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Costs and benefits for setting up apprenticeship
programmes: examples from the field
Michael Axmann, International Labour Organisation
Presentation held at the Cedefop event ‘Governance and financing of apprenticeships’, Brussels, 8 and 9 February 2016
Financing
Apprenticeships
Michael Axmann
Specialist for Skills Development Systems
International Labour Organisation
17/03/2016 2
Difficulties in cost-benefit
analysis
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• Latent cost/benefit: not feasible to quantify • Measurement issues with apprentices’
contribution to production • Impact on innovation and technology adoption,
spill-over effect: hard to determine • Observation over a long period of time required
General shortcomings of
apprenticeship funding
Particularly in developing countries
• TVET usually under-resourced
• Fragmented funding system
• No market-responsive mechanisms or incentives
5 main ways to increase
apprenticeship funding
Cost sharing
Revenues by public training
institutions
Resource mobilisation
National Training Funds
Improving & Increasing company training
Cost and benefits for
Employers
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Cost
Benefit
Apprenticeship period Post apprenticeship
• High productivity of skilled workers
• Savings from reduced turnover (e.g. recruitment and initial training costs)
• Innovation, adoption of new technology
• Apprentices’ contribution to production
• Subsidies (tax credit etc.) • Payment from training fund • Public image, social status
• Wage and social security premium (apprentices’ and supervisor’s)
• School tuition • Training materials, space • Recruitment and admin costs
• Wage and social security premium
* Blue: non-monetary or latent cost/benefit
A stylized model of cost-benefit
of apprenticeships
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Apprenticeship period Post apprenticeship
Co
sts
and
co
ntr
ibu
tio
n o
f ap
pre
nti
ces
Employer cost
Employer benefit
Productive contribution of apprentices/ skilled worker
Costs of hiring apprentice (wage, tuition etc.)
Costs of hiring skilled worker
Adopted from Lerman R. “Do firms benefit from apprenticeship investment?” IZA World of Labour 2014:55
Return on Investment (ROI)
India, Technician
17/03/2016 8
Food processing equipment manufacturer 2 year apprenticeship programme for technician (80%
practical, 20% classroom)
0
200'000
400'000
600'000
800'000
1'000'000
1'200'000
Year 1 Year 2 Year 3 Year 4 Year 5
Total cost per apprentice Total benefit per apprentice
Return on investment
Ind
ian
Ru
pee
ROI
19%
ROI
63%
ROI
118%
ROI
-65%
ROI
-29%
Apprenticeships OJT
Source: Rothboeck . Using Benefit Cost Calculations to Assess Returns from Apprenticeship Investment in India: Selected SME Case studies
Cost and benefit
Government
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Cost
Benefit
Apprenticeship period Post apprenticeship
• Higher tax revenue (e.g. payroll, VAT)
• Savings on social security payment
• Savings on employment programmes (e.g. ALMPs)
• Higher tax revenue (e.g. payroll, VAT)
• Savings on social security payment
• Savings on employment programmes (e.g. ALMPs)
• Subsidies • Running costs of public TVET
institutions
Summary
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Quality apprenticeships generate win-win-win situation: • Employers recoup the cost of training before the
end of (or shortly after) the apprenticeship training. More benefits if they retain apprentices.
• Substantial earning and employment stability impact on apprentices
• High economic return to public investment in apprenticeships
Thank you for your
kind attention!
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Economic returns to public
investment: USA
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$1 government spending yields
$35.9 to the gov’t
Community college costs
$587
Source: Mathematica Policy Research (2012) An effectiveness assessment and cost-benefit analysis of registered apprenticeship in 10 states
Admin costs $131
Tax benefits $19,875
Reduction in social benefits
$5,873
Government costs and benefits over a career (per apprentice)
Increase in Federal tax: $ 10,069
State & local tax: $ 9,806
Reduction in Unemployment insurance
payment: $ 2,694 Food stamps: $ 1,760
Welfare: 549 Admin costs: $ 869
