Quality Vocational Education Pays Off for Firms

Quality vocational education pays off for young professionals who stay with their training companies, as has been shown over and over. According to new insights, however, young professionals who change to a new company directly after their training period can benefit as well: from a good training quality and from a strict selection of trainees by their training company. This is an important finding since employees who change to a new company directly after their vocational training are frequently suspected of having a below-average performance. A notably worse payment compared to professionals who stay with their training company is the immediate consequence of this presumption. Some of the young professionals who change to a new company manage to avoid severe cuts in payment since they are able to convince the new company of having had an excellent vocational education. The new employers usually take a close look on the quality of the training firms and accordingly adjust their payment offers. They might for example reward applicants if they had been trained in a large company, if their former companies paid their trainees relatively high wages , and if their former companies had works councils supervising the quality of the vocational education. These factors contribute to an increase of the initial payment of those who change to a new company of up to eight per cent. These are the main findings of a recent study conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany.

In Germany, only about two out of three trainees stay with their training company after the training period.  One year after the training period, often only half of the former trainees work as professionals in their companies. Many of those who change to a new company have to leave the training company since they are not offered further employment. Others who finished their trainings change to a new company on their own initiative. But in general it is a bad signal on the labour market if young professionals change to a new company directly after their vocational training. Companies providing vocational education know about the quality of their trainees and usually retain their best trainees. Those who change to a new company are thus suspected of being second choice, even if they leave their company on own initiative and are highly productive. Productive professionals who change to a new company directly after their training have to overcome this negative perception to avoid severe cuts in payment compared to the trainees who stay with their training company.

The results of the study conducted by ZEW show that companies which employ professionals trained at other companies assess the quality of their education precisely, and they respond to high-quality education with the initial payments they offer. If the training company paid higher wages to their trainees than other companies, this is honoured by the new company with a significant payment plus. The reason for this is that high-wage companies usually are able to get the best applicants for their trainings. The generally superior education within a large company is worth an extra wage to the employing company, too. Compared to applicants from training companies with less than 250 employees, applicants coming from companies with more than 1, 000 employees receive an initial wage that is eight per cent higher. The existence of a works council in the training company is seen as a guarantee for the maintenance of high training standards, and is rewarded with an extra wage of four per cent. The initial wages of professionals changing to a new company are significantly higher if the training firm offers contracts to only a small amount of trainees. A low corporate acceptance rate means that relatively highly qualified trainees leave the company, even though the training company usually achieves to retain the best trainees.

The ZEW study ZEW is based on the linked employer-employee dataset of IAB (LIAB). Determinants for the initial wages of over 4, 000 trainees who changed to a new company directly after their vocational trainings were analysed. The assessment period lasted from 2000 to 2002.

For further information please contact

Prof. Dr. Thomas Zwick, Phone +49 89/2180-5616, E-mail zwick@bwl.lmu.de