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Impact of Labor Market Regulations on Training: Lessons from the German Labor Market Reform

Explore the effects of labor market regulations on training quality and behavior using the German labor market reform as a natural experiment. Discover insights on training financing, vocational education in Germany and Switzerland, data analysis, and results on training benefits and quality. Gain valuable conclusions on the relationship between labor market regulations and investments in human capital.

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Impact of Labor Market Regulations on Training: Lessons from the German Labor Market Reform

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  1. 5th International INAP Conference - April, 23rd and 24th 2013 The effect of labor market regulations on training behavior and quality: The German labor market reform as a natural experiment Anika Jansen*, Mirjam Strupler Leiser*, Felix Wenzelmann**, and Stefan C. Wolter* *University of Bern, Centre for Research in Economics of Education (CREE) ** German Federal Institute for Vocational Education and Training (BiBB)

  2. Outline • The financing of training • VET in Germany and Switzerland • The German labor market reform • Data and empirical strategy • Results: benefits of training, training behavior, and training quality • Conclusion

  3. 1.The financing of training • The German and Swiss dual apprenticeship system • Programs combine school and firm based training • Firms hire apprentices and sign a work and a training contract • At the firm, the apprentice both learns and works • Classical human capital theory (Becker, 1962) • In competitive labor markets, firms do not have incentives to invest in general human capital • Firms always have to pay a wage equal to the productivity • No possibility for firms to recoup training investments • General human capital is solely financed by employees

  4. 1.The financing of training • Beyond Becker (Acemoglu and Pischke, 1998) • In restrictive labor markets, frictions allow firms to pay wages below marginal productivity • “compressed wage structure”: the difference between pay and productivity rises with level of training • Labor market regulations are one source of frictions • The author feared that • “[…]removing regulations in the German labor market […] could have unforeseen consequences regarding the German apprenticeship system” (Acemoglu and Pischke, 1999) • What happens when frictions are reduced?

  5. 2.VET in Germany and Switzerland • Switzerland has a less regulated labor market, but also a functioning training system, which is similar to the German system • Germany and Switzerland have different training costs (Dionisius et al. 2009) • The reason for the cost differences was the different task allocation

  6. 3.The German labor market reform • Country comparison at one point of time not sufficient • The German labor market reform, which induced more flexibility on the labor market, presents a natural experiment • The consequences are: • Former apprentices can leave the training firm more easily because firms can test them out via temporary work • Training firms risk to lose their up-front investment • Training has to pay off already in the short run!

  7. 4.Data and Empirical Strategy • Data: 4 Cost benefit surveys: Germany (‘00 & ‘07) and Switzerland (‘00 & ’09) • Difference-in-differences matching estimator (Heckman et al., 1997) • DID: We compare the development of the training behavior in both countries • ME1: To every German firm in 2007 a similar German firm of 2000 is matched. Same procedure for Swiss firms • ME2: To every German 2007 firm difference a Swiss difference is matched

  8. 5. Results I: Benefits of training

  9. 5. Results I: Training Behavior Note: Matching variables are firm size (exact), job categories (exact) and industry (+region for within country matching). Standard errors are robust. *p<0.1, **p<0.05, ***p<0.01.

  10. 5. Results II: Quality of training Note: Matching variables are firm size (exact), job categories (exact) and industry (+region for within country matching). Standard errors are robust. *p<0.1, **p<0.05, ***p<0.01. The relative productivity for the average final year of training of a Swiss apprentice is ca. 75%.

  11. 6. Conclusion • The benefits of training increased in comparison to Swiss firms by 2000 € per year and apprentice • The apprentices are more strongly incorporated in the working process and are allocated mostly to skilled tasks • The performance level increased by 5 – 11% points – no negative consequences on the training quality • Bottom line: labor market regulations are indeed a prerequisite for up-front investments in general human capital, but a net-investment is not a precondition for a performing apprenticeship training system

  12. Thank you!

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