-
To recruit skilled workers or to train one’s own?Vocational
training in the face of uncertaintyas to the rate of retention of
traineeson completion of training*
Lutz Bellmann and Florian Janik**
The article deals with the impact of uncertainty as regards the
retention of traineescompleting vocational training programmes on
firms’ training behaviour. As an alter-native to vocational
training, the external recruitment of skilled workers is
consideredvia an opportunity costs approach. The uncertainty is
traced back to staff turnover,considerable product market
competition and changing skill requirements. Indicatorsof these
causes of uncertainty are examined as to their impact on vocational
trainingand the recruitment of skilled workers with a fractional
logit model, using a seeminglyunrelated cluster-adjusted sandwich
estimator with data from the IAB EstablishmentPanel. There is no
empirical evidence that the presumed correlations exist in
manufac-turing. A negative correlation is identified in the service
sector between high staffturnover coupled with rapid change in the
skills required on the one hand, and commit-ment to vocational
training on the other, while there is a positive link with the
externalrecruitment of skilled workers. This is interpreted as an
indication that uncertaintywith regard to retention after training
can go some way towards explaining the growinggap between
employment and vocational training in the tertiary sector.
* This paper was released for publication in July 2007.** We
would like to thank Simon Jansen and two anonymous referees from
the Zeitschrift für Arbeits-marktForschung for their helpful
remarks.
Contents
1 Introduction
2 Vocational training or external recruitment?
2.1 Recruitment costs: opportunity income of vocational
training
2.2 Uncertainty and vocational training
3 Empirical analysis
3.1 3.1 Data
3.2 Empirical strategy and econometric modelling
3.3 Variables and hypotheses
3.4 Results
4 Summary and conclusions
References
Annex
ZAF 2 und 3/2007, S. 205Ð220 205
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To recruit skilled workers or to train one’s own? Lutz Bellmann
and Florian Janik
1 Introduction
Year after year, many young people fail to obtain avocational
training place and as a result frequentlyattend state-funded
skill-building schemes. Manifoldreasons have been expressed in the
public debatefor this dramatic situation, which has been
continu-ing for years despite various promotional pro-grammes and
the “Pakt für Ausbildung” (Pact forTraining). Too high training
costs, inadequate or-ders, a lack of job prospects after training
and insuf-ficiently qualified applicants are frequently referredto
in this context. Tertiarisation is commonly identi-fied as a
further reason for this development. Firstlybecause the
rationalisation processes in manufactur-ing and the concomitant
reduction of employmentalso reduce the number of training places,
and sec-ondly because the ratio between training places of-fered
and the number of employees is deterioratingin the service sector
(Baethge et al. 2007).
The stiffer competition faced by firms at both na-tional and
international level is indicated as a fur-ther reason for firms
providing less vocational train-ing. The results of the IAB
Establishment Panel alsosuggest that firms engage in less training
becausethey are unsure as to whether they will be able tooffer
subsequent employment to the trained work-ers if they enter into a
training agreement, becauseof the considerable competitive pressure
and the un-certainty with regard to their income situation
whichthis entails (cf. Bellmann/Hartung 2005). Anotherreason that
is frequently expressed for firms’ reti-cence when it comes to
vocational training lies in theorganisation and structure of the
German system ofvocational training as such. Where firms are not
onlysubject to considerable competitive pressure, but arealso
operating in innovative fields in which workerskill requirements
are high and subject to rapidchange, one may presume that
vocational training,with its firmly established training content
over whichthe firms have little influence, is not the right
sourceof skilled workers because it is too uncertain whetherthe
training contents actually match the current re-quirements at the
end of the training period. Forthese reasons, the external
recruitment of skilledworkers may be preferred over vocational
training.Both arguments entail the hypothesis that uncer-tainty
influences firms’ training behaviour and thatincreasing uncertainty
has a negative influence on it.
This uncertainty is modelled in this paper using theprobability
of a trainee not remaining in the firm oncompletion of his/her
training. Firms respond to alow expected retention rate and reduce
their com-mitment to vocational training. At the same time,the
recruitment of already trained workers to cover
206 ZAF 2 und 3/2007
the need for skills becomes more attractive becauseof falling
opportunity costs.
Evidence of this circumstance is provided by Falk(2002), who
studied firms employing or seeking ICTspecialists. The enterprises
were surveyed in 2000, inother words during the IT boom. The ICT
sector isa very good example of the modern, innovative sec-tors of
the economy. If these firms need additionalskilled labour, then
overtime, outsourcing and theuse of freelancers are preferred to
creating trainingplaces. Particularly in technical and
entrepreneurialservices, the firms state that they prefer ICT
special-ists who have graduated from university over theirown
in-house trainees (Falk 2002). This finding isnot without its
detractors, however. Steedman et al.(2006) and Steedman/Wagner
(2007) reach the con-clusion in a comparative analysis of the
UnitedKingdom and Germany that, particularly in the ICTfield, dual
training is more attractive for enterprisesin Germany than the
recruitment of external skilledworkers, since the trainees in the
dual system canbe deployed more flexibly if they are provided
withappropriate further training.
Various studies have examined the impact of highresignation
rates and retention rates on vocationaltraining. They all reach the
conclusion that these re-duce the provision of training by firms
(Niederalt2004, Beckmann 2002a, Neubäumer/Bellmann
1999).Smits/Zwick (2004) provide empirical evidence forthe
presumption that the matching of the skills pro-vided in vocational
training with the actual skill re-quirements poses a greater
problem in the servicesector than it does in manufacturing. A
number ofstudies (e.g. Wolter et al. 2006, Hartung/Leber
2004,Beckmann 2002a) take into account the impact ofthe share of
skilled workers on training provisionand training intensity, but
the impact on the externalrecruitment of skilled workers and
commitment tovocational training has so far not been the subjectof
studies using establishment data.
The text is structured as follows: the second chapterpresents
the theoretical model, which is discussedparticularly with regard
to the uncertainty of furtheremployment after completion of
training. The thirdpart follows with the empirical examination,
usingdata taken from the IAB Establishment Panel. Thefourth and
final part summarises the results and alsointerprets them in
relation to the refinement of thedual system of vocational
training.
2 Vocational training or externalrecruitment?
In the model used here, vocational training is re-garded as a
part of staff planning reaching beyond
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
train one’s own?
the training period, with the aim of meeting firms’requirements
in terms of skilled workers. As an al-ternative to vocational
training, firms can also re-cruit skilled workers via the external
labour market.These arguments are based on considerations madeby
Franz/Soskice (1995) and taken up by Niederalt(2004), and are used
below as a basis for modelling.
2.1 Recruitment costs: opportunityincome of vocational
training
It is not worthwhile for firms to invest in generalhuman capital
where there is complete competitionon labour markets, since they
have no guaranteethat individuals who have received general
trainingwill remain in the firm on completion of the skill-building
measure. If the trainees leave, the firm canno longer benefit from
the increase in productivityas a result of training and bears only
its costs(Becker 1964). Investment in general human capitalis only
worthwhile for firms if the trainees are paidwages after completion
of training which are lowerthan their productivity, and thus a
margin can berealised. This type of remuneration is conditional ona
compressed wage structure in which, as skills in-crease, wages grow
less quickly than productivity(Acemoglu/Pischke 1998, 1999a,
1999b). This meansthat vocational training is only profitable for
enter-prises if those completing training can be paid lessthan
skilled workers recruited externally. This cannot be described
clearly in either theoretical or em-pirical terms (Niederalt 2004).
If it is therefore as-sumed for the sake of simplicity that the
wages andthe productivity of internally-trained workers arethe same
as those of externally-recruited skilledworkers at least after a
certain familiarisation phase,the vocational training decision can
be modelled viathe concept of opportunity income (Niederalt
2004,Wolter/Schweri 2002, v. Bardeleben et al. 1995).
In this view, the focus is not on productivity beinghigher than
remuneration as the source of earningsfrom vocational training, but
on meeting the needfor skilled workers. The opportunity income
derivedfrom vocational training can be deduced by compar-ing it
with the recruitment of skilled workers on theexternal labour
market, in other words cost advanta-ges gained by retaining trained
workers who havecompleted in-house training (Niederalt 2004).
Thisopportunity income consists of:
Ð staff acquisition costs being avoided (Franz/Soskice 1995),
since it is no longer necessary tolook for and select skilled
workers from the exter-nal labour market;
ZAF 2 und 3/2007 207
Ð familiarisation costs being avoided because thenew employees
already know the firm (Kau 1997);
Ð savings being gained by stabilising the wage andsalary
structure (Cramer/Müller 1994);
Ð costs being avoided as a result of lower staff turn-over since
those completing training remain in thefirm longer (Cramer/Müller
1994) and because ofa reduced risk of recruiting the wrong
employees(Franz/Soskice 1995).
Considerations made by Niederalt (2004) are usedin modelling
this decision on the part of the firm.The modelling extends to the
time when both alter-natives lead to equivalent results, which in
this caseapplies after the familiarisation of the externally
re-cruited skilled workers in the firm. If it is assumedthat an
additional need for skilled workers existsprior to commencement of
training for the periods + 1, the transaction costs of
familiarisation lead tomore or less fixed costs being incurred for
the re-cruitment of external skilled workers. If these trans-action
costs, which conversely can also be regardedas opportunity income
gained from internal training,are higher than the net costs of
training, vocationaltraining is worthwhile for the firm. The
followingdecision rule can thus be formulated:
�n
t�s�1
RKt ý �s
t�1
NKt (1)
where RK � recruitment costs for external skilledworkers, and NK
� net costs of vocational training.
Therefore, if the recruitment costs, which converselycan also be
interpreted as opportunity incomegained from vocational training,
exceed the net costsof training, it becomes attractive for the firm
to pro-vide apprenticeships. This decision rule is, however,based
on the assumption that all people completingtraining remain in the
firm. If some or all of thetrainees leave the firm on completion of
training,the need for skilled workers must be at least partlymet
via the external market. It is therefore only pos-sible to avoid
recruitment costs for those traineeswho do remain in the firm. The
decision rule musttherefore be supplemented by the retention rate
qof those completing training
q �n
t�s�1
RKt ý �s
t�1
NKt (2)
with 0 � q � 1.
Therefore the lower the retention rate q is, the lowerthe
opportunity income gained from internal train-
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To recruit skilled workers or to train one’s own? Lutz Bellmann
and Florian Janik
ing is, and hence the lower the costs must be to en-courage
firms to invest in training. If it is assumedthat workers who have
completed vocational train-ing may be substituted by workers who
have otherqualifications (from vocational academies,
technicalcolleges, universities etc.), it can be shown that
thecosts of these substitutions are already accommo-dated in the
possibilities of recruiting (Niederalt2004). Short-term
productivity differences due tothe firm-specific human capital
which is imparted inon-the-job vocational training, as well as
temporaryadditional wage costs which may be caused by exter-nal
recruitment, can also be modelled by the recruit-ment costs
(Niederalt 2004). Vocational training isconsequently always
profitable with a given need forskilled labour if the net training
costs are lower thanthe costs of the external recruitment of
skilled work-ers, taking into account the retention rate of
thosecompleting internal vocational training.
2.2 Uncertainty and vocational training
This retention rate is, however, unknown to firms atthe time of
the training decision. Whether voca-tional training is profitable
or not is thus uncertainfor them at this time. The higher the
retention rateis estimated to be, the more likely it is that
firms’vocational training is also valued as worthwhile.1
Three different sources of this uncertainty are dis-cussed below
with regard to the impact on the deci-sion-making situation
described.
Acemoglu/Pischke (1998, 1999b) argue on the basisof the classic
human capital theory that provisionof vocational training vitally
depends on the firm’sresignation rate. The authors reach the
conclusionthat there are two equilibrium states of participationin
training, namely the “low quit Ð high training”and the “high quit Ð
low training” equilibriums. Theargument is structured as follows:
if a firm’s rate ofvoluntary departures is high, the continued
employ-ment of trained workers is also uncertain; the reten-tion
rate is therefore estimated to be relatively low.This leads to the
employer having less pronouncedmonopoly power over the workers,
which in turn re-duces the incentive to invest in general human
capi-tal. Beckmann (2002a) shows that this model can beexpanded to
accommodate the risk of poaching, inother words the probability
that a trained worker isrecruited away by another firm. It can be
said invery general terms that low stability of employment
1 If, however, the firm does not incur any costs at all due to
train-ing (NK = 0), vocational training is even worthwhile with an
ex-pected retention rate of q = 0.
208 ZAF 2 und 3/2007
relationships also reduces the expected retentionrate and hence
the opportunity income, thereforealso reducing the provision of
vocational training.
In their theoretical analysis Acemoglu/Pischke pre-sume that the
retention rate q depends primarily onthe exogenously-stated
resignation rate of workersin the firm, but state elsewhere that q
denotes theprobability that the worker or the firm, or both,
suf-fer an adverse shock and therefore separate (Ace-moglu/Pischke
1999b). Stevens (1994) also empha-sises that it is continued
employment per se whichis vital to the vocational training
calculation and notwhether employment is terminated by the
employeror employee. The reasons for retention or separa-tion after
training can thus be traced not only to thetrainees and to
potential third-party employers, butalso to the training firm
itself. These sources of un-certainty are discussed in detail
below.
One of these sources of uncertainty is for instancethe argument
put forward by Baethge et al. (2007)that firms which are subject to
strong national orinternational competitive pressure react to this
byapplying new methods of enterprise control whichreduce firms’
involvement in training. This argumentcan be integrated into the
decision-making calcula-tion with the aid of the above uncertainty
considera-tions. The more a firm is in competition, the
moredifficult it is for the firm to foresee at the time ofthe
training decision whether it will be possible tooffer jobs to the
trainees on completion of training.A firm which finds itself in
such a situation will thustend to estimate a low retention rate q,
which in-creases the incentive to meet the need for skilledworkers
via external recruitment. According to thisargument, high
competitive pressure can be re-garded as a source of uncertainty.
Hence firms whichare subject to strong national or international
com-petitive pressure can be expected to train fewer ap-prentices.
This does not mean, however, that firmswhich find themselves in
such a competition situa-tion have no need of skilled workers. If
competitionis not for the lowest price, but for the highest
quality,one may indeed anticipate the opposite. On the ba-sis of
this argument it is rather to be anticipated thatthese firms will
tend to meet their needs via the ex-ternal labour market instead of
by investing in theirown vocational training programmes.
The organisation of vocational training can also beregarded as
an even more significant cause of theuncertainty of continued
employment because of itsconsequences. If one presumes, as
Acemoglu/Pischke(1999b) do, that the need for skilled workers
alsoincreases with modern production techniques, it ap-pears
initially also to be consistent that these firms
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
train one’s own?
are very much committed to vocational training. Theopposite may
apply, however, if modern productiontechniques are also accompanied
by constant chan-ges in these techniques, if the firms are
thereforeoperating in highly innovative fields. Bartel/Lichten-berg
(1987) state that jobs held by the highly skilledare more
short-term, since the half-life of knowl-edge relating to new
products and procedures is par-ticularly short. Heidenreich (1998)
argues that thevocational training system that is typical of an
indus-trial society is therefore coming under pressure inthree
areas in line with the transition towards theservice society, and
the new forms of organisationand work which this entails:
� Firstly, today’s vocational training system spansfirms, in
other words the standardised, uniformtraining content is negotiated
between the cham-bers, the employers’ associations and the trade
un-ions. Firm-specific, and hence variable, require-ments as to
qualifications, can be integrated inprinciple in the context of the
dual training sys-tem, but this is hardly practiced at present.
� Furthermore, it is presumed that the industrialform of
organisation, compartmentalised as it isaccording to functions with
specific qualifications,constitutes a stumbling block to firms’
innovative-ness. Work and organisation processes are thusbeing
restructured in many enterprises in order totake account of these
new requirements. Voca-tional training is, however, primarily
orientated inline with the old functional units. Apprentices
aretherefore trained mostly in a particular depart-ment, and are
more rarely given access to differ-ent areas or processes. Training
therefore fre-quently becomes less attractive for innovative
or-ganisations in particular.
� Finally, the dual training system is also coming un-der
pressure as a result of educational expansion,and by virtue of the
expansion of skill-intensiveservices. Because of educational
expansion, firmscan also place school-leavers or graduates in
me-dium-ranking posts where more interdisciplinarythinking and
acting is expected. This group of in-dividuals thus competes with
vocational traininggraduates. People completing training in the
dualsystem are in a relatively poor position, which de-creases the
perspectives of those with vocationaltraining, and the same
therefore applies to theirattractiveness for future employers.
There is therefore uncertainty for the firm as towhether the
skills imparted in vocational trainingare indeed useable and
whether they must separate
ZAF 2 und 3/2007 209
from the trainees after completion of training, whichcorresponds
to a lower expected retention rate q.The firm would then have to
meet the skill require-ments by recruiting external skilled
workers, despitehaving invested in vocational training, which
accord-ingly reduces the opportunity income obtained frominternal
training, thus making it less attractive.
In the case of uncertainty, firms therefore tend toopt against
vocational training for a variety of rea-sons, and are more likely
to recruit a skilled worker.This is firstly because at the
beginning of vocationaltraining it is uncertain whether the trained
workerwill leave the training firm of his/her own
volition.Secondly, it is also possible for changes to take placeon
the sales and buying markets, in particular thosesubject to high
competitive pressure, which canmake one or more jobs obsolete.
Thirdly, what ismore, firms are uncertain as to whether the skill
re-quirements are met by the content of the training.These may have
altered for instance as a result oftechnical and organisational
changes.
3 Empirical analysis
3.1 Data
The IAB Establishment Panel of 2005 is used forthe analysis
below. This is a survey which has beenconducted annually since 1993
in western Germanyand since 1996 in eastern Germany, generally
usingoral interviews. The population covers all establish-ments
which have at least one employee subject tosocial security
contributions.2 Because of the funda-mental differences existing
between the labour andtraining markets in eastern and western
Germany(cf. Beckmann 2002b), the following analyses areconfined to
western Germany, only. One focus ofthe IAB Establishment Panel in
2005 was the staffrecruitment process, in particular that of
skilledworkers (cf. Bellmann et al. 2006).
3.2 Empirical strategy and econometricmodelling
According to the theoretical considerations, boththe recruitment
of skilled workers and the provisionof vocational training can
serve to meet the need forskills. Hence, both are treated as
dependent varia-bles in the analysis. The share of training posts
of-
2 For further information on the IAB Establishment Panel
cf.Bellmann (2002).
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To recruit skilled workers or to train one’s own? Lutz Bellmann
and Florian Janik
fered in the previous year, in other words both thosethat were
occupied and those which were vacant, isused as a measure of the
need for trainees. Themeasure of the need for skilled workers is
the shareof jobs offered to skilled workers in the first half ofthe
year under observation, in each case in relationto all workers in
the firm.3 Workers who have un-dergone vocational training, who
have comparablevocational experience or a university degree
areclassed as skilled workers.
Both share values are between zero and one, andindeed assume
these values. The use of a tobitmodel for estimation is not ideal
since a share valuebelow zero is not possible, but the tobit model
isorientated towards censored values because of un-observability. A
logit model taking the shape ofE (log [y / (1 - y)] |x) = x� could
be estimated, butdoes not provide a perfect description of the
availa-ble data since it is not defined for y = 0, and y = 1,and E
(log [y / (1 - y)] |x) cannot be transformed intoE (y |x) without
difficulty (Papke/Wooldridge 1996).Both share values are thus
estimated with the frac-tional logit proposed by Papke/Wooldridge
(1996),since this can represent the spread of the share values.
The fractional logit model, which is used here forestimating the
shares, takes on the general form:
E (yi |xi) = G(xi �), (3)
where 0 � yi � 1 applies and xi is the vector of theexplanatory
variables, � is the coefficient vector,i = 1,2,. . .,N and N is the
number of observations.G (xi �) assumes the form of a probability
densityfunction of the logistic function G(z), and 0 �G(z) � 1
applies. The coefficients are obtained bymaximising the Bernoulli
log likelihood function
li (b) = yi log [G(xib)] + (1 - yi) log [1 - G(xib)] (4)
(Papke/Wooldridge 1996).
In order to determine the influence of the depen-dent variables
on both the independent variables“share of training places offered”
and “share of jobsoffered for skilled workers”, these are estimated
us-ing the Seemingly Unrelated Cluster-AdjustedSandwich Estimator
(SURE) proposed by Weesie(1999): This method makes it possible to
study
3 The variable actually needed, namely the expected demand
forskilled workers at the time of completion of vocational
training,in other words in two to three years, is not available in
the IABEstablishment Panel. For this reason, the current demand
forskilled workers is used as a proxy variable.
210 ZAF 2 und 3/2007
whether the same independent variables have a sim-ilar impact on
two (or more) dependent variables:
y1 = α0 + x1i �� + u1 (5.1)
y2 = γ0 + x2i �� + u2 (5.2)
Using a test proposed by Breusch/Pagan (1980), it isexamined
whether the precondition for the use of aSURE approach is met,
namely the non-diagonalityof the covariance matrix of the
disturbance values.Furthermore, as in a Hausman test, the
coefficientsof the individual estimates are compared
(Weesie1999):
H0 : ��-�� = 0 (5.3)
Other conceivable methods, for example a Heck-man correction or
the use of instrumental variables,are impossible since the need for
skills Ð expressedon the one hand by the demand for skilled
workersand on the other hand by the demand for trainees Ðdepends on
the same influencing values. Both proce-dures, however, would
require variables which cor-relate with the demand for apprentices,
but not withthe demand for skilled workers or vice versa. How-ever,
such variables are not available in the IAB Es-tablishment
Panel.
Along with Heidenreich (1998) and Baethge et al.(2007), one
should presume that the matching of theskills imparted to those
actually required tends tohave more of a reducing impact on
training in theservice sector than in manufacturing. A decline
inemployment in the secondary sector, underwaysince the
mid-nineties, has also been accompaniedby a fall in the number of
trainees. The number ofemployees in the tertiary sector has grown
in thesame period, but the number of trainees cannotkeep pace with
this growth (Bundesministerium fürBildung und Forschung 2005). In
order to accommo-date these different presumptions and
developmentsin the secondary and tertiary sectors, the estimatesare
implemented separately for the two economicsectors.
It should also be pointed out that the study pre-sented here
does not measure uncertainty as such.Rather, the impact of (soft)
indicators on trainingbehaviour is analysed. Accordingly, it cannot
beruled out that the results are distorted. Because ofthe
theoretical considerations, it is presumed thatthese indicators
have an impact, on the anticipatedretention rate via the
unobservable uncertainty and,hence, that they influence training.
This analysis alsodoes not make it possible to say whether
increaseduncertainty leads to less training since only a cross-
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
train one’s own?
section of the IAB Establishment Panel is used as adata basis.
Fixed effects, such as firm sizes or thesector, may also be the
cause of the correlations thatwere identified.
3.3 Variables and hypotheses
In order to model uncertainty on the basis of com-petitive
pressure, as proposed by Schank (2003), adistinction is made
between competitive pressure onthe international markets
(globalisation) and that on
ZAF 2 und 3/2007 211
the domestic market. The influence of globalisationis measured
by the firm’s export share, i.e. its ex-ports as a percentage of
turnover in the last businessyear. In line with the
Acemoglu-Pischke model, anegative correlation with the share of
training placesoffered and a positive one with the share of
skilledworkers is anticipated since firms with
internationallinkages are under greater competitive pressure
andthis reduces the probability that they can offer thetrained
workers jobs on completion of training. Aswith Schank (2003), the
export share is portrayed bythree dummies each taking on the value
of “one” ifthe share is 1Ð10 percent, 11Ð25 percent or morethan 25
percent respectively. These and the follow-ing considerations are
summarised in Table 1.
A lower training intensity and a larger share ofskilled workers
recruited is also to be expected forfirms with higher competitive
pressure at nationallevel. A yardstick for competition intensity is
theconcentration of workers in the sector in which thefirm is
active. The calculation of the index is basedon the procedure
according to Herfindahl-Hirsch-mann. If n states the number of
firms, the index va-ries between 1/n (all firms have the same
number ofworkers, considerable competition) and 1 (a firmhas all
workers, no competition).4 A high indexvalue should therefore
coincide with a large demandfor trainees. This can be put down to
lower uncer-tainty as to continued employment by virtue of theless
fierce competition in the sector. Firms which aresubject to less
competition need spend less timeworrying about orders. One may also
assume thatthe workers have fewer external options in less
com-petitive sectors.
Three variables are included in the model whichrepresents the
stability of the employment relation-ships since, according to the
theory, high staff turno-ver leads to lower training intensity in
firms. In ac-cordance with the “low quit Ð high training” and“high
quit Ð low training” equilibriums derived byAcemoglu/Pischke
(1998), the share of worker resig-nations as a percentage of all
workers is included inthe estimate equations. According to the
theory, anegative correlation with the share of trainees is
ex-pected since in a firm with a large number of resig-nations the
margin obtained by investing in generalhuman capital is reduced by
the departure of thetrained workers. Also, a large share of worker
resig-nations may signify considerable instances of suc-cessful
poaching by other enterprises, also leading
4 The calculation is implemented using the establishment file
ofthe Federal Employment Agency at 3-digit level of the
classifica-tion of sectors.
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To recruit skilled workers or to train one’s own? Lutz Bellmann
and Florian Janik
to the expectation that a firm will react by reducingits
training efforts (Beckmann 2002a). A similar ar-gument can be
applied to the variables “share oftemporary employment” and the
churning rate,5
which indicates the share of staff turnover that doesnot
contribute to changes in the staff headcount.Both are also used as
a measure of the stability ofemployment relationships. Accordingly,
a negativecorrelation is presumed to exist in each case withthe
share of trainees, and a positive one with thejobs offered for
skilled workers.
The third source of uncertainty, namely the match-ing of the
skills taught in training to rapidly chang-ing markets, is
represented by five variables in themodel. It appears plausible
that firms with a consid-erable skill requirement which are
operating in a dy-namic market also employ many skilled
workers.Hence, their share of the workforce is included inthe
model. Furthermore, the amount of investmentin information
technology and additional invest-ment as a share of all investment
expenditure is ac-commodated. A dummy takes on the value of oneif
the enterprise’s technical plant is highly modern.Furthermore, the
amount of investment per workeris incorporated into the model. On
the basis of thearguments put forward by Heidenreich (1998),
whoclaims that the dual system of training is less adapta-ble to
dynamic markets, a negative correlation is ex-pected in each case.
Conversely, it follows from thisargument that firms with a
considerable demand forskilled workers will be more likely to
attempt tocover this need by recruiting additional
skilledworkers.
Furthermore, variables are included in the modelwhich, although
they are not directly associated withuncertainty, may nonetheless
be relevant to thetraining decision. Since wage structure
compres-sions, which count against skilled workers, constitutean
incentive to provide training (Acemoglu/Pischke1998, 1999a, 1999b),
as with Beckmann (2002a) adummy is used for denoting whether firms
arebound by collective agreements. It can be presumedthat such
firms invest more in training. The sameapplies to remuneration
above the collectivelyagreed rates, which Acemoglu/Pischke
interpret asan indication of efficiency wages, which in turn
con-
5 This “churning rate” (CR) describes the part of worker
mobilitywhich cannot be explained by the change in the number of
work-ers in a firm. It is calculated as follows:CR = (H + S - | H -
S |) / L, where H stands for the number of re-cruitments, S for the
number of departures and L for the averagenumber of workers in the
period under observation. There areseveral measuring concepts for
the “churning rate”. The “churn-ing rate” used here is calculated
as in Alda/Allaart/Bellmann(2005).
212 ZAF 2 und 3/2007
tribute to wage compression and are assumed tohave a positive
impact on the share of trainees. Afurther dummy therefore takes on
the value of oneif wages are paid above the collectively agreed
rates.On the basis of the data available, however, it is
notpossible, in this way to portray which groups of indi-viduals
(e.g. highly-skilled, low-skilled or the train-ees themselves)
enjoy this increased remuneration.
The economic situation of the firm is represented bytwo
variables. A dummy is included if the firms haveevaluated their
profit situation in the past year as“three” or worse on an ordinal
scale from “one”(very good) to “five” (poor). Secondly,
employmentgrowth in the firm is incorporated into the model.On the
basis of the costs incurred in vocationaltraining, it can be
presumed that firms in which em-ployment is growing are more likely
to be able toafford training and that firms with a poor
incomesituation are accordingly less committed to training(Beckmann
2002a).
The company-internal decision-making structurescan also be
significant for the training decision. Twodummies are therefore
formed which state whetherthe firm is foreign-owned or is an
independent com-pany. A positive correlation is presumed to exist
inthe case of independent companies, and a negativecorrelation is
expected in the case of foreign enter-prises. It has been shown in
empirical terms that in-dependent companies are more committed to
train-ing than branches (Niederalt 2004). Foreign-ownedfirms are
said to provide less training because of alack of training
traditions and higher informationcosts on the dual system
(Niederalt 2004). A furtherdummy states whether a works council
exists in thefirm. Although no well-founded theoretical reason-ing
exists to date, it has been shown in several em-pirical studies
that the existence of a works councilhas a negative impact on the
provision of training(Niederalt 2004).
Both Neubäumer/Bellmann (1999) and Niederalt(2004) have shown
that the provision of training in-creases with firm size, but that
training intensityfalls. Since the analysis observes both firms
whichengage in training and firms which do not, as withBeckmann
(2002a) one may not expect an effect tobe exerted by the ten firm
size dummies included.A further reason for including the dummies is
thedata set used. Since the respondent firms in the
IABEstablishment Panel are selected using a stratifiedrandom
selection (Bellmann 2002), it would be nec-essary according to
DuMouchel/Duncan (1983) andWinship/Radbill (1994) to carry out the
control pro-cedure for the level variables. For this reason,
dum-mies for the federal state and for sectoral affiliation
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
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are included in addition to firm size. Furthermore,the sector
dummies also partly control for differentnet costs of training in
the various economic activi-ties (Niederalt 2004). The distribution
of the varia-bles6 used can be found in Tables A and B in
theAnnex.
3.4 Results
Manufacturing
Table 2 shows the estimation results for manufactur-ing. An
unexpected picture is revealed regarding thepotential sources of
uncertainty as to being able toretain trained workers after
training. While it is pos-sible to recognise the expected negative
influenceof international competition on training
intensity,measured against the export share, a significant
ex-planation of the share of the training places offeredis,
however, only provided by the dummies for a1 % to 10 % and for a 11
% to 25 % export share.The national competition index also has an
influ-ence, but not the positive one that was anticipated.
In contradistinction to the theoretical considera-tions, the
variables on employment stability in thefirm have no independent
influence on the share oftrainees. That said, the churning rate and
a largeshare of temporary contracts both have a positiveinfluence
on the share of jobs offered for skilledworkers. In
contradistinction to Beckmann (2002a),the share of resignations is
not significant. High staffturnover appears not to exert an
influence on thetraining intensity in manufacturing, but it does
exertan influence on the demand for already qualifiedworkers.
The indicators of the modernity of the firm showcontradictory
results. Manufacturing firms whichmake large investments also train
more. The shareof skilled workers exerts a positive influence on
thedemand for external skilled workers, and has a nega-tive
correlation, albeit not a significant one, withtraining intensity.
Also, these variables thus impactat best on the demand for skilled
workers, but noton that for trainees.
The estimation of the profit situation does not exertan
influence on the training intensity, and not onthe demand for
skilled workers in the firms, either.However, a link can be
identified between the
6 The age of the firm and the regional unemployment rate
wereinitially included in the estimate model. Like the separate
esti-mate by firm size classes, however, this provided no
additionalinformation.
ZAF 2 und 3/2007 213
growth of the firm and the demand for skilled work-ers, but
there is no independent influence on train-ing intensity. As might
be expected, foreign-ownedfirms also train less. The negative
influence of theworks council on training is in line with the
resultsobtained by Niederalt (2004). The positive influenceof
collective bargaining on the provision of trainingalso corresponds
with the results from other surveys(e.g. Niederalt 2004, Beckmann
2002a). Firms boundby collective agreements train more.
To sum it up, it can be stated that the considerationsmade
regarding uncertainty and its impact on train-ing and the external
recruitment of skilled workersin manufacturing are not confirmed.
The theoreticalapproach is therefore not well suited to explain
thetraining behaviour of firms in manufacturing. Theonly slightly
significant Breusch-Pagan test also cor-responds with this picture.
Hence, in manufacturingthere tends not to be a correlation between
the de-mand for skilled workers and that for trainees. Itshould be
pointed out once more here that the indi-cators used for the
various causes of uncertaintytend to be soft, and therefore
distortions due to mis-specifications cannot be ruled out.
Services
The fact that the demand for skilled workers andthe demand for
apprentices in this sector of theeconomy are interrelated is also
confirmed by theresult of the Breusch-Pagan test. The estimate
re-sults for the service sector from Table 3 also confirmthe
considerations as to uncertainty.
This does not apply to the variables which measurenational and
international competitive pressure,however. None of these have any
significant impacton training behaviour.
The negative link between the share of skilled work-ers and the
provision of training, coupled with thepositive link with the
demand for skilled workers,supports Heidenreich’s thesis (1998).
Both of the co-efficients also differ highly significantly from one
an-other. Service-providers with a relatively large num-ber of
skilled workers are therefore more likely tomeet their need for
skilled workers by recruitingnew workers rather than by engaging in
vocationaltraining. Heidenreich (1998) puts this down to thelow
level of adaptability of dual vocational trainingto the
requirements of a knowledge-based society.It therefore also appears
to be plausible that thiseffect is found more in the growing
service sectorthan in the secondary sector. The other variables
in-tended to portray the modernity or innovativenessof enterprises,
however, have no significant effect on
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214 ZAF 2 und 3/2007
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
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the share of training places offered, which ratherputs the
significance of these considerations intoperspective.
The findings on staff turnover and flexibility alsocorrespond
with the theoretical considerations. Botha high churning rate and a
large share of temporaryemployment relationships reduce firms’
provision oftraining. At the same time, both variables have
apositive impact on the demand for skilled workersand differ
significantly from one another. The resig-nation rate has no
significant effect. In this sense,the thesis of Acemoglu/Pischke
(1998) of the “lowquit Ð high training” and the “high quit Ð low
train-ing” equilibriums appears initially to have beencountered.
The idea on which this is based, namelythat high staff turnover is
an indication of a lowerprobability of continued employment, to
whichfirms react by reduced provision of training, is con-firmed,
however.
As is the case in manufacturing, in the service sector,too, the
profit situation and employment growth donot impact on the
provision of training. However, apositive effect of growth on the
demand for skilledworkers can be ascertained. The further control
var-iables “works council”, “foreign owners” and “inde-pendent
company” demonstrate a similar picture tothat in manufacturing.
However, collective agree-ments do not impact on training
behaviour, whichcan be explained by the wage structure in the
servicesector. Collectively-agreed wages are very low insome of the
sectors, in particular in personal servi-ces.
Summing up, the empirical results for the servicesector bear out
the theses put forward in this paperregarding the link between
uncertainty and voca-tional training and the external recruitment
ofskilled workers.
4 Summary and conclusions
In addition to high staff turnover (Acemoglu/Pischke 1998,
1999a, 1999b), this paper analyses twofurther causes of a high
separation probability, inother words of uncertainty as to the
retention oftrainees in the firm after completion of training. Itis
stated that high competitive pressure can reducethe provision of
training (Baethge et al. 2007) sincefirms are in greater
competition, and hence find itdifficult to estimate their
requirements and cannotbe certain of being able to offer a job on
completionof training. Furthermore, according to Heidenreich(1998),
vocational training is also less attractive for
216 ZAF 2 und 3/2007
modern and innovative enterprises since Ð given itsrelatively
inflexible organisation Ð firms have littlelatitude to influence
the training content, and there-fore it cannot be predicted at the
beginning of thetraining whether the acquired qualifications will
beuseable once training has been completed. If for oneor more of
the three mentioned reasons, firms areuncertain as to whether they
will be able to take onworkers after training, one may presume that
in thecase of a need for skilled workers the recruitmentof already
qualified workers will be preferred, andthat commitment to training
will be reduced accord-ingly.
This paper did not measure directly the indicatorsof
uncertainty, but (soft) indicators from the IABEstablishment Panel
for western Germany wereused and their impact on vocational
training behav-iour studied. On the basis of the theoretical
consid-erations, these indicators are presumed to exert animpact
via the unobservable uncertainty regardingthe anticipated retention
rate, and hence exert animpact on training. The fractional logit
estimatorproposed by Papke/Wooldridge (1996) is deployedhere. In
order to accommodate the alternative hiringof skilled workers, both
shares of employment areestimated using the Seemingly Unrelated
Cluster-Adjusted Sandwich Estimator proposed by Weesie(1999).
Little evidence is available in manufacturing toconfirm the
theoretical considerations. The resultsobtained in the service
sector correspond on thewhole to the considerations put forward in
this pa-per as to the significance of uncertainty for voca-tional
training behaviour. While competitive pres-sure does not take on
any major significance, theexpected correlations are, however,
confirmed forboth of the other uncertainty factors Ð i.e. high
staffturnover and the matching of vocational training tothe actual
skill requirements. Firms with considera-ble movement in the
headcount and with a largeshare of skilled workers train less and
at the sametime have a larger demand for skilled workers whoalready
have the requisite skills. Vocational trainingis obviously not
optimal for these firms with regardto their need for skilled
workers. Uncertainty as toretention after training can help to
explain the grow-ing gap between employment and training in the
ter-tiary sector in this context. However, it should benoted here
that the indicators used for the variouscauses of uncertainty tend
to be weak, and thereforedistortions caused by mis-specifications
cannot beruled out. Furthermore, because of the cross-sec-tional
view, the results may be influenced by fixedeffects such as firm
size. The results can thus onlybe evaluated as indications of a
link between uncer-
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Lutz Bellmann and Florian Janik To recruit skilled workers or to
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tainty with regard to the retention rate and
trainingcommitment.
If this relationship were to be confirmed in furtheranalyses, it
would mean that the dual system of voc-ational training is faced
not only by quantitativechallenges against the background that,
firstly, fu-ture employment gains are to be expected more inthe
tertiary sector and, secondly, employment rela-tionships are
becoming increasingly flexible. In or-der to make the provision of
training more attrac-tive in these sectors, and to give it a
future, one ap-proach to be explored is that of greater
interlinkingbetween practical work experience, higher educa-tion
and dual training. The growing trend towardsmore dual courses of
study (cf. Ausbildung-Plus.de2006) is an indication that the
stakeholders have al-ready recognised this need. One must also
considerhow current changes in the demand for skills can
beintegrated more rapidly into the dual system. Fur-thermore, the
increasing flexibilisation of the labourmarket, for which many are
calling, is to be criticallyanalysed against the background of
these results.
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