NZ Initiative's Martine Udahemuka says the benefits for employers to train apprentices need to be front and centre in the discussion on New Zealand’s approach to vocational education and training

NZ Initiative's Martine Udahemuka says the benefits for employers to train apprentices need to be front and centre in the discussion on New Zealand’s approach to vocational education and training

By Martine Udahemuka* 

It is not clear whether the increased visibility of vocational education and training in New Zealand is due to worsening skill shortages and/or to a change in government, but either way it is a discussion worth having.

The focus has been on what’s in it for students, and fairly so, given years of praising university education while belittling vocational education. But we should be talking about the other side of the coin too: why should employers train?

Countries with successful vocational training systems work extremely hard to ensure employer buy-in and support cost-benefit studies to understand why some firms train and others don’t.

Earlier this year, I proposed on interest.co.nz that New Zealand could learn from the success of Germany and Switzerland’s dual vocational education and training system. It is the most popular choice for 15- and 16-year-olds who leave high school to pursue a 3-year programme in one of the hundreds of white-or blue-collar occupations on offer.

The pathway is called dual because apprentices spend at least 70 percent of their time at work and the rest in a dedicated vocational school and leads to a national professional qualification. The dual approach has been heralded as partially responsible for the European countries’ enviable youth labour market outcomes; which across the board are better than ours.

In New Zealand, out of 60,606 school leavers in 2015, only 1,435 had signed an apprenticeship contract by the following year.  That is a meagre 2.4% compared to Switzerland’s 65% and Germany’s 54%. Attempts to raise the image have not resulted in droves-more school leavers in New Zealand signing up to apprenticeships. In fact, the reverse is true: The proportion of young people starting an apprenticeship straight after school has been declining since at least 2011 while the proportion of those enrolling in a university course has been increasing. The narrative is that the apprentice path is often reserved for students who struggle to reach basic achievement levels or unable to go to university.

This then creates a negative spiral in the apprenticeship space. Employers willing to train may find it difficult to find suitable candidate so in turn, fewer companies will want to train. The school leavers who may otherwise consider the option would need to compete for too few training slots so may instead opt for for university or low skilled jobs.

In the most recent review of Industry Training, New Zealand employers said the main barrier to training inexperienced workers was cost. This was especially so because too many school leavers were leaving school barely literate or numerate.  Overall, the employers would rather hire older workers even when younger workers are cheaper. In their experience, older workers are work-ready and more stable thus demand less in recruitment and on-boarding costs.

Analyses of the dual training system show net-benefits for Swiss firms and net-costs for German firms. Most Swiss training firms gain benefits during the training as generally the apprentice’s productivity is higher than the costs of training them.  Conversely in the case of Germany, apprentices generate benefits for the training firm after the training. In this case, it is in the firm’s interest to retain high quality graduates.

Most of the difference in the net-costs results from a higher share of productive tasks allocated to apprentices in Switzerland as well as lower wages of apprentices relative to skilled workers’. That Swiss employers are not bound by a minimum wage might partially explain why almost half of the firms there that can train, train. A Swiss apprentice’s wage typically starts at 12% of the skilled-worker’s and rises to around 25% by the end of the training.  Apprentice wages in Germany are collectively bargained and the wage for a typical apprentice starts at 25% of the skilled-worker’s and goes up to about 30% by the end of the training. 

The deregulated labour market in Switzerland also means that employees are highly mobile. Almost sixty percent of graduates leave their training company within the first twelve months of training. It is therefore in the training firm’s interest to break-even whilst the apprentice is still training. In the more regulated German market, graduates tend to stay with their training employer. More than two thirds are hired by their training company upon graduation.

In both countries, employers contribute at least 60% of the training costs and Swiss employers neither receive nor demand subsidies for training apprentices.

The level of the apprentice wage relative to that of a qualified worker can make a difference in the decision to train. Where employers anticipate net-costs from taking on apprentices, wage subsidies like those introduced by the Labour-led government sound sensible.

New Zealand’s calls for more young people to consider this path need to be accompanied with cost-benefit analyses to support decisions for those employers on the fence about training.


*Martine Udahemuka is a research fellow at the NZ Initiative. This is the Initiative's fortnightly column for interest.co.nz.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

15 Comments

When challenged by an employer as to why he would pay for staff training when the employees can then just leave and go to another company my Professor remarked "well, you can choose not train them and have them stay"

What train people? In New Zealand? Train people for real jobs in real firms? Well, that is a novel idea. Courageous, if I may say so, minister.

Who pays for it?

The end user / customer does with poor service.

I work in an environment where a certain level of technical expertise is required to provide good customer service (ask the right questions , understand how a service is provided etc) . Unfortunately this can't be easily taught .

I was trying to find the relevant clip, this is the closest I could get:
https://www.youtube.com/watch?v=ik8JT2S-kBE

Clearly the idea is a non starter as NZ governments always seem to prefer a debt serf model over a productivity based one.

From the way you worded your reply, why is it the Govn's fault?

Being an employer of apprentices and tradespeople I could weigh into this on so many levels, but let’s look at the elephant in the room,

“A Swiss apprentice’s wage typically starts at 12% of the skilled-worker’s and rises to around 25% by the end of the training. Apprentice wages in Germany are collectively bargained and the wage for a typical apprentice starts at 25% of the skilled-worker’s and goes up to about 30% by the end of the training.”

Let’s say in NZ $34 per hour for a skilled worker.
Switzerland – Swiss apprentice starts on (12%) $4.08 per hour. Finishes on (25%) $8.50 per hour.
Germany – German apprentice starts on (25%) $8.50 per hour. Finishes on (30%) $10.20 per hour.

Here is an example of an exchange I had with a 20 year old a couple of weeks ago. He is in an admin role comprising work of inputting and telephone work, no real pathway in the particular role. He expressed interest in our industry, so I gave my time on 2 Saturdays for a couple of hours each to provide some training to him. A couple weeks later a role became available as a trainee to enter our organisation and start a career that would offer personal growth, promotional prospects and would lead to considerably more money. The young chap is on a 50K salary. 50K is considerably more than a trainee usually earns but I saw promise in the guy and offered him the same income he was on to join us to broaden his horizons. He declined the offer because he decided he would only move for more money. I didn’t hire him.

The funny thing is, when I did my apprenticeship in the 80s, obtaining an apprenticeship was hard and a big win!! Even funnier the apprentice payrates back then were far closer to the Swiss and German models above.

The lure of earning more money today than in the future is quite strong, especially if you need every penny today to pay rent and eat.

Presumably the 12% pay rate applies to the 15 year olds. My son has a strong dislike of classrooms - basically he wasted his life during his last three years at a very good school. Bad for him and of course bad for the other pupils who he distracted when he could be bothered to attend. Now he is a 20 year old starting a building apprenticeship. In Germany he would be well into or finishing his apprenticeship and I know that even $4 per hour aged 15 or 16 would have made him happier

Interesting article.

1) If we are going to "subsidise" tertiary students for 3 years of university education then something similar should be available for apprentices. ("Where employers anticipate net-costs from taking on apprentices, wage subsidies like those introduced by the Labour-led government sound sensible.")

2) "worsening skill shortages" - There needs to be some degree of closer alignment of costs between importing labour (immigration) and training people already here. This suggest that work visas should come with a cost.

Very interesting and important article and willing to bet every politician will skip it. Our establishment is obsessed by university and unwilling to consider anything else but bring in Chefs and Bakers as our main 'skilled' category immigrants.
Just repeat those figures because they so blatantly tell us what is wrong with our economy: school leavers who have signed on for an apprenticeship: NZ 2.4%, Switzerland’s 65%, Germany’s 54%.
From the 'if it were my home' website: If Switzerland were your home instead of New Zealand you would / be 43.86% less likely to be unemployed / make 80.26% more money / spend 2.7 times more money on health care / have 11.11% more free time. Anyone like a 80% pay rise and support half the number of beneficiaries?

Why put the effort into training and paying people when you can just import someone from India with forged qualifications who will pay under the table for the job offer? It's not like we need skilled people to do anything real whilst the whole economy is based on money-laundering and immigration scams.

Don't forget the selling-houses-to-each-other sector!