Labour Market Institutions and the Training Motivation of Firms: A German - Australian Comparison

Apprenticeship training is an important post-secondary educational pathway in several industrialised countries. In Europe, especially the German speaking countries feature training systems that are crucial for the successful labour market integration of youth. But also in some Anglo-Saxon countries, apprenticeships play an important role. Australia stands out as a country with a strong VET sector, reporting shares of apprentices similar to those of e.g. Germany (see Steedman 2010). However, aggregate numbers do not reveal anything about the motivation of firms to train. This information is important for policy makers that aim to increase the demand for apprentices thus the education options for non-university bound youth. 

Theoretical and empirical literature developed hypothesis about the motivation of firms to supply training. Thereby, costs and benefits of training are central factors in the decision making process of firms. While Lindley (1975) discusses a production (or substitution) motivation of training, where firms mainly train because apprentices are inexpensive substitutes for “regular” workers, Merillees (1983) or Stevens (1994) discuss an investment model of training, in which firms are primarily interested in the continuous recruitment of apprentices, and therefore are willing to pay for training.

Newer studies focus on institutional factors explaining the training investment behaviour of firms Thereby, wage setting institutions, such as collective bargaining agreements or minimum wages, (Acemoglu and Pischke 1998, 1999), employment protection (Muehlemann et al. 2010) or firm-level employee representation (Kriechel et al. 2014) foster training investments, because they increase the expected returns over a longer employment period. These studies suggest that the institutional environment in a country is essential for firms’ willingness to undertake training investments.

This paper contributes to the literature by analysing the training motivation of firms in Australia and Germany, two countries with a strong vocational training sector but fundamentally different institutional frameworks. It first briefly contrasts the two systems of apprenticeship training and labour market institutions to develop hypothesis about differences in firms’ training motivation. It then compares direct evidence on employer investments in training, using large scale employer surveys for Germany and case studies for Australia. It finally uses recent changes in government incentive payments to infer about firms’ training commitment in the two countries.

Overall, the analysis supports earlier literature in that most firms in Germany still apply an investment oriented and thus mid- to long-term strategy of apprenticeship training. On the contrary, many Australian firms train production oriented, showing a high elasticity to changes in government incentive payments. However, for Australia, differences emerge between the traditional trade sector and the non-trade industries. While firms training in the trade sector appear to be more investment oriented, firms training the (shorter) non-trade traineeships are more responsive to incentive changes and thus are more production oriented. This segmentation of the Australian training system can partly be explained by within-differences in the country’s institutional framework.