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The effect of business cycle expectations on the German apprenticeship market: Estimating the impact of Covid-19

Author

Listed:
  • Samuel Muehlemann
  • Harald Pfeifer
  • Bernhard Wittek

Abstract

A firm's expectation about the future business climate is an important determinant of the decision to train apprentices, because German firms typically train apprentices to either fill future skilled worker positions, or as a substitute for other types of labor. The current coronavirus crisis will have a strong and negative impact on the German economy according to the current estimates of the business climate in Germany (ifo Business Climate Index). To the extent that the training decision of a firm depends on its perception of the business climate, we expect a downward shift in the firm's demand for apprentices and consequently also a decrease in the equilibrium number of apprenticeship contracts. To assess the impact of changes in business climate expectations, we analyze German data on the apprenticeship market at the state-level and at the occupation-level within states from 2007 to 2019. We apply first-differences regressions to account for unobserved heterogeneity across states and occupations, allowing us to identify the association between changes in the ifo Business Climate Index and subsequent changes in the demand for apprentices, the number of new apprenticeship contracts, unfilled vacancies and unsuccessful applicants. We find that the favorable business climate in Germany in recent years led to a substantial increase in the number of unfilled vacancies. Thus, the apprenticeship market prior to the current crisis can be characterized by excess demand for apprentices (although there are matching problems in some states, with both a high share of unfilled vacancies and a high share of unsuccessful applicants). Taking into account the most recent business climate data up to May 2020, we estimate that the coronavirus-related decrease in firms' expectations about the business climate can be associated with a predicted 9.1% decrease in firm demand for apprentices and a 6.8% decrease in the number of new apprenticeship positions in Germany in 2020 (34,700 apprenticeship contracts; 95% confidence interval: +/- 8,800).

Suggested Citation

  • Samuel Muehlemann & Harald Pfeifer & Bernhard Wittek, 2020. "The effect of business cycle expectations on the German apprenticeship market: Estimating the impact of Covid-19," Economics of Education Working Paper Series 0171, University of Zurich, Department of Business Administration (IBW).
  • Handle: RePEc:iso:educat:0171
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    Keywords

    Apprenticeship market; Covid-19; coronavirus; business cycle;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

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