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Uschi Backes-Gellner, Ursula Renold, Simone Tuor Sartore, Stefan C. Wolter

Worldwide attention has recently turned to Vocational Education and Training (VET) in general and to countries with well-functioning Vocational and Professional Education and Training (VPET) systems in particular. This interest is due to these countries’ better youth employment rates and closer links between their education systems and the employment systems. Moreover, this interest particularly applies to countries with “dual VET” or VET that takes place largely within training firms (referred to in this book as “apprenticeship training”), with the rest in Vocational Schools. Both of the two parts of dual VET follow the same well-defined and highly coordinated curriculum for each occupation.

However, little research from an economics, management, or governance perspective has focused on the preconditions of a successful VPET system. Although some economic models and theories had been developed in the 1960s and 1970s (Becker, 1962, 1964), economists started to analyze dual VET more in detail only at the end of the 1990s (see, e.g., Harhoff & Kane, 1997; Acemoglu & Pischke, 1998), focusing mainly on the poaching problem. However, starting in the late 1980s, dual VET was also analyzed from a management perspective, pointing out reputation effects for firms participating in apprenticeship training (Sadowski, 1980) or optimal inventory strategies for firms training apprentices and thereby investing in an inventory of skilled workers (Backes-Gellner, 1996).

Meanwhile, governance, the role of the state, and the institutional framework of VPET were discussed in the social sciences as early as the late 1980s (Greinert, 1988; Lauterbach, 1995; Ryan, 2000). More recently, research on the economics, management, and governance of VPET in general and of dual VET in particular has increased substantially, with a special focus on countries such as Germany and Switzerland with their dual VPET systems.

This book provides an overview of this research by, first, reprinting a selection of publications that deal with fundamental questions, thereby providing initial theoretical and empirical evidence, and, second, summarizing ongoing research and preliminary results. While concentrating on evidence from Switzerland (and sometimes Germany or other countries), the book also includes international comparative studies and studies of selected countries with evolving VPET systems. In addition to presenting original research papers, this book also provides policy briefs and formulates lessons that other countries can learn if they are interested in implementing or improving their own dual VET systems. As Switzerland and Germany have very different labor market regulations and governance structures—with Switzerland deregulated and Germany regulated—the results presented in this book provide insights for countries with more deregulated or liberal market economies (e.g., Australia, the UK, the U.S.) and for countries with a more coordinated market economy (e.g., Austria, Japan, Sweden).

The book analyzes the three most important actors and institutions for VPET: firms, individuals, and the state and institutional frameworks (i.e., national governance structures and institutions). The decisions and interactions of these three actors are critical for a successful and well-functioning national VPET system. The book analyzes their decisions from the perspectives of economics, management, and systemic governance.

In Chapter 2, “Socially Constructed Concepts—Methodological Problems in Comparing VET Programs,” Ursula Renold elaborates on the challenges involved in internationally comparing education and training systems and the theoretical foundations of solving those problems. Identifying and understanding the socially constructed concepts used in most social science studies is a necessary prerequisite for comparing VPET systems. The chapter introduces the problem of country-specific terminology used for designating socially constructed concepts such as “apprenticeship.” The chapter discusses the problems inherent in the terms used in research papers and official documents, and suggests critically questioning the extent to which results of studies based on certain socially constructed concepts may be relevant in other societies. By identifying the functional equivalents within a specific unit of analysis—in this case, a VET program—the chapter provides an analytical framework for examining the main functions underlying strong VPET systems across contexts.

In Chapter 3, “Firms,” the book investigates the role of firms as the supplier of apprenticeship training and thus an essential element of dual VET. Without the participation of firms, a dual VET system cannot exist. Firms providing job openings for apprenticeship training (hereafter, “training places”) fulfill three main functions: First, they are responsible for and carry out apprenticeship training. Second, they make a financial commitment to pay for both the training services and apprentices’ wages. Third, in most cases, they recruit and select the apprentices themselves. With the recruitment of the right number and type of apprentices for a specific occupation, firms fulfill a main task of a functioning VET system. For policy makers who want to create a successful dual VET system, the important questions to answer are thus when and under what conditions are firms willing to assume these responsibilities and provide a sufficient number and quality of apprenticeship training places.

To answer the question on when and under what conditions firms are willing to offer apprenticeship training, the papers presented in Chapter 3 look primarily at the cost-benefit ratio. During apprenticeship training, firms bear costs in terms of the wages of the apprentices, the costs of the training personnel, and other expenses (e.g., materials). At the same time, firms achieve a return on their investments in the form of the apprentices’ productive contribution. Important for the willingness to train is the relationship of the costs and benefits, that is, the net costs or net benefits of apprenticeship training. With net benefits, firms are of course more willing to train. Yet even with net costs, firms may be willing to train if they are able to generate other long-term benefits from participating in apprenticeship training. Firms can benefit from apprenticeship training after the training period by hiring their highly skilled VET graduates as employees, by saving recruitment costs, and by additional positive effects of VET workers, such as innovation or reputation.

The empirical results in Chapter 3 show that in Switzerland both on average and the majority of training firms achieve a net benefit during apprenticeship training (Wolter, Muehlemann, & Schweri, 2006). Although training firms bear some costs during apprenticeship training (wages of apprentices, costs of training personnel, etc.), the productive contribution of apprentices is considerable—and for most firms large enough to offset these costs.

However, the empirical results in Chapter 3 also show that, in addition to the short-term benefits of training, there are also non-negligible longer-term benefits. Backes-Gellner and Tuor (2010) show, for example, that apprenticeship training is a clear signal for high-quality workplaces and good career prospects, and that apprenticeship training therefore increases firms’ recruitment success from the external labor market. Backes-Gellner, Rupietta, and Tuor Sartore (2017) show that having VET graduates among a firm’s workforce also increases the productivity of other types of workers, e.g., those with a university degree. Moreover, VET makes a significant contribution to a firm’s ability to innovate and to its innovation outcomes (Rupietta & Backes-Gellner, 2019; Bolli, Renold, & Woerter, 2018). By participating in apprenticeship training, small firms in particular gain access to important knowledge from the innovation frontier, because that knowledge is embedded in the regularly updated training curricula. An important prerequisite for this relationship is the participation of firms from the innovation frontier in a regular updating process, one that takes place in both Switzerland and Germany (for more information, see Backes-Gellner, U., & Pfister, C. 2020).

Yet, Wolter, Muehlemann, and Schweri (2006) also show that non-training firms in Switzerland—in comparison to similar training firms—would not have the same cost-benefit ratios were they to provide apprenticeship training. Instead, the empirical results show that non-training firms would typically end up with net costs. The main reason for the net costs are lower benefits because these firms do not have enough (skilled) work for apprentices (due to, for example, the business cycle or the size of the firm). These results help explain their decision not to train and points out the difficulties that countries should consider as they attempt to initiate dual VET systems and need to recruit training firms.

Conversely, the results for Germany also show that there may be different equilibria from the firm’s perspective: Even the average training firm ends up with net costs during apprenticeship training and a country comparison points towards possible explanations (Dionisius et al., 2009; Muehlemann et al., 2010). For example, German apprentices spend a great deal of time on non-productive training activities, thereby reducing benefits during the training period. This result is consistent with the finding that most training firms in Germany follow an investment training strategy, recouping training costs only after the training period by retaining graduates and using them in highly productive workplaces. This approach only works if the firms find mechanisms for keeping their trained workers and avoiding poaching. Mohrenweiser, Zwick, and Backes-Gellner’s (2019) empirical results on poaching show that German firms are indeed mostly able to retain their apprentices, and that poaching is not widespread in Germany. Alternatively, another empirical study shows that one means of retaining apprenticeship graduates is to use performance pay components (Rinawi & Backes-Gellner, 2020).

Taken together, these comparisons of Switzerland and Germany clearly show that a well-functioning VPET system is possible in different institutional contexts and with different governance structures. However, each country must have a sustainable equilibrium that allows firms to recoup training costs either during or after the apprenticeship training phase.

Recent research uses simulation models to calculate training costs and benefits for firms in countries that do not yet have a (functioning) dual VET system (Chapter 3.12). The results identify the challenges that arise if the apprentice wage is too high, if the skill premium (skilled vs. unskilled worker) is too low, or if recruitment of skilled workers from the labor market is too easy. Thus, these hurdles have to be overcome on the way to a functioning VET system (see Muehlemann, Wolter, & Joho, 2018; Wolter & Joho, 2018; Wolter & Muehlemann, 2015).

Overall, results on the role of firms show that a favorable short- or long-term cost-benefit ratio for firms is a prerequisite for a well-functioning VET system and that apprenticeship wages, the ability to allocate apprentices to productive work, and the involvement of organizations representing firms’ interests in curriculum development processes help to ensure such a favorable cost-benefit ratio. Nonetheless, dual VET can be successful only if participation in apprenticeship training is also a favorable decision from the individual apprentices’ perspective because they (and their parents) are the ones who decide whether to begin their post-compulsory educational career with apprenticeship training.

Therefore, in Chapter 4, “Individuals,” the book focuses on potential trainees, analyzing both the decision to start VET and the future career and labor market prospects of VPET graduates as compared with those of workers with other types of education. Young people choose (dual) VET if this type of education guarantees a good initial education, offers valuable educational career options, and leads to attractive short and long-term labor market outcomes. Like firms, individuals compare expected costs and expected benefits (both monetary and non-monetary) when deciding how to start and how to further develop their educational career paths.

The research presented in Chapter 4 examines different decision points in an educational career and investigates factors affecting the students’ outcomes. The chapter covers the challenge of finding an apprenticeship position, successfully finishing VET, and having a smooth transition into the labor market. Results show that obtaining a contract for an apprenticeship position demands not only high cognitive skills and school grades but also other observable personal characteristics and non-cognitive skills.

In particular, individuals with the same directly and easily observable characteristics (e.g., gender or migration status) but with hard-to-observe personal characteristics (e.g., skills) are less likely to find an apprenticeship position (Mueller & Wolter, 2014). After having found an apprenticeship position, apprentices face a new challenge—that of successfully completing their apprenticeship training. As firms use different incentive systems to reduce drop-out rates, apprentices respond to these incentives by adapting their behavior accordingly and are therefore more likely to successfully finish their apprenticeship training. For example, Oswald and Backes-Gellner (2014) show that financial bonuses that firms offer for better grades in VET school classes help increase the probability of students’ successfully finishing their apprenticeship training. They also show that these incentives have a particularly strong impact on impatient apprentices, those who have a low future-orientation and thus a comparatively high ex ante risk of dropping out.

After successfully finishing VET, the next challenge for the former apprentices is a smooth transition to the labor market. In analyzing this transition, Bertschy, Cattaneo, and Wolter (2009) conclude that VET as a whole provides individuals a good start in the labor market. Both the successful completion of apprenticeship training and the student’s achievements during apprenticeship training are important in facilitating a smooth transition to the labor market. Although school performance at the end of compulsory schooling has no direct effect on labor market entry, it does have an indirect effect: Individuals with a good school performance are more likely to receive more demanding VET positions, and graduates of demanding VET occupations are more likely to have a smooth transition to the labor market.

As to long-term labor market outcomes, the research in this book has analyzed the importance of both the possibility of educational upgrading and the permeability of the two-pathway education system. Individuals starting out with a VET education have the option of either obtaining a professional education (PET) or to switching to an academic education. As a result, individuals starting with VET degrees have comparable—and in some respects even more favorable—labor market outcomes to individuals starting out with an academic education. On average, vocational education is associated with a low unemployment risk, good wage prospects for the individual’s entire working life, and relatively low wage risk (Backes-Gellner & Geel, 2014; Tuor & Backes-Gellner, 2010). However, given that returns differ substantially over the wage distribution (Balestra & Backes-Gellner, 2017) no particular educational path provides the one best solution for all individuals. Instead, individual preferences and talents influence the educational decision.

The results in Chapter 4 also show that one important factor in determining particularly long-term labor market outcomes is the chosen occupation. Although the traditional education literature assumes that VET education is very specific (as compared to academic education, which the literature assumes to be general), the results in this chapter show that VET is not specific per se (Eggenberger, Rinawi, & Backes-Gellner, 2018). Instead, occupations can be more and less specific, depending on the bundle of skills learned in one occupation compared to the bundle of skills required on the external labor market. Empirical results such as those in Geel, Mure, and Backes-Gellner (2011) show that an occupation’s degree of specificity determines both occupational mobility and the risks and returns associated with training in that occupation. Geel and Backes-Gellner (2011) also show that mobility within skill clusters or clusters of occupations with similar skill combinations is not only possible but actually high.

Thus, educational policy makers and those who design occupational curricula should not only look at skill relevance within each occupation but also ensure that a single occupation is well positioned within the overall spectrum of occupations and their respective skill bundles. Therefore, VET researchers need to place a new focus on digital and IT skills due to the rapid development of digital technologies. Ongoing research by Eggenberger and Backes-Gellner (2020) indicates that the distinction between different types of IT skills is important—for example, the difference between generic IT skills that are complementary to and productivity enhancing in all skill bundles and expert IT skills that are only used, and therefore helpful, in very specific skill combinations. Generic IT skills improve mobility and long-term labor market outcomes, whereas specific expert IT skills increase specificity and returns in the training occupation but reduce mobility and its returns. These and the other results in this chapter show that substantial risk-return trade-offs exist in the design of occupational curricula and that individuals can and should choose their occupations depending on their individual risk profiles.

Either way, the success of a VPET system depends on attractive educational options for those who start their career with a VET degree. These options include, first, VET degrees and subsequent educational pathways providing attractive initial employment, career options, and equal social status; second, occupational curricula defined so that they allow for sufficient occupational mobility; and third, an education system that guarantees permeability between different types of educational career paths with educational upgrading opportunities for all.

In Chapter 5, “State and Institutional Frameworks,” this book investigates the role of the state, national regulations, social and economic institutions, and cultural differences and their roles for the functioning of VPET systems. The state—typically represented by one or several ministries or government agencies—regulates the education system based on a more or less elaborate legal framework. However, as dual VET is not only part of the education sector but also part of the employment system, Chapter 5 also investigates institutions and regulations with coordinating functions between the two sides (e.g., professional organizations, unions, or chambers of commerce and industry).

The state and the various institutions involved in VPET have to carry out several functions within the VPET system: First, VPET needs to prepare individuals for (short and long-term) employment. This function requires close education-employment linkage (Bolli et al., 2018). Second, VPET needs to be of good quality. For this function, the delivery of VPET needs both supervision and quality assurance. Third, the provision of sufficient training places requires processes that regularly review the market for training places. Fourth, as firms and individuals invest in VPET only if they expect a positive return, the institutional framework must include financing conditions and mechanisms that are sustainable and regularly reviewed. Fifth, for an entire VPET system to be sustainable, its efficiency, effectiveness, and equity have to be analyzed and backed up by research. Thus, institutions must monitor the system and generate evidence on and insights into fundamental and applied research questions.

Using several empirical studies,Chapter 5 investigates these functions. For example, Bolli et al. (2018) show that the most important characteristics of high education-employment linkage are employer involvement in the definition of qualification standards, employer involvement in deciding the timing of curriculum updates, and the combination of workplace training with classroom education. In addition, Muehlemann et al. (2010) show that labor market regulations are not a necessary precondition for the existence of a VPET system. Instead, if companies involved in VET have great freedom in how they organize training and how they involve apprentices in productive work, a successful VPET system can exist in a deregulated labor market.

Recent research faces the challenge of measuring and comparing VPET systems across countries. Rageth and Renold (2019) develop a methodological-theoretical VET typology approach that bypasses the heterogeneous context conditions of specific VET programs. This VET typology makes possible comparing VET programs based on the criteria that affect labor market outcomes. In a similar vein, Renold et al. (2016) empirically assess the linkage intensity between actors from the education and employment systems of multiple countries, with results showing that both Switzerland and Germany are among the countries with the highest education-employment linkage.

One challenge for improving VPET systems is that, although research provides an outline of how successful systems work in various contexts, less evidence is available on implementing new systems or monitoring and evaluating system progress. Reviewing the literature on implementing VET programs, Caves and Baumann (2018) develop a five-category framework of success factors. Renold et al. (2019) apply that framework to the monitoring of an implementation process in Serbia, and Bolli et al. (2019) do the same in Nepal. Despite it being relatively new, this research area should yield a basis of evidence supporting the transition from nonexistent, very weak, or weak VPET systems to stronger and more successful systems.

Thus, a well-functioning VPET system represents an equilibrium comprising many components, all of which must be coordinated and shared among the actors and institutions involved. When one component changes, the equilibrium in the system can be upset, with undesirable consequences not only for the VET actors (i.e., training firms and those who want to become apprentices) but also throughout the education system. Therefore, systemic governance is important for simultaneously monitoring the different components and assessing the consequences of single policy decisions for the overall system. Such governance should strive to balance the interests of single actors and to support shared ownership.

Chapters 3 through 5 all have a similar structure: After a brief introduction, the original research papers are reprinted in their original layout by permission of the publisher, with each preceded by a non-technical summary. Afterwards, the sub-chapters “Ongoing Research” briefly summarize new research that is not yet published but can be found online as working papers.

In Chapter 6, “Monitoring the Youth Labor Market Situation Around the Globe,” Ursula Renold and co-authors present the KOF Youth Labor Market Index (KOF YLMI). This index consists of 12 indicators that reflect the labor market situation for young people aged 15–24. These indicators include the extent to which the young people are active on the labor market, the working conditions of existing employment, the quantity and quality of education and training, and the smoothness of the transition from education into the labor market. Researchers and policy makers can use the index, which includes an interactive web tool for individually analyzing countries, to examine one youth cohort in one country, one cohort across countries, the evolution of the youth labor market across cohorts in one country, or multiple cohorts across countries. The chapter also shows some examples of how one can use the KOF YLMI to shed light on a specific aspect of the youth labor market. Among other things, the index presents the situations of the youth labor market before, during, and after the Great Recession of 2008. Thus, the KOF YLMI provides an internationally comparable outcome measurement for the youth labor market situation, making the index a useful analytical and diagnostic tool for discussing the (further) development of VET in many countries.

The last parts of the book contain supplementary material that helps clarify the terminology used in this book and compare different international VPET systems. The appendices also indicate further research for use for more in-depth results on a large number of questions raised in this book.

In Appendix A, “Glossary,” we present all definitions used in this book for describing the educational systems in (mainly) Switzerland and Germany, and definitions used for reporting the results from the large number of studies in this book.

In Appendix B, “Further Readings on PVET,” we present a list of further readings (publications and recent working papers) of both the Leading House on the Economics of Education and the KOF Comparative Education Systems Group.