Background

Given the anticipated shortages of skilled trades workers, an understanding of the barriers to hiring and training apprentices is critical. The findings of a recent study commissioned by the Canadian Apprenticeship Forum – Forum canadien sur l’apprentissage (CAF-FCA) indicates that employers perceive the cost of apprenticeship as a major barrier to apprenticeship training.¹ Costs to employers not only include wages but also the time of the journeyperson who trains the apprentice. However, there may be significant benefits of apprenticeship training. For example, apprenticeship training may provide an opportunity for journeypersons to enhance their skills and knowledge. In addition, an apprentice who is trained within an organization and becomes a qualified journeyperson (i.e., a “homegrown” journeyperson) will likely be more productive relative to an externally trained journeyperson.

The perceived cost of apprenticeship and the lack of research on the benefits of apprentices were catalysts for the current study, which examines both the costs and benefits of apprenticeship training across a range of service, construction and industrial trades.

Objectives and Scope of Study

To gain a more comprehensive understanding of the return on apprenticeship training investment to employers, CAF-FCA commissioned R.A. Malatest & Associates Ltd. and The Conference Board of Canada to assess the costs and benefits of apprenticeship training.² The overall objectives of this research are:

• To determine the overall costs incurred by employers within the apprenticeship community in hiring and training apprentices;
  
• To determine which factors (e.g., employer size, region), if any, influence cost and the return on training investment; and
  
• To identify monetary and non-monetary benefits of apprenticeship training.

Data was collected through a national survey of employers across 15 trade areas, which was administered by R.A. Malatest & Associates Ltd. from September 2005 to February 2006. The survey instrument was initially developed by Prism Economics and Analysis and subsequently modified by R.A. Malatest & Associates Ltd. in consultation with CAF-FCA to ensure that it would capture the information required to conduct a detailed cost-benefit analysis. Using the data provided by employers, The Conference Board of Canada produced trade-specific cost-benefit estimates to determine the net benefit (or cost) of apprenticeship training.

To ensure that a range of skilled trades were represented in the study, the costs and benefits of apprenticeship training were assessed for the following 15 trade areas:

• Automotive Service Technician;
  
• Bricklayer;
  
• Carpenter;
  
• Construction Electrician;
  
• Cook;
  
• Heavy Duty Equipment Technician;
  
• Industrial Mechanic (Millwright);
  
• Insulator;
  
• Machinist;
  
• Mobile Crane Operator;
  
• Motor Vehicle Body Repairer;
  
• Refrigeration and Air Conditioning Mechanic;
  
• Sheet Metal Worker;
  
• Sprinkler System Installer; and
  
• Tool and Die Maker.

The Return on Apprenticeship Training Investment to Employers: A Pilot of 15 Trade Areas project was intended to collect information from a minimum of 300 employers across the 15 trade areas, or 20 employers per trade. This report summarizes the findings associated with the information provided by 433 employers who participated in the project.

Research Considerations

This study estimated the costs and benefits of apprenticeship training to employers across 15 trade areas; however, it should be noted that it was not possible to capture all variations in each trade due to the small sample sizes. The results are based on averages across all employers and may not necessarily reflect the costs and benefits of apprenticeship training on an employer- by-employer basis.

Although the costs associated with apprenticeship training are generally quantifiable, the benefits are more difficult to measure. The questionnaire was designed to capture qualitative measures of the benefits derived from apprenticeship training; however, it should be noted that these are based on employers’ subjective assessments. In addition, while the data at the national level can be viewed with confidence given the participation of over 400 employers, the limited number of employer completions for some trades suggests that, in these cases, trade-specific data should be interpreted with caution.

During the sample selection process, it was difficult to identify employers who hire apprentices in trades with a relatively small workforce. For example, the number of workers employed in the Mobile Crane Operator (11,245), Sprinkler System Installer (17,730), and Tool and Die Maker (17,025) trades is significantly lower than the combined average employment of 58,414 of the 12 remaining trades.³ As a result, the sample sizes for these trades are below the minimum target of 20 employers. Therefore, the reader should use caution in generalizing the cost-benefit results for these trades to all Canadian employers.

To provide context as to the challenge of identifying employers who hire apprentices, only 1,941 (or 16.8%) of the 11,550 employers contacted by R.A. Malatest & Associates Ltd. qualified for the study (i.e., they currently employed apprentices or had hired apprentices during the past two years). Approximately one in five qualifying employers completed the survey questionnaire.

Validation Roundtables

R.A. Malatest & Associates Ltd. and CAF-FCA facilitated a series of roundtables across Canada with economists and employers to determine if any significant costs and benefits of apprenticeship training had been excluded from the methodology and to validate the cost-benefit results.⁴ A roundtable was held with economists and four roundtables were held with employers representing the following trades: Automotive Service Technician; Construction Electrician; Industrial Mechanic (Millwright); and Refrigeration and Air Conditioning Mechanic. For the economist roundtable session, R.A. Malatest & Associates Ltd. and The Conference Board of Canada presented the methodological approach used in the study. For each of the employer roundtable sessions, R.A. Malatest & Associates Ltd. presented the trade-specific cost-benefit results.

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Cost-Benefit Model

The cost-benefit model is based on a standard cost-benefit analysis for a single firm that hires apprentices. Net benefits and costs are calculated on a per apprentice, per year of apprenticeship basis. The cost and benefit components are detailed in the following sections.

Cost Components

Wages and Benefits
This includes base pay and non-compulsory and compulsory (e.g., Workers Compensation, Employment Insurance, Canada Pension Plan) benefits.

Opportunity Costs
These include costs related to the resources that apprentices draw from the organization as part of their training process. Opportunity costs associated with journeyperson time and wastage were included in the model and were estimated on a per apprentice, per year basis. In each situation, an attempt was made to price these factors and to determine the scale of their usage by apprentices.

Disbursements
Disbursements refer to costs incurred by the employer related to the ongoing training and development of apprentices, such as registration fees and wages during in-school training.

Administration
An estimate of the costs associated with the administering of apprenticeships was made. These costs were allocated on a per apprentice basis.

Benefit Components

Revenue Generated by Apprentice
Using employer-supplied data on charge-out or mark-up rates and the total annual chargeable hours of work, an estimate was made of the average revenue associated with each apprentice.

Tax Credits
Where applicable, per apprentice tax credits were included in the model. For example, Ontario employers in a qualifying trade are eligible for a maximum tax credit of $15,000 per apprentice over the period of the apprenticeship.

Cost-Benefit Results

Summary of Cost-Benefit Results by Trade
The following observations can be made regarding the findings of the cost-benefit analysis for each of the 15 trades:

• The net benefit of apprenticeship training increases in each year over the course of the apprenticeship period. In fact, employers in only three of the 15 trades (Construction Electrician, Mobile Crane Operator and Sheet Metal Worker) incur a net cost when training first year apprentices;
• The revenue generated by an apprentice increases throughout the apprenticeship;
  
• Wages and benefits paid to apprentices increase commensurately with training and experience; and
  
• The costs related to journeyperson time spent training apprentices declines through each year of the apprenticeship.

Total Per Apprentice Costs and Benefits by Trade

1. Source: Apprenticeship Survey (Q28)
2. Represents the total per apprentice costs incurred over the apprenticeship period.
3. Measured as the revenue generated by an apprentice.
4. Benefits – Costs
5. Benefits/Costs

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The overall results of the cost-benefit analysis indicate that the benefits of apprenticeship training exceed the costs for each of the 15 trade areas, with the net benefit ranging from $8,250 (Mobile Crane Operator) to $132,780 (Sprinkler System Installer). In addition, the results indicate that for every $1 spent on apprenticeship training, an employer receives a benefit of $1.38 or a net return of $0.38 on average. If eligible tax credits are included, the net return to employers increases to $0.44. Notwithstanding other qualitative benefits, these findings suggest that apprenticeship training is a worthwhile investment to employers.

To determine if the methodology and the cost-benefit results were appropriate, a series of roundtables were held with economists and employers. The purpose of the economist roundtable was to discuss the methodological approach and the employer roundtables were intended to obtain feedback on the cost-benefit results for the following four trades: Automotive Service Technician; Construction Electrician; Industrial Mechanic (Millwright); and Refrigeration and Air Conditioning Mechanic. The overall findings of the validation roundtables are discussed in the following section.

Validation Roundtable Findings

In general, roundtable participants agreed with the methodological approach and the results produced by the cost-benefit model. The following is a summary of the key findings and common themes that emerged from the roundtable discussions:

Survey Results

Qualitative Benefits of Apprenticeship Training

The survey questionnaire included a series of questions designed to measure the importance of several qualitative benefits of apprenticeship training. These include:

Reasons for Investing in Apprenticeship
Surveyed employers rated a number of potential reasons for investing in apprenticeship using a ten-point scale, where 1 is ‘not at all important’ and 10 is ‘very important’. The most important reason indicated by employers was to ensure that their company has skilled labour (8.9). In addition, employers indicated that hiring apprentices is important to replace the aging workforce and to reduce the turnover rate (each with a rating of 7.5).

Benefit of Apprenticeship Training to Journeypersons
The majority of employers (67.6%) indicated that their journeypersons receive a benefit from training apprentices. Benefits to journeypersons as cited by employers include enhancement of skills and knowledge and an increase in productivity when the apprentice assists with complex job tasks.

Advantages of Employing a Homegrown Journeyperson
Employers representing all business sizes and regions indicated that a homegrown journeyperson (i.e., a journeyperson who was trained as an apprentice within the organization) is more productive than an externally trained journeyperson. On average, employers indicated that homegrown journeypersons are 26.5% more productive, an additional benefit of apprenticeship training.

Financial Support for Apprentices

Overall, the majority of employers (53.6%) provide cash disbursements to their apprentices. The most significant costs are related to wages during in-school training; equipment that is lent or donated to training bodies; and top-up of EI benefits during in-school training. Not surprisingly, larger organizations are able to provide a higher level of financial support.

Perceived Productive Value vs. Training Costs

Approximately two-thirds of surveyed employers (66.1%) indicated that the apprentice’s productive value to their company begins to exceed the training costs by the end of the second year of the apprenticeship or earlier. This indicates that the apprentice becomes proficient in the trade within a relatively short period of time.

Poaching Risk

“Poaching” refers to the situation where competitors hire away recently qualified journeypersons that an employer trained as apprentices. This is often perceived as a disincentive to apprenticeship training. Employers were asked to indicate the seriousness of poaching by competitors or other industries using a ten-point scale, where 1 is‘not at all serious’ and 10 is ‘very serious’. Of the 407 employers who responded, the average rating was 5.1 (competitors) and 4.8 (other industries). Although the results suggest that poaching is viewed as a somewhat serious issue, it is also possible that employers are unaware of the extent to which poaching occurs. Employers who represented large organizations viewed poaching risk by other industries as a more serious issue relative to smaller organizations. In addition, employers in Atlantic Canada were more concerned with poaching risk by competitors and other industries relative to other regions.

Conclusions

The results from this study indicate that employers across the 15 trade areas receive a net benefit from apprenticeship training. Although the cost of apprenticeship is often perceived as a barrier, it appears that the monetary benefits generated by apprentices outweigh the training costs. In addition, employers indicated that there are important qualitative or non-monetary benefits associated with apprenticeship training.

The main conclusions of this study can be summarized as follows:

Overall, apprenticeship training is a worthwhile investment to employers. Although the costs and benefits associated with apprenticeship training will vary on an employer-by-employer basis, the results indicate that there is a significant return on apprenticeship training investment.

1. CAF-FCA (2004), Accessing and Completing Apprenticeship Training in Canada: Perceptions of Barriers.
2. Funding for this study was provided by the Government of Canada’s Sector Council Program.
3. Source: Statistics Canada, 2001 Census. It should be noted that the employment estimate for the Sprinkler System Installer trade includes Steamfitter/Pipefitter.
4. Roundtables were held in Halifax, Nova Scotia (automotive service technicians); Ottawa, Ontario (economists); Regina, Saskatchewan (construction electricians); Edmonton, Alberta (industrial mechanics (millwrights)); and Vancouver, British Columbia (refrigeration and air conditioning mechanics).

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