Five tests on which to judge the success of apprenticeships

Published on Jobs, Skills and Pay

A few weeks ago, we wrote about the importance of paying attention to apprenticeship figures. And now we’ve had two days of debate and disagreement around apprenticeship figures, in particular how much they’re paid. So what’s been happening of late?

In short, apprenticeship participation is up, and at higher levels of study. But we’re concerned about how recent reforms including the apprenticeship levy will bed in. These concerns carry extra weight in the face of rising labour costs, reduced migration and their combined impact on our skills system. Here we set out five tests on which to judge apprenticeships.

  1. Will they offer genuinely new opportunities?

When the apprenticeship levy came into force this spring, some wondered whether levy payers would cut back on training, or even convert pre-existing employees into apprentices, using levy funds to cover training that employees would have otherwise received. Findings from the CBI/Pearson survey do suggest some level of ‘rebadging’ could occur: 63% of surveyed employers said that they planned to reconfigure existing training into apprenticeships and 27% said they will cut back on non-apprenticeship training.

However, it will be difficult to gauge this as the Department for Education (DfE) do not publish figures indicating whether an apprentice had previously worked for their employer. Instead we’ll have to infer from employer tenure figures published in the Labour Force Survey (LFS), which aren’t an exact count. They show that over three quarters of apprentices in England during 2016 had been with their employer for two years or less (though some apprenticeships can last between 2 and 4 years). If in future we see apprentices’ employer tenure rise significantly, while work-related training falls, then something will have gone askew.

  1. Will young people benefit?

There have been fears that changes to the apprenticeship funding system in England, part of which reduced the financial incentives for hiring an apprentice age 24 or younger, will lead to an increase in older apprentices. In 2016, only a quarter of apprenticeship starts were taken up by those under the age of 19 and roughly 45 per cent were taken up by those over 25.

While the age composition of apprenticeship starts in England varies widely by quarter (with more younger people starting apprenticeships during autumn), figures for February to April 2017 show an eight percentage point rise in the proportion of starts taken up by those over 25, as compared against the same time period in 2015-16.

It’s too soon to draw conclusions from a single quarter of data but the age profile of apprenticeship starts definitely need closer attention.

Source: RF analysis of DfE apprenticeships data

  1. Can small businesses cope?

Under the new funding system, levy payers access a digital voucher covering 100 per cent of an apprentice’s training costs. Non-levy payers (those with a wage bill under £3 million) negotiate a contract with an apprenticeship training provider that has successfully tendered for public funding, after which 90% of their apprentices’ training costs will be covered. This has led to fears that we’ll see a drop in the number of small businesses taking on apprentices and, by extension, a drop in the total number of apprenticeship starts.

Once again a lack of decent data from the DfE prevents exact scrutiny of this – they really should address this. But LFS figures show that a majority of apprentices in England work at firms with fewer than 50 employees. The proportion of apprentices at larger firms has, however, grown over recent years.

Source: RF analysis of Labour Force Survey

While the Government have recently responded to some of the concerns around smaller employers’ access to apprenticeship training subsidies, time will tell whether the reforms will impact upon apprenticeship numbers and smaller employers’ access to them.

  1. Will they lead to strong pay growth and in turn, living standards?

An apprenticeship is only as good as the outcome it offers. Last year, the DfE published figures on the earnings of former apprentices in England, one, two and three years after completing their apprenticeship. The chart below categorises apprenticeships into level and subject and for each type, it compares median earnings one year out against its change in share of total apprenticeship starts between 2011-12 and April 2017.

Source:  RF analysis of DfE Apprenticeships LEO data and apprenticeship starts. Bubble size indicates number of starts during August to April 2016-17.

Overall, there isn’t a clear correlation between earnings and growth. While some, like Level 4+ engineering and manufacturing, offer high levels of pay their relative growth and absolute size is quite low. There are areas of promise though – Level 3 manufacturing is associated with higher levels of pay, high relative growth and a large absolute size.

  1. Will they benefit men and women equally?

If apprenticeships are to boost living standards for all, we need to ensure that they alleviate – rather than exacerbate – the gender pay gap. Unfortunately, the latest data (from 2014!) on current apprentices’ pay is out of date and tells us nothing about the impact of recent reforms.

What they do tell us, however, is muddled: across Britain, at Levels 2 and 3 there is very little difference: median basic hourly pay for both men and women was £6.79. When we look at the mean women were paid only slightly higher: £6.36 relative to £6.19 for men.

When we turn to the pay gap at higher levels though, where we would like to see more growth, an all too familiar patterns remerges. At Levels 4 and 5, median male hourly pay was £1 more than women: £10.47 vs £9.45. It is important that these disparities do not continue – or indeed intensify – over time. The next apprenticeships pay survey is due out this autumn, so watch this space.

There have been big moves on apprenticeships in recent years and policies to encourage their take-up should certainly be applauded. But quantity is a single factor of a much larger equation – if they are to help address the UK’s skills challenges, apprenticeships must offer opportunities for young people, address the needs of small firms – who, after all represent about 98% of employers in the UK – and lead to higher pay. And finally, while the focus on and funding attached to apprenticeships is crucial, it shouldn’t detract from wider investment in training.