Incentives to promote Quality Apprenticeships
While Quality Apprenticeships make more economic sense in the medium- to long-term, as discussed earlier, their benefits do not necessarily materialize in the short-run. An emphasis on short-term advantages may well discourage enterprises from investing in Quality Apprenticeships - although this is not the case in all countries. In Germany, where Quality Apprenticeships are well established, there are no incentive schemes, apart from subsidies provided to enterprises that train disadvantaged groups of workers (e.g. workers with a disability). However, in some other countries, governments provide incentives to enterprises to encourage them to take on apprentices, either in the form of tax exemptions, subsidies or grants linked to levy schemes.
Countries offer incentives to promote participation in apprenticeship programmes for apprentices and employers. Those directed to apprentices typically cover learning materials, allowances for learning away from home, and food and transportation in the form of stipends, as well as additional support to vulnerable groups, women and disabled persons. Those directed to employers, on the other hand, contribute to a reduction of the on-the-job training and social protection costs to encourage employers to comply with country’s labour regulations, and a reduction in their tax burden (Fazio et al., 2016).
As may be seen from table 12, a mix of financial mechanisms is used. Generally, tax exemptions are not available in some countries - England (the United Kingdom) being an example. In others, such as Australia and Austria, they have been phased out and replaced with subsidies. In Denmark, for instance, there are neither tax subsidies nor subsidies, but access to grants from a levy scheme, the Employer Reimbursement Fund - payment into which is mandatory for all employers. Nonetheless, Canadian employers who take on apprentices can benefit from a tax credit. The tax incentive is given as a reward for ‘job creation’ and effectively reduces the cost of training apprentices.
Some incentive schemes are funded by a levy on employers (e.g. a certain percentage of the wage bill is taxed away to fund skills development activities). Brazil, Denmark, and The United Republic of Tanzania, for example, have skills development levies in place. In the United Kingdom, an apprenticeship levy system is now in operation, as of 2017.
Table 7: Financial incentives for enterprises
|Tax incentives||Subsidy||Levy scheme|
|Australia||Tax incentives depend on the qualifications the the programme leads to.||Subsidy in specific cases, e.g. the person being trained has a disability.||No1|
|Austria||Tax incentives abolished in 2008 and replaced by targeted subsidies.||From 2008 targeted subsidies are available per apprentice (the the amount depends on the year of apprenticeship), for additional training, for the training of instructors, for apprentices excelling on the final assessment, for measures supporting apprentices with learning difficulties, to measures supporting equal access to men and women to apprenticeships in.||A levy fund in the construction sector covering all regions and a levy fund in the electro-metallic industry of one province (Vorarlberg). It is negotiated by the employers and trade unions|
|Belgium (Flemish Community)||Payroll tax deduction.||Direct subsidy depending on the number of apprentices and programme duration.||No|
|Denmark||No||No||All enterprises – including in the public sector – pay a contribution to the Employer Reimbursement Fund (AER) based on the number of full- time employees. The amount is DKR 492.50/ full-time employee four times a year. Enterprises with apprentices get their expenses for trainees refunded when they are at VET institution (i.e. salary, transportation). AER also pays grants to motivate employers who establish extra training places.|
|England (UK)||No||Contributions from employers who pay the levy are topped up with a 10% contribution from the government. Grants to enterprises and education and training institutions offering apprenticeship to 16-18 year-olds.||Universal levy set at the rate of 0.5% of payroll, applying to the proportion of payroll above GBP 3 million.|
|Germany||No||No||In the building sector. They are negotiated by employers and trade unions.|
|Netherlands||Tax exemptions (abolished in 2014).||Subsidy from 2014 to employers providing apprenticeships of maximum EUR 2 700 per student per year (depending on the duration of the apprenticeship and the number of training enterprises asking for subsidy).||No|
Source: Kuczera. 2017, pp. 19-20.
Canada offers an ‘Apprenticeship Incentive Grant’ and ‘Apprenticeship Completion Grant’ to eligible apprentices. In Australia, apprentices can take out loans on favourable conditions. In fact, successful completion of apprenticeship training reduces the amount borrowed by 20 per cent. Repayment of loans starts when former apprentices begin earning more than a minimum income threshold. Several large cities in the United Kingdom offer in-kind support to apprentices, such as a discount local transportation card.
It is important to note that incentives might be conditional. Incentives given to apprentices upon the successful completion of their training programme (e.g. Apprenticeship Completion Grant in Canada) are an example of conditionality. Governments may target certain occupations by providing incentives with a view to addressing skills shortages in priority sectors. Australia, for example, offers a variety of incentives for employers, as may be seen in box 29 - particularly in the case of employers who take on apprentices in priority occupations where there is a clear shortage of skilled workers. In addition, there are incentives for taking on adults, as part of regional employment policies, for certain under-represented social groups, and for young people with a disability.
Box 1: Overview of the Australian Apprenticeships Incentives Programme
The objective of the Australian Apprenticeships Incentives Programme is to contribute to the development of a highly skilled and relevant Australian workforce that supports economic sustainability and competitiveness.
This is achieved by encouraging:
- genuine opportunities for skills-based training and development of employees; and
- people to enter into skills-based training through an Australian Apprenticeship.
The National Skills Needs List (NSNL) identifies occupations that are deemed to have a national skill shortage. The NSNL is used to determine eligibility for a number of payments available under the Australian Apprenticeships Incentives Programme. The aim of the Programme is to increase the relevant national skills base in Australia by providing additional payments for Australian apprentices working towards a priority occupation.
The eligible priority occupations are aged-care workers, child care workers, disability care workers and enrolled nurses.
- Commencement/Recommencement/Completion - NSNL
- Commencement/Recommencement/Completion – non-NSNL in priority occupations
- Support for Adult Australian Apprentices
- Rural and Regional Skills Shortage Incentive
- Nominated Equity Groups Commencement Incentive
- Declared Drought Areas Commencement and Completion Incentives
- Mature-Aged Workers Commencement and Completion Incentives
- Assistance for Australian Apprentices with Disability
Source: Deloitte Access Economics, 2012.
In Latin America, the sharing of apprenticeship costs between the government and employers is contingent upon whether the programme is targeted to out-of-school or in-school young people. Beneficiaries of the out-of-school apprenticeship programmes — particularly those with limited resources — can receive stipends or scholarships from the government to meet costs, including transportation, food, and learning materials. The employer covers the costs of on-the-job training, including costs related to the status of the apprentice as an employee (wages, vacation time, transportation, social security), and those related to training (staff time dedicated to training, monitoring, mentoring, assessing, and certifying the apprentice and enabling adequate facilities for learning to take place). National training institutes provide off-the-job training for out-of-school youth, which is funded by a tax on employers’ payrolls – so that, indirectly, employers also fund off-the-job training. As regards the apprenticeship training of in-school students, for instance in Mexico, the government meets the costs of off-the-job training and provides a monthly stipend to students (Fazio et al., 2016). Box 30 provides details of incentives provided by governments in Latin America and Caribbean countries to promote apprenticeships.
Box 2: Incentives to promote apprenticeships in Latin America Countries
In Latin America, the main public incentives for apprentices are subsidies to cover their costs of participation in the programme, while the main incentives for firms include tax breaks, reduced dismissal costs, and training and wage subsidies. In the case of Apprenticeship Law Systems like that of Brazil, in which firms must hire 5 per cent of their workforce as apprentices, negative incentives in the form of payment of fines for noncompliance — equal to up to five minimum wages per apprentice not hired except in the case of reoccurrence when the fine is doubled — may also act as a motivating factor for some firms to take up apprentices. Similarly, in the case of Colombia, where the hiring of apprentices is compulsory for firms that have more than 15 employees with the exception of firms in the public and construction sectors, noncomplying firms must pay a fee equal to 5 per cent of the total number of full-time employees times the value of the minimum wage.
Incentives to Apprentices:
Mexico: Monthly stipend to students over the duration of the apprenticeship.
Incentives to Employers:
Waiving/reduction of labor costs of apprentice under employee status:
Brazil: Reduction of wage earmarked toward severance emergency fund (Fundo de Garantía do Tempo de Serviço) for formal workers from 8 per cent to 2 per cent for apprentices.
Waiving of dismissal costs.
Chile: 50 per cent of the minimum monthly wage over the period of a minimum of six months, maximum one year.
Brazil: Tax breaks to medium and large firms that hire apprentices.
Colombia: The law makes the hiring of apprentices compulsory for firms that have more than 15 employees, with the exception of firms in the public and construction sectors. If firms do not comply with this obligation, they must pay a fee used to finance an entrepreneurship fund (multiplying 5 per cent of the total full time employees of the firm by the value of the minimum wage).
Source: Fazio et al., 2016.
India has set an ambitious target of a tenfold increase in apprenticeship opportunities in the country by 2020, and has launched a National Apprenticeship Promotion Scheme to provide incentives to employers for trade apprentices. The government will share 25 per cent of the prescribed stipend, subject to a maximum of Rs. 1500/- per month per apprentice, and also share the cost of basic training with employers (Government of India, 2015).
Although more research is required, there is some evidence that, all in all, the benefits of funding apprenticeship systems outweigh the costs, both for enterprises and for governments. Indeed, these costs are investments for future social and economic development – and in some countries, governments do provide incentives, in many different forms, so as to encourage employers and apprentices to participate in apprenticeship systems. Finally, as to the apprentices themselves, on the basis of this evidence, the financial benefits for them are clearly positive. If all the actors see the long-term benefits, perhaps at some point no incentives will be needed to promote apprenticeships.
1 In 2017, the Australian government announced the establishment of the Skilling Australians Fund, which is to be ‘funded by increased levies on specified subclass visas dependent on company turnover’ (Fowler and Stanwick, 2017).