Spillovers in Vocational Training

The German apprenticeship system has often been considered a role model for vocational education. But recent shortages in apprenticeship positions have led to a renewed debate about appropriate training policy. At present, there are renewed calls to introduce a training levy scheme, which would impose training levies on non-training firms and give additional support to training firms. Some economists favor this policy in order to counteract poaching of trained apprentices. Other economists oppose it strongly on the basis that positive spillovers do not occur. Still others suggest to loosen training regulations and allow for reimbursement clauses in training contracts. Surprisingly, a general economic analysis and comparison of these alternative instruments is still lacking. This work attempts to close this gap. It investigates whether poaching enables to derive positive spillovers from apprenticeship training, and if so, whether training policy could play a mitigating role. Following the recent training literature, we use a simple oligopsonistic labor market model with endogenous turnover. Such a setting allows us to explain why firms provide and (at least partially) finance general vocational training. Moreover, it demonstrates that a positive externality arises as competing firms benefit from vocational training through poaching. We then introduce alternative policy instruments into the model. In principle, the Pigouvian prescription of a perfect subsidy scheme financed by a non-distortionary tax could restore the social optimum. The proposed training levy scheme, however, is a particular scheme that links subsidies and levies. This paper demonstrates that it basically corresponds to a uniform subsidy on apprenticeship training that is financed by a distortionary tax on labor. We show that introducing this training levy scheme can entail ambiguous repercussions on general welfare even when transaction costs are excluded. Reimbursement clauses, in contrast, oblige the trainee to compensate for training when quitting the firm. They alter workers' outside options and thereby increase firms' wage-setting power. In this model, in opposition to earlier studies, we show that they do not affect training spillovers. Instead, they are identified as an implicit training loan.