NET BENEFITS TO EMPLOYER INVESTMENT IN APPRENTICESHIP TRAINING: Evidence from the IER / AAN Study

1. NET BENEFITS TO EMPLOYER INVESTMENT IN APPRENTICESHIP TRAINING:Evidence from the IER / AAN Study

2. THE VALUE OF APPRENTICESHIPS The study demonstrates: • Apprenticeships are an investment by employers… • … and like any investment there are risks attached… • Like any investment it needs to be looked after… • …where it is, the returns to the employer are positive

3. THE NET BENEFIT TO THE EMPLOYER The study goes on to show: • The employer’s costs of training are quickly recouped upon completion of the apprenticeship • And there are other benefits too. Employers report that their apprentices: • stay with the company longer once trained • are steeped in the company’s values because of the way they were trained as apprentices • form the cadre from which future managers and supervisors will be selected

4. THE STUDY • Detailed: based on employer case studies in seven sectors • Well established: part of the Net Costs of Training series of studies which commenced in 1996 • Independent: carried out by the University of Warwick Institute for Employment Research (IER) • Validated: commissioned and scrutinised by the business leaders who form the Apprenticeships Ambassador Network (AAN) • Indicative: based on small number of observations in each sector – but cases are not atypical of employers in their respective sectors

5. THE ECONOMICS OF TRAINING • The apprentices wage costs will be greater than their productive capacity whilst training • Training costs recouped post-training where wages will be less than the trained worker’s output • The study estimates the employers costs of training an apprentice and estimates the payback period post-training

6. THE COSTS OF APPRENTICHESHIP TRAINING • Researchers, working with employers, identify the costs of training and estimate the benefits obtained over the training period (see table) • Researchers also collect qualitative information about the benefits obtained over the longer-term (e.g. accepting values of the company, creating a stock of skilled and qualified workers) • Also possible to estimate the extent to which the employer’s training costs are recouped

7. ESTIMATING THE PAYBACK PERIOD • Use of standard investment appraisal techniques to estimate net present value (NPV) of the employer’s investment in apprenticeships • The future benefit of employing a former apprentice is equal to: • their wage plus the mark up the employer obtains (i.e. the value of the work carried out by the former apprentice relative to their wage) • minus the costs of training the apprentice • because benefits accrue in the future, they need to be discounted to give a present value (the study used the real interest rate at the time of the study)

8. THE NET COSTS IN ENGINEERING • Apprenticeships well established in case studies • Little alternative since shortage in external labour market • Opportunities for ex-apprentices to progress into supervisory and managerial jobs • Costs of training relatively high at £29,000 over a three to four year period, but recouped over two to three years after end of apprenticeship • Training highly structured with substantial off-the-job component

9. THE NET COSTS IN HOSPITALITY • Apprentices often relatively productive during their training • The average net cost of training was around £4,200 • The apprenticeship was often completed within a year • Accordingly, the employer’s costs could be recouped relatively quickly

10. THE NET COSTS IN RETAIL • Completed within a year with training mainly on-the-job • Training costs relatively low at £2,300 • Apprentices can do a job of work whilst training • Employers costs are recouped relatively quickly

11. THE NET COSTS IN BUSINESS ADMINISTRATION • Training costs show substantial variability because of the varying durations of the training undertaken • The cost of training to Level 2 was around £1,100 (because the trainee was relatively productive whilst training) and around £3,500 to £3,900 at Level 3 depending upon the duration of the training • The payback period for a Level 3 Apprenticeship which takes three years to complete is around one year

12. THE NET COSTS IN SOCIAL CARE • Difficult to estimate costs because of the complexity and variability of the training provided • If employer trains to Level 2 the costs can be as high as £4,300, and if training continues to Level 3 the total net cost is around £7,700 • Hence the payback period can be around four years… • … but there is much variability in the sector so the results should be treated with a degree of caution

13. THE NET COSTS IN CONSTRUCTION • Employers trained to meet their own skill needs and those of their sub-contractors • Training tends to be highly structured and relatively costly compared to other sectors: £22,000 although there is variability between employers • Employers were able to recoup their training costs if the apprentice stayed with the company for two years after completing their apprenticeship

14. THE NET COSTS IN IT • Training tended to be on-the-job with college or training providers undertaking assessments in the workplace • The largely workplace-based nature of training meant that the productivity of Apprentices was relatively high – hence the comparatively low net cost to employers when investing in IT • On average, the cost of investing in an Apprentice was recouped by case study employers in a short space of time – on average around six months

15. CONCLUSION • Apprenticeships allowed employers to secure a supply of the skills they required • Costs of recruiting experienced workers from the external labour market seen as more expensive because of recruitment and induction costs • Often supply in the external labour market is limited • Apprentices provided a pool of skilled people to select from for future promotion • Apprentices were seen as relatively loyal: more likely to stay with the company and steeped in company values • Apprentices seen as bringing new ideas into organisations • The costs of Apprenticeship training is recouped relatively quickly