The voices of Urban Institute's researchers and staff
March 2, 2018

Why and how companies should invest tax savings to improve workers’ skills

March 2, 2018

A version of this post was originally published by MarketWatch

The Tax Cuts and Jobs Act aims to stimulate increased investment in the United States, create jobs, and raise workers’ wages. Since President Trump signed the legislation in December, Apple, AT&T, and Boeing have announced plans for large-scale expansions in the US, and more than 200 firms have announced bonuses or raises for their workers.

But it will take more than new plants and temporary bonuses to sustain long-term improvements in workers’ earnings. Expanded capacity will not yield high returns without improving the skills of the nation’s workforce. Companies can invest their tax savings in ways that boost workers’ skills to increase productivity and generate long-term wage growth.

The benefits of apprenticeship programs

Apprenticeship expansion is the most cost-effective strategy for achieving gains in skills, productivity, and wages. Moreover, private-sector investments in apprenticeships can reduce government costs and offset some of the tax revenue dip from the new tax structure.

Firms generally favor hiring workers with experience in a field. Harvard Business School professor Joseph Fuller reports that in hard-to-fill jobs, employers prefer relevant work experience over a four-year degree.

Apprenticeships develop occupational skills and provide experience that allows apprentices to use these skills in various contexts. Apprenticeships also help workers master communication, problem solving, resource allocation, and ways of dealing with supervisors and diverse group of coworkers.

Apprenticeship coursework is generally equivalent to at least one year of community college. Taking courses in an apprenticeship can improve academic learning because classroom lessons are quickly applied to real-world settings, and workplace mentors monitor how well apprentices perform in the classroom. Apprentices learn skills for a rewarding career, not just a job.

Employers are more likely to create demanding, high-productivity, and good-paying jobs because they can rely on people who have completed apprenticeships to be competent and experienced in using those skills. Apprenticeship programs can yield higher and more immediate impacts on workers’ earnings than do community college and private career college programs, but they can cost students and the government far less.

An analysis in Washington State showed that taxpayers reap nine times the benefits per $1 of cost in apprenticeships than they do from spending on community college. Taxpayer savings can even start during the apprenticeship program because added tax revenues from apprentices’ earnings are higher than the costs.

Firms investing in apprenticeships can see significant savings in recruitment and training costs, reduce errors in placing employees, avoid excessive costs when the demand for skilled workers cannot be quickly met, and know that all employees are well versed in company procedures.

A 2016 study conducted by the US Department of Commerce and Case Western Reserve University found that two expensive apprenticeship programs resulted in returns to Dartmouth-Hitchcock and Siemens USA of 40 to 50 percent.

And a review of several European studies concluded that “in a well-functioning apprenticeship training system, a large share of training firms can recoup their training investments by the end of the training period…. Offering apprenticeships is an attractive strategy to recruit their future skilled workforce.”

An often-overlooked benefit of apprenticeships is its role in driving innovation. Well-trained workers are more likely to understand the complexities of a firm’s production processes and then identify and implement technological improvements, especially incremental innovations to improve products and processes.

Because employers achieve positive returns on their investments in apprenticeship, the worker and the government can save significantly compared with conventional education and training.

How the government and businesses can help expand the apprenticeship model

Revamped government policies can help firms create more apprenticeship programs and hire more apprentices. One step already under way is the creation of occupational frameworks that describe what competencies apprentices must master, as recognized by industries and by government apprentice agencies.

Another step could involve developing a salesforce to help firms recognize how apprenticeships can fit into their operations and help organize apprenticeships. In the UK, an industry of about 850 private training providers emerged with some government backing and played a critical role in scaling the apprenticeship system to 850,000.

A third step could give firms hiring apprentices the same access to funding for academic instruction as other education-oriented entities in the career and technical education field.

In the meantime, businesses can show their commitment to long-term growth in worker earnings and productivity by undertaking apprenticeship programs and increasing the number of apprentices they hire. Research and experience from other countries suggest that the US could reach 4 million apprenticeships in a decade, well beyond today’s approximately 440,000 nonmilitary apprenticeships.

Now that businesses have additional resources they can channel into investments, they can expand apprenticeships to benefit workers and company productivity and reduce government debt.

A worker inspects a blade mold at the Siemens wind turbine blade plant in Fort Madison, Iowa. Photo by Timothy Fadek/Corbis via Getty Images.


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