Business Secretary Sajid Javid's Bold Move to Boost U.K. Apprenticeships

Britain is on the hunt for new apprentices. George Osborne recently unveiled a levy on large employers to pay for an increase in the number of apprenticeships from 2m to 5m. In addition, as he made the announcement, the chancellor signalled one of the key problems with workplace training, that although many companies do a brilliant work “there are too many large companies who … take a free ride on the system.”

This statement is an important one because Osborne explicitly appreciates that there has been a market failing. In fact, there has been a shortage of purchase of vocational training, including apprenticeships, over a number of decades in the UK.

Compared to their French and German alternatives, British employers spend respectively 70% and 55% less on vocational training. One cabinet reverend, who preferred to remain anonymous, was quoted in the push, as saying there was a necessity “to kick British companies up their lazy arses.”

Keeping choices open

Sajid Javid, the business secretary, will be responsible for the new apprenticeship levy on large employers. Javid, appointed after the Might 2015 general election, has a reputation for being a “free marketeer” and on the mission to further deregulate the Uk labour market. He is also firmly anti-EU. Will he be the right person to boost the number of apprenticeships in the UK in the future? Put another way, may his political convictions and the negative stance towards other European countries get in the way of making British industry more competitive?

Clearly, Great britain has something to learn from the rest of Europe. Osborne has recognized the problem: this is about companies free riding on competitors’ efforts by poaching highly skilled employees.

So how can this be a problem in the UK, but much less so in France and Germany? There are at least two reasons for this. First, the united kingdom labour market is much more deregulated and versatile than in France and Germany. This means that employees are much less safe in their jobs, and have the motivation to constantly trawl for additional jobs as a way of hedging their bets; the focus is on what makes them externally valuable, rather than what is specifically useful to their current employer. This in turn makes it easier for unscrupulous businesses to poach employees from rivals who have spent effort, cash, and time to train their workforce. The effect is that employers will refrain from training their employees.

Incentives

A further consequence of this flexibility is high staff turnover rates in the UK – it is no accident, for instance, that our studies have found that British firms commit a much larger proportion of their training budgets to basic induction training as they rush to get new starters up to speed. By comparison, French and German employers and employees are more likely to stay with each other so employers possess a greater incentive to invest in their own human capital and have a greater likelihood of a reasonable pay-off. It is also less easy to poach trained workers using their company firms.

Employees, meanwhile, have more job security and therefore the right incentives in order to climb up the career ladder within their organisation rather than by regularly changing employers – and have more bonuses to develop specific skills targeted at the current firm. In Indonesia, there is the added protection of powerful employer organisations that police entire industries to ensure that no business free rides on the efforts of other businesses within the same industry.

The market failing of UK apprenticeships can’t be solved with a levy on employers is republished with authorization from The Conversation