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The Value of Apprenticeships in UK – Wages alone under-estimate the total productivity benefit

The Social Market Foundation (SMF) has undertaken research to look at what types of apprenticeships create the most value, in terms of both wages and firm performance. This in turn will help inform policy recommendations on how Government should support the next phase of the apprenticeships programme.

There is strong political commitment to the apprenticeships programme as a part of the strategy to achieve a high quality workforce that can help improve UK productivity and economic growth. Apprenticeships have the potential to provide opportunities for gaining training whilst working, thereby improving career opportunities and helping to fill skills gaps across a range of sectors. The Government is planning to implement a new levy on businesses, designed to raise funding that will allow sustainable long-term investment in high-quality apprenticeships.

In the first paper published as part of this project, we examined the effect of having completed an apprenticeship on wages, and how the wage premium association with apprenticeships varies by level and by sector. We found that Level 3 apprenticeships deliver larger wage uplifts than those at Level 2, and that manufacturing apprenticeships are particularly valuable in terms of the earnings gain that they deliver.  In this paper, we set out findings from our analysis of data examining whether there are wider productivity benefits associated with apprenticeships, which are not captured in wages alone.

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In summary, we find that:

  • There are reasons to believe that looking at wages alone under-estimate the total productivity benefit associated with apprenticeship investment.
  • This is because firms are likely to experience net benefits in terms of performance from investing in apprenticeships, even after accounting for the fact that they may need to pay higher wages to employees who have received training.
  • The extent to which firms will need to pay higher wages is likely to depend on the relative bargaining power of employees relative to employers. Our findings from the data are consistent with this. Our analysis of groups of employees that are likely to have more bargaining power than others suggests that it is indeed the case that these employees gain more from having completed an apprenticeship qualification. The effect is especially strong among Level 3 apprenticeship holders. The wages of these workers is likely to be better reflect the overall productivity gain of apprenticeship investment, although even this is likely to be an under-estimate.
  • There are also likely to be broader firm-wide benefits of investing in training, however our analysis of these effects are not conclusive due to data limitations.

Chosen excerpts by Job Market Monitor. Read the whole story at  The value of apprenticeships: Beyond wages | Social Market Foundation

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