Snower 88).

These costs vary across countries. For example, the study shows that Swiss firms gain significantly as opposed to German firms. The difference in the costs and benefits arises from the prevailing legislations and industry structure.

Despite the costs incurred, an organization can gain a number of benefits from apprenticeship training. Some of these benefits relate to improved corporate image, developing competitive advantage with regard to human capital, and high rate of employee retention.

Subsequently, it is imperative for stakeholders and policy makers to create an effective environment for companies to adopt the concept of apprenticeship training in developing their labor force.

Works Cited

Acemoglu, Daron, and Jorn-Steffene Pischke. “Beyond Becker: Training in imperfect labor markets.” The Economics Journal 109.453 (1999): 112-142.Print.

Booth, Alison, and Dennis Snower. Acquiring skills: Market failures, their symptoms and policy responses, Cambridge: Cambridge University Press, 1996. Print.

Clark, Fahr. “Transferability, mobility and youth training in Germany and Britain; simple theoretical analysis.” Konjunkturpolitik 48.3 (2002): 235-255. Print.

Dionisius, Regina, Samuel Muhlemann, Pfeifer Harld, Walden Gunter, and Wolter, Stefan. “Cost benefit of apprenticeship training; a comparison of Germany and Switzerland.” Applied Economics Quarterly 55.1 (2009):7-36. Print

Dustmann, Christian, and Uta Schonberg. “What makes firm-based vocational training schemes successful? The role of commitment.” American Economic Journal of Applied Economics 4.2 (2012): 36-61. Print.

Hanushek, Eric, and Finis Welch. Handbook of the economics of education, Amsterdam: North-Holland, 2011. Print.

Lerman, Robert. Expanding apprenticeship training in Canada; perspective from international experience, New York: American University, 2014. Print.

Mohrenweiser, Jens, and Thomas Zwick. “Why do firms train apprentices? The net cost puzzle reconsidered.” Labor Economics 16.4 (2009): 631-637. Print.

Mohrenweiser, Jens, and Uschi Backes-Gellener. “Apprenticeship training- what for? Investment in human capital or substitution of cheap labor.” International Journal of Manpower 31.5 (2010) 545-62. Print.

Nechvoglod, Lisa, Tom Karmel, and John Saunders. The cost of training Apprentices, Adelaide, SA: National Centre for Vocational Education Research, 2009. Print.

Organization for Economic Cooperation and Development: Learning for jobs. Paris: OECD, 2010. Print.

Ryan, Paul. Apprenticeship; between theory and practice, school and work, Zurich: University of Zurich, 2011. Print.

—. The economics of training: International Encyclopedia of Business and Management, London: Routledge, 2001. Print.

—. “The institutional requirements of apprenticeship: evidence from smaller EU countries.” International Journal of Training and Development 4.1 (2000): 11-16. Print.

Saks, Alan, and Robert Haccoun. Managing performance through training and Development, Toronto: Nelson Education, 2010. Print.

Soskice, David. Reconciling markets and institutions; the German apprenticeship System, Chicago: University of Chicago Press, 1994. Print.

Stevens, Margaret. “Transferable training and poaching externalities.” Acquiring Skills: Market Failures, their Symptoms and Policy Responses. Ed. Alison Booth and Dennis Snower. Cambridge: Cambridge University Press, 1995. 19-40. Print.

Vemic, Jelena. “Employee training and development and the learning organization.” Economics and organization 4.2 (2007): 209-216. Print.

Wolfgang, Franz, and David Soskice. “The German apprenticeship system.” ECONSTOR 4.11 (1994): 1-29.

Wolter, Stefan, and Paul Ryan. “Apprenticeship.” Handbook of the Economics of Education, Volume 3. Ed. Eric Hanushek, Stephen Machin, and Ludger Woessmann. Amsterdam: Elsevier, 2011. 521-570. Print.

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