Done right, apprenticeships can deliver a significant boost to the UK economy by providing the technical skills that it needs and helping address the UK’s woeful performance on productivity. High quality vocational education supports incomes and job prospects. Apprenticeships can also ensure that there are valuable training opportunities for those who do not pursue an academic path, whether that is to enable them to enter work or to progress their career.
This report assesses the factors that affect the value of apprenticeships, and the emerging evidence on whether the current policy will deliver high value apprenticeships. It concludes that there are insufficient safeguards against poor-quality training and inadequate incentives for the pursuit of high value schemes. It argues that government needs to do more to steer the market towards apprenticeships that will deliver good returns and that are resilient to change in the wider economy.
Our findings indicate that policymakers should continue to worry about the value of many apprenticeship schemes that are undertaken:
- Wage returns to apprenticeships are on average much greater for young apprentices, but most apprentices are older.
- SMF analysis of the Labour Force Survey suggests that undertaking a Level 3 apprenticeship has no statistically significant impact on wages for those aged over 25. Those aged under 19 achieve a wage return of 32%. CVER research finds a modest positive effect on wages for older apprentices who complete a Level 3 apprenticeship (8% for men, 5% for women), but also shows that younger apprentices (19-24) see a higher earnings boost (23% for men, 12% for women).[i]
- However, the average age of apprentices is now much higher than it used to be, with the proportion of young apprentices nearly halving this decade. While the proportion of those aged 25 and over has dipped, four in ten (41%) are 25 and over.
- Wage returns are strong in some sectors such as engineering and manufacturing, but many apprenticeships are undertaken in sectors where wages are comparatively low and where returns to undertaking an apprenticeship are typically weak.
- Completing an apprenticeship at Level 3 in manufacturing translates into 34% higher hourly earnings, when compared to employees in manufacturing who only obtained a Level 2 qualification. The figure is also 23% for construction.
- Analysis by the CVER shows that a man undertaking an apprenticeship in engineering can expect to be paid as well as someone who has taken an engineering degree. In contrast, hairdressing and childcare apprenticeships deliver lower wage returns than alternatives for people educated to the same level (GCSEs for Level 2 or A-Levels for Level 3).
- The ten most popular apprenticeship standards in 2017/18 include apprenticeships in care, hairdressing, customer service and hospitality.
- Apprenticeships in care and retail have persistently been criticised for their quality.
- SMF analysis shows that Level 3 retail schemes deliver comparatively low returns whereas Level 3 apprentices in education or health and social care do not on average receive a pay premium when compared to those on the skill level below.
- In 2017, only a minority of apprentices reported that undertaking training in education (33%), leisure (37%), health (40%) or retail (42%) report receiving a pay rise afterwards. This compares to 71% in construction and 65% in engineering.
- Despite a reduction in their share of apprentices, 43% are undertaking intermediate (Level 2) schemes which have on average delivered zero wage returns. In contrast, SMF analysis shows that having a Level 3 apprenticeship compared to having no apprenticeship increases wages by 20%.
- A high proportion of apprenticeship starts are in fields such as customer services and care which Bank of England analysis suggests are at high risk of automation in the future.
- There is a risk that some employers may reclassify employees as apprentices, as this can save employers £8,000 per year in wages per apprentice.
- Employers have incentives to design and run schemes that meet their own specific skill needs rather than develop skills that would be of economic value to other employers, sectors and occupations. Depending on how myopic firms are, schemes may also be designed with insufficient concern for future labour market developments – such as the decline of some occupations as artificial intelligence and robotics are increasingly used.
The report puts forward four major steps to drive high value apprenticeships:
1) ‘Apprenticeship Value Premiums’
‘Apprenticeship Value Premiums’ should be calculated for each occupation. Premiums should be paid as additional financial grants to employers who offer apprenticeships that are high value, in the same way that they can receive grants for taking on a young apprentice or a care leaver. For schemes that systematically perform poorly on these metrics, the Institute for Apprenticeships and Technical Education (IFATE) should cut the maximum government contribution to training and assessment costs (i.e. reduce the funding band).
The ‘Premiums’ would be calculated by reviewing the following metrics:
- Productivity gains as measured principally by average wage returns to apprentices.
- Levels of employment or progression into higher-level training.
- Proportion of apprentices reporting that they have acquired transferrable skills that they could apply to other jobs and sectors.
2) ‘Apprenticeship Excellence Ratings’
More systematic and meaningful performance data could help employers choose the best and avoid the worst training providers; and help candidates choose the best employers and apprenticeship schemes. This would build on the feedback tool being developed by the Government.
To this end, the IFATE, assisted by the ESFA and DfE should develop ‘Apprenticeship Excellence Ratings’, based on the Teaching Excellence Framework in higher education. Ratings would be provided annually and reflect apprentice outcomes across employment, further training, wage returns, learner satisfaction scores and Ofsted/OfS ratings. These should be converted into a headline score of Gold, Silver or Bronze.
3) Managing the risks of automation
We argue that, as a matter of urgency, the IFATE, with advice from the National Retraining Scheme, should assess the risks and implications of automation for apprenticeship schemes. Interventions that should be considered include: assessing the level of risk from automation for each occupation during the approval and reappraisal process for Standards, with the intention of making alterations or discontinuing Standards where the risk is high; and making information on these risks transparent to employers and candidates. Consideration should also be given to linking this policy explicitly to ‘Apprenticeship Value Premiums’ and reducing the funding for apprenticeship standards where there is a high risk of automation.
4) Developing a simple labelling system
Currently, it can be difficult for candidates and employers to distinguish between different levels of apprenticeships. This is in stark contrast to the academic pathway, where the label ‘graduate’ is widely understood. The consequence is that candidates may not easily observe the benefits to undertaking advanced apprenticeship training, and employers may not receive easily comprehendible signals of a candidate’s skill level.
We are aware that the IFATE has been seeking to categorise apprenticeship standards as either ‘Technical’ (usually at Levels 2/3), ‘Higher Technical’ (typically Levels 4/5) or ‘Professional’ (where there is a clear career progression from Higher Technical occupations, as well as occupations where a degree apprenticeship exists) as part of the 15 occupational maps.[ii] This work is welcome. We suggest that labels are given further consideration so that they can gain popular currency and can act as simple signals to candidates and employers. This exercise could learn lessons from past descriptors as well as labels used in countries such as Germany (e.g. ‘master craftsperson’).
[i] Steven McIntosh and Damon Morris, Labour Market Outcomes of Older Versus Younger Apprentices: A comparison of earnings differentials (University of Sheffield, 2018)