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Home Opinion Expanding high quality apprenticeships
Predistribution • Training • Human Capital

Expanding high quality apprenticeships

Jonathan Todd - 20 May 2014

Businesses and workers must take more of a lead in human capital investment. The role of public policy is to unlock this investment

The recovery of the British economy features the paradox of widening skills gaps and a declining business willingness to invest in skills. If this unwillingness persists, it will exacerbate these gaps, undermining both the economy's long-run growth potential and the more equitable labour market outcomes targeted by a predistribution strategy.

Further evidence of the economy's recovery is provided by a survey of businesses by the London Chamber of Commerce and Industry (LCCI). This reported that 66 per cent of businesses expect turnover to increase over the next year, the most optimistic outlook since LCCI began its quarterly survey in 1989. The same survey, though, found that half of firms are struggling to find sufficiently skilled employees, rising to 64 per cent for professional managerial vacancies.

However, the IPPR recently revealed that the UK suffered a drop in training four times greater than any other European country during the recession. "During the downturn, the UK has kept people in work but has not invested sufficiently in capital, human or physical. That drags down the productivity of our workers and therefore our living standards", argues Nick Pearce of the IPPR. Had this not being the case, the skill shortages reported to LCCI would be less likely.

I recently published a Demos pamphlet that analysed the future of apprenticeships. Among other questions, this asked: What is this recovery for?

If the optimism of the businesses surveyed by LCCI is not to burn itself out amid skill shortages, then the recovery needs to be about overcoming the dearth of human capital investment bemoaned by Pearce. Fiscal consolidation means that public spending on skills is falling by a quarter over the current spending review period. Businesses and workers must, therefore, take more of a lead in human capital investment, while the role of public policy is to unlock this investment.

Qualifications reform has a role to play. England’s vocational system has 18,000 different qualifications. Germany's has just 330. This is because German qualifications are much more streamlined around the occupational standards necessitated by the ‘licence to practice’ systems that Germany has in operation.

This contrast between Germany and England is further highlighted by the conclusion to a recent study by Fuller and Unwin, which was focuses on the English apprenticeship system: "The ‘anything goes’ approach to the inclusion of job titles and job roles across and within frameworks has created a highly inconsistent and overly complex system."

The government have launched a number of Trailblazers in an attempt to move on from this 'anything goes' approach. The Trailblazers give employers the opportunity to lead the development of new apprenticeship standards and the more robust assessment approaches that sit alongside them. Once approved, the standards developed by Trailblazer schemes will become the apprenticeship standard for that occupation.

But the proliferation of Trailblazers that are developing one form or other of ‘technician’ standard might suggest that while the Trailblazers are intended to overcome the ‘anything goes’ approach, they may not be wholly succeeding in doing so. The sector focus of Trailblazers may inadvertently result in more apprenticeship qualifications being developed than is optimal.

Policy makers in the UK have tended to see low wage compensation as a barrier to apprenticeships being undertaken and consequently, have subsidised higher wages for apprentices. Dustmann and Schönberg believe this subsidy to be misconceived, as the difference in apprenticeship system performance between Germany and the UK is explained not by differences in apprenticeship wages but by differences – or perceived differences – in employer commitment to apprenticeship training.

Indeed, German apprentices are prepared to accept lower wages than their British counterparts but only because they believe in the commitment of their employers to their training and the value that this will come to create for them in the labour market. According to this argument, the UK should put less emphasis on subsiding apprenticeship wages and more on convincing would-be apprentices of the commitment of firms to apprenticeships.

If the government can ensure that Trailblazer schemes deliver on their mission to establish occupational standards for apprenticeships, rather than having multiple, crossing-cutting standards for occupations that have some presence in a number of sectors, then it should be easier for firms to demonstrate this commitment. Which would make British apprentices more prepared to accept the lower wages of those in Germany. In turn, making more affordable for businesses the institutional architecture seen in Germany that sustains the belief of apprentices in the commitment of businesses to their training – such as centralised examination, monitoring of training facilities, and senior workers who train young workers.

In this sense, predistribution is a long game. The apprentice accepts lower wages in the near term, in exchange for training that will deliver them higher wages than they would otherwise earn over the longer term. A new partnership between business and worker, ultimately, brings its reward in terms of increased productivity for the business and raised wages for the worker. The role of government exists in facilitating this partnership - in particular, through establishing occupational standards for apprenticeships.

Rather than to enable the business to finance the kind of institutional architecture seen in Germany, many British apprentices are being forced to accept lower wages than they are entitled to simply because they are being exploited by unscrupulous employers. The TUC last year called on the government to take urgent action after official figures revealed that three in ten (29 per cent) apprentices were paid less than the legal minimum wage in 2012, a 45 per cent increase on the previous year.

The suspicion must persist, sadly, that some employers look at the wage subsidies attaching to apprenticeships, as well as their likely ability to get away with falling down on their pay responsibilities, and see apprentices as a source of cheap labour. In addition to being at risk of underpayment, apprentices taken on by such employers are likely to only pick up firm specific skills that do little to set them up for a successful career.

Young people rightly have higher expectations for apprenticeships than this. Leading companies confirmed to Demos that their apprenticeship programmes are heavily oversubscribed. BAE Systems has around 20 applications for every apprenticeship, British Gas around 50, KPMG has around 12, Lloyds Bank has around 60 for their specialist apprenticeships in IT and project management, and Live Nation has over 80.

Over half of young people would like to do an apprenticeship, while less than 10 per cent of them actually do so. Bringing supply of apprenticeships closer to demand for them requires that businesses invest more in them. But raising the quantity of apprenticeships must not come at any dilution of their quality. Only high quality apprenticeships will help the UK close its productivity gap on comparable economies - 24 percentage points below Germany and France and 29 percentage points below that of the US, in terms of output per hour worked in 2012.

The popularity that apprenticeships enjoy with the public and many businesses creates the political space to take the steps necessary to pursue predistribution through an expansion of high quality apprenticeships. The Trailblazers are a step in the right direction. But government must ensure that they fulfil their purpose.  

Jonathan Todd is Chief Economist at Demos

This is a contribution to Policy Network's work on Progressive Capitalism.

Tags: Jonathan Todd , Opinion , Pre-distribution , Predistribution , Welfare State , Labour Party , Social Justice , Redistribution , Education , Academies , Teach First , Sure Start , Literacy , Numeracy , Free Schools , Trailblazers , Apprenticeships , Predistribution , Human Capital , Wages , Income , Recovery , Growth , Investment , Jobs , Employment , Unemployment ,

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