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5th International INAP Conference - April, 23rd and 24th 2013

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*

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5th International INAP Conference - April, 23rd and 24th 2013

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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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