In Discussion Paper No. 1311, Research Associate Dietmar Harhoff and Thomas Kane study the financing mechanisms that support the German apprenticeship system. They find that although firms face large net costs in the training of apprentices and suffer high departure rates, they are willing to provide general training. Three main reasons are suggested: First, unions may limit poaching by other firms and thereby provide a market within which firms are ready to make loans to workers to finance general training. Apprentices who remain with the training firm - perhaps because of relatively high moving costs - earn less than more mobile apprentices. Second, since minimum wage agreements and high firing costs bestow a high value on information regarding any particular worker's productivity, apprenticeship programmes may serve as an extended employment test for which employers are willing to share the costs. Third, but impossible to evaluate, a norm may have developed in Germany to provide such training. Many firms comply with these social expectations by providing general training.

None of these conditions currently exist in the US. Thus, a simple transfer of the German model is unlikely to be successful. In the second half of the paper, the evidence on the merits of apprenticeship training relative to other forms of human capital investment is surveyed. The following results are obtained: German apprentices occupy roughly the same place relative to unskilled workers and college graduates as held by high school graduates in the US. This also applies with regard to age-earning profiles, suggesting that the two countries simply exhibit two different equilibria with similar outcomes.

Is the German Apprenticeship System a Panacea for the US Labour Market?
Dietmar Harhoff and Thomas J Kane