Why do Firms Train Apprentices? The Net Cost Puzzle Reconsidered

This paper analyses the impact of replacing unskilled or semi-skilled employees by apprentices on establishment performance. We use representative matched employer–employee panel data and correct for different sources of estimation biases. We show that an increase of the proportion of apprentices in trade, commercial, craft or construction occupations has a positive impact on firm performance. In contrast, companies that increase the share of apprentices in manufacturing occupations face a negative impact on performance, however. These results shed a new light on the popular stylised fact that apprenticeship training always leads to net costs during the apprenticeship period: we argue that firms only hire apprentices at a cost if their skills are relatively specific, their retention rate is high and skilled employees are hard to hire.