Do Apprenticeships Pay? Evidence for England
| DOI | http://doi.org/10.1111/obes.12363 |
| Author | Chiara Cavaglia,Guglielmo Ventura,Sandra McNally |
| Published date | 01 October 2020 |
| Date | 01 October 2020 |
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©2020 TheAuthors. OxfordBulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd.
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OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 82, 5 (2020) 0305–9049
doi: 10.1111/obes.12363
Do Apprenticeships Pay? Evidence for England*
Chiara Cavaglia†,§, Sandra McNally†,‡,§ and
Guglielmo Ventura†,§
†Centre for Vocational Education Research, London School of Economics, London, United
Kingdom of Great Britain and Northern Ireland
‡University of Surrey, Guildford, Surrey, United Kingdom of Great Britain and Northern
Ireland (e-mail: s.mcnally1@lse.ac.uk)
§Centre for Economic Performance, London School of Economics, London, United Kingdom
of Great Britain and Northern Ireland
Abstract
The importance of apprenticeships for early labour market transitions varies across coun-
tries and over time. In recent times, there has been a policy drive to increase the number
of people undertaking apprenticeships in England. This is regarded as important for ad-
dressing poor productivity.We investigate whetherthere is a positive return to undertaking
an apprenticeship for young people. We use detailed administrative data to track recent
cohorts of young school leavers as they transition to the labour market. Our results suggest
that apprenticeships lead to a positive average earnings return (at least in the short run),
although there is stark variation between sectors. This is an important driver of the gender
gap in earnings.
I. Introduction
Apprenticeships feature in the vocational education systems of many countries, although
their popularity varies widely, being especiallyprevalent in countries like Germany,Austria
and Switzerland and much less common in countries like the US, Sweden and Italy which
rely more on classroom-based learning or put less emphasis on vocational education.1
England is somewhere in between, although there is recent policy interest in increas-
ing the number of apprenticeships, with a government commitment to increase them to
JEL Classification numbers: I20; I28; J24.
*This work has been funded under the CVER programme of research (which is an independent research centre
funded by the Department for Education) and the Centre for Economic Performance’s ‘Informing the Industrial
Strategy’ project (ESRC ES/S000097/1). This work also draws on work done for the Sutton Trust on the payoff to
apprenticeships. We thank participants at seminars and conferences in the following locations: Institute for Social
and Economic Research, University of Essex; SFIVET VET Congress in Berne 2017, Department of Economics,
University of Birmingham. We thank Stefan Wolter for helpful comments.
1Kuczera and Field (2018) showcomparable data across countries for cur rent apprentices in programmes leading
to upper secondary or shorter postsecondary qualifications as a share of all students. There are some issues of data
reliability but this shows England at around 4%, in contrast to countries like Norway (11%),Australia (15%), the
Netherlands (16%), Denmark (19%), Austria (32%) and Germany (34%).
Do apprenticeships pay? 1095
3 million over 5 years (2015–20), alongside substantial reforms to the regulation and
funding of the apprenticeship system. The purpose is to help address two important prob-
lems in the UK: poor productivity and a significant fall in employers’investment in training
over recent decades (NationalAudit Office, 2019). The apprenticeship programme aims to
allow people to develop the knowledge, skills and behaviours required for their occupa-
tion. Apprenticeships may also be important for improving social mobility because they
tend to be undertaken by students in the low-middle part of the educational distribution
and by students who would not otherwise have the credentials for university (at least in
England).2They are an important part of the government’s plan to improve and reform
post-16 education in England.3
Does investment in apprenticeships lead to a positive return?This has been considered
from the perspective of both firms and individuals. Acemoglu and Pischke (1999) use
the example of the German apprenticeship system to show that firms often engage in
general training, despite a large training cost (and consistent with a model of imperfect
labour markets). In Germany and Switzerland, detailed cost–benefit assessments havebeen
made (as summarized by Muehlemann and Wolter, 2014) and help to explain how firms
recoup their initial investment.From the individual’sperspective, in theory, apprenticeships
should offer an excellent environmentto acquire general employability skills (such as team-
working, communication skills etc) as well as specific occupational skills acquired ‘on the
job’. Furthermore, they may ease the school-to-work transition by establishing a better
match of workers’ skills to firm needs (Ryan, 2001). However, the empirical evidence on
whether there are employment and wagereturns to apprenticeship programmes for workers
varies bycountr y. For example, positivewage returns have been found forAustria (Fersterer,
Pischke and Winter-Ebmer, 2008) and France (Bonnal, Mendes and Sofer, 2002) but not
in the Netherlands (Plug and Groot, 1998) or Germany (Parey, 2016).
Whether apprenticeships generate a net positive return is likely to depend on many
institutional aspects of the country – such as the education system, training regulations
and labour market institutions (Muehlemann and Wolter, 2014). Furthermore, the appren-
ticeship model in England is very different than in other European countries. Steedman
(2010) documents differences for England which include much fewerhours of off-the-firm
training, shorter duration and many at a lower level of skill. Thus, it is difficult to make
any generic claim about whether apprenticeships are a good investment for either firms
or individuals. However, unless apprenticeships are seen to generate positive returns for
individuals, it may be that they fail to attract enough suitable applicants, thus jeopardizing
their potential for improving productivity. In this paper, we ask whether apprenticeships
lead to positive returns in the labour market. Specifically, we compare individuals with a
similar level and type of education, and investigate whether those who undertake an app-
renticeship have better employment and earnings outcomes in their early career compared
to those who complete their education entirely within a classroom-based setting.Although
there is an existing literature on the returns to apprenticeships in the UK (e.g. McIntosh
and Morris, 2016), we contribute to this literature with a more detailed analysis of the
2Degree apprenticeships wereonly launched in 2015 and still account for a very small proportion of all apprentices.
3They feature prominently in the reforms to post-16 vocational education (T-levels). https://assets.publishing.
service.gov.uk/government/uploads/system/uploads/attachment data/file/760829/T Level action plan 2017.pdf
©2020 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and JohnWiley & Sons Ltd.
1096 Bulletin
returns to apprenticeships for young people than has been previously possible in England
and indeed not typically possible in other counties. This is because we have access to de-
tailed administrative data for cohorts of young people as they move through the education
system and into the labour market. This includes individuals’prior attainment in national
tests at the end of primary and secondary school. This is one of the first papers to use the
linked administrative education-earnings data for England (‘the Longitudinal Educational
Outcomes’ database). One of the main advantages of this data set is that we are able to
analyse returns to apprenticeships in a much more refined way – for example, looking
within particular vocational sectors.
Even with the availability of detailed data, unobservable variables (such as various
non-cognitive abilities or motivation) might influence both the probability of obtaining an
apprenticeship and labour market outcomes. To overcome these issues, we make use of an
Instrumental Variable strategy which uses cohort-to-cohort variation in the extent to which
peers of young people (within the same year group and school) access apprenticeships.
Our results suggest that within our population of interest selection effects are unlikely
to be strong for earnings (with the possible exception of women who access lower-level
apprenticeships). We find an average earnings return to undertaking an apprenticeship
that persists (at least in the early phase of a young person’s career), but that this return
is highly variable by sector of specialization. This is the main driving force behind the
finding that the return is much higher for men than for women. The findings on gender
are in line with previous research in other countries. For example, studies in Germany find
that occupational segregation explains a large fraction of the gender gap of young workers
with an apprenticeship (Kunze, 2003, 2005). Fitzenberger and Kunze (2005) find a large
wage gap at the bottom of the income distribution and that occupational mobility is lower
for women than for men. This is the first study (to our knowledge) that investigates the
gender gap amongst those who have previously undertaken an apprenticeship in England.
The remainder of this paper is structured as follows. Firstly, we briefly discuss existing
literature on whether apprenticeships have added value in the labour market (section II).
We then give brief details of the English education system and how apprenticeships fit in
(section III). We discuss the data and methodology (section IV) before discussing results
(section V). We then discuss our conclusions (section VI).
II. A brief literature review on individual returns to apprenticeships
Apprenticeships may offer opportunities for acquiring job-related skills that are not present
to the same extent in a classroom-based education (Wolter and Ryan, 2011). For instance,
they offer an opportunity for students to put their skills to use immediately in practical
situations, thus helping with motivation to learn (especially for less academically-inclined
students). They increase familiarity with the work environment and expose students to
‘work ethic’ present in the workplace. In addition, firms may be better informed about the
skills required in a specific job and are more aware of howthese requirements change over
time due to innovation in the production technology. If it is true that apprenticeships are
more suited to providing specific skills than full-time classroom-based vocational educa-
tion, students who complete an apprenticeship would be expected to have higher produc-
tivity.Accordingly, we should observe relatively higher wages in the longer-term. Another
©2020 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and JohnWiley & Sons Ltd.
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