Spillovers in Vocational Training

The German apprenticeship system is often considered a role model
for vocational education. Its influence on economic growth and
technological progress through the provision of human capital to
the workforce is widely acknowledged. But recent declines in the
number of apprenticeships have led to increasing unrest among
policy makers. To counter this development, the government is
considering to introduce a training levy scheme that collects
training levies from non-training firms in order to subsidize
apprenticeship training ("Ausbildungsplatzabgabe"). Such training
levy schemes already exist in several industrialized countries and
even in some sectors in Germany. Yet, economists differ greatly in
opinion about this policy. More surprisingly, however, a general
economic analysis of this policy instrument is still lacking.
Recent contributions have relied on rather qualitative and partial
analyses. This paper aims at closing this gap. Following the
training literature, we use a simple oligopsonistic labor market
model. Such a setting allows to explain why firms provide and (at
least partially) finance general vocational training. Moreover, it
can demonstrate that a positive externality arises as other firms
benefit from vocational training through poaching. In principle,
the Pigouvian prescription of a subsidy scheme financed by a
non-distortionary tax could restore the social optimum. The
proposed training levy scheme, by contrast, is a particular scheme
that links subsidies and levies. This paper unveils that it
basically corresponds to a uniform subsidy on apprenticeship
training that is financed by a distortionary tax on labor. We show
that introducing such a levy scheme can entail ambiguous
repercussions on general welfare.