Bundesinstitut für Berufsbildung (BIBB)

In 2007, enterprises that provided in-company vocational training incurred gross costs averaging € 15,288 per trainee and year of training. On the other side of the ledger is the productive work done by trainees which was worth an average of € 11,692. Thus training firms must bear an average € 3,596 in net costs per trainee and year (see Chart 1).

The training costs and gains were calculated on the basis of a comprehensive calculation model in which various key variables were first separately calculated and then added together to determine total costs and total gains. For example, the gross costs specified in Chart 1 are the sum of the personnel costs for the trainees and instruction personnel, equipment and material costs and miscellaneous costs. Chart 2 shows a breakdown of the gross costs by these variables.

Personnel costs for trainees account for 61% (€ 9,490) of the gross costs on average and consist of the annual gross wages and the voluntary and statutory social security contributions. The personnel costs for instruction personnel are comprised of salary and wage costs including the ancillary wage costs for all persons involved in providing training - in proportion to the amount of time they have spent on training activities. As a result, not only wages and ancillary wage costs have to be counted but also the time that instruction personnel spends providing training. £ €

Instruction personnel is broken down by full-time instructors, employees who provide instruction in addition to their regular work (part-time instructors) and external instructors. Conducting training is the primary job of full-time instructors. Part-time instructors on the other hand are entrusted with training responsibilities only from time to time in addition to their regular responsibilities. Those periods of time part-time instructors devote entirely to trainees without pursuing their actual job at their company and therefore are not doing any directly productive work are taken into account in full in the calculation of training costs. Time that part-time instructors spent on providing training was taken into account in these calculations only when it reduced their productivity.⁰³ External trainers are hired to provide special instruction in in-house classes or at the training workshop. In this case, the calculation includes the external trainer's fees, travel expenses and accommodations. Personnel costs for instructors average a total of € 3,292 per trainee. This represents approximately 22% of the gross costs (see Chart 2).

Equipment and material costs average € 691 or approximately 5% of the total gross costs. This category includes costs that are incurred at the individual company learning venues (workplace, training workshop and in-house classes) such as the cost of tools and equipment, costs for the training workshop and in-house instruction and for the expendable materials that are needed for the trainees to practise on. Miscellaneous costs average € 1,814 per year. They account for 12% of the gross costs and include chamber fees, the costs of instruction materials, for external courses and the administrative costs for in-company vocational training.

Trainees generate not only costs for the firm providing their training. As a rule, they also make a significant contribution to their company's regular production and services. This productive work lowers the company's costs and therefore has to be considered a gain and deducted from the gross costs.

The gains from productive work were calculated using the equivalence principle. In other words, the costs were determined that would arise for the company were trainee tasks to be performed by regular employees. A differentiation was made between simple productive tasks that semi-skilled or unskilled workers can perform and demanding tasks that must be performed by skilled workers. In the case of demanding tasks, the respondents were asked about the level of their trainees' work measured in terms of whether it would be categorised as skilled labour. Calculated on the basis of this information, unskilled work and skilled work accounted for nearly equal shares of the gains (48% and 51% respectively). The gains from work done in the training workshop were also calculated. These gains average 1% of the total gains.

Not quite one out of every ten enterprises receives funds from funding programmes sponsored by the federal government or a state government, the European Social Fund (ESF) or the Federal Employment Agency. These funds come to an average of € 168 per trainee and year. Since they also reduce the gross costs, they are added to the gains generated by the trainees' productive work. Thus the net cost of providing training - € 3,596 - is the difference between the gross costs and the gains.

The figures shown in Chart 1 are average values. There is however a high variance between companies for all calculated values. Extrapolated to Germany as a whole, approximately one third of all trainees already generate net gains for their company while still undergoing training. Also, net costs exceed € 15,000 per year for 10% of the trainees. Chart 3 shows a breakdown of the net costs in the sample.

Comparison with the findings for the year 2000
Due to changes in the methods used to calculate instructor costs, these findings cannot be directly compared with the findings for the year 2000 (see BEICHT, WALDEN, HERGET 2004). Despite this, the key cost and benefit figures can be compared with one another. Such a comparison reveals for example that trainees' productive work which is quantified on a monetary basis has increased in unadjusted terms. The average value of this work was € 7,730 in 2000. This figure had risen to € 11,692 in 2007. In other words, the gains arising from the work done by trainees rose by some 50% between 2000 and 2007, partly due to rising wage levels, but also due to the fact that the share of time spent performing productive work had grown. This points to changes in the way in-company vocational training is organised. Looking at the costs, the personnel costs for trainees - training allowances and ancillary personnel costs - rose by only some 15% in unadjusted terms. Other types of cost such as equipment and material costs rose by 25% in unadjusted terms, miscellaneous costs by 5%. By contrast, it is not possible to make any statement about the development in personnel costs for instructors. The question design and the calculation method had been modified in order to be able to determine the company's costs with greater precision. All in all however, based on the observed changes, it can be assumed that the average net costs for training companies have declined since 2000.

A number of factors can be used to explain the high level of variance. Firstly, marked differences in training costs can still be observed between Germany's eastern⁰⁴ and western states. One reason for this is the 'wage gap' that still exists. Remuneration for trainees and skilled workers in the eastern states is more than 20% lower than it is in the western states. For this reason, both the gross costs and the gains are considerable higher in the western states. Net costs in the eastern states average € 2,557. This figure is € 3,880 in the western states (see Table 1).

A breakdown by company size shows that enterprises with more than 500 employees have substantially higher net costs - an average of € 7,165 - whereas the level for small and medium-sized enterprises is markedly lower (see Table 1). Looking at very small to medium-sized enterprises, both gross costs and gains increase with company size. Gross costs in particular are considerably higher in large enterprises.

Net costs also vary greatly between training sectors. They are particularly high in the civil service sector and in trade and industry (€ 7,234 and € 4,607 respectively). By comparison, they are very low in the agriculture sector (€ 962) and the liberal professions (€ 268). Net costs average € 2,513 in the crafts and skilled trades field. The civil service sector reports the highest gross costs and the lowest gains (see Table 1)

The costs are considerably higher for trainees who receive at least part of their instruction in a training workshop. Some 13% of all trainees fall under this category. Gross costs for such trainees average € 20,063. By comparison, the gains generated by these trainees are relatively low - € 6,890. Here, the net costs are € 11,029 greater than they are for trainees whose instruction does not include the use of a training workshop.

Sizable differences can also be observed between three-year training programmes and programmes that last three and one-half years. Gross annual costs for three-year training programmes average € 15,014, compared to € 13,018 in gains. The gains generated by a trainee in a three-and-a-half year programme average only € 8,112 whereas the costs average € 16,026. This is a difference of nearly € 6,000 in net costs per training year. Chart 4 shows how net costs for three-year and three-and-a-half-year programmes have developed. It should be noted that trainees spend only six months in their company during the fourth training year. The figures shown for the fourth year take only these six months into account.

In the case of three-year training programmes, the net costs are already less than € 3,300 in the first year and are only € 199 in the third year. By comparison, net costs for three-and-one-half-year training programmes are substantially higher, averaging € 10,283 during the first year, € 8,999 during the second, € 6,911 during the third and € 4,919 during the last (half) year.

It is clear from this that the training for occupations with training programmes that last three and one-half years - examples include chemical technician, dental technician and motor vehicle mechatronics technician - is more cost-intensive. The share of enterprises that use a training workshop is substantially larger for these occupations than it is for occupations with three-year programmes. The share of workplace time categorised as 'Other time' (which includes time spent receiving instruction or studying on one's own) is also larger among occupations that require three and one-half years of training.

On the whole, such trainees cannot be put to productive work as much. This is the case not only for unskilled work but also for tasks that entail skilled labour. Compared to trainees in a three-year programme, trainees undergoing a three-and-one-half-year training programme spend an average of 35% less time performing simple tasks and 50% less time on average doing tasks that require skilled labour. Using a qualified skilled worker as a yardstick, their level of productivity is some 30% lower, particularly during the first year of training, than it is for trainees in three-year training programmes. This indicates that training in industrial/technical occupations is not only more expensive, it also involves longer instruction processes that in some cases do not entail the trainee's workplace.

Multivariant analyses were conducted to determine whether the differences have an effect on costs and gains even when the other attributes are controlled. Least-squares estimates were used with the gross and net costs and with the gains as dependent variables. The independent variables were always dummy variables for the types of occupation, the training sector, company size, region, whether the training is conducted in part in a training workshop and whether the occupation requires three years or three and one-half years of training. In addition, the number of trainees undergoing training for the particular occupation per enterprise was included since it can be assumed that this has a negative influence on costs (returns to scales). The regressions are based on the information provided by the 2,986 enterprises surveyed. The findings are shown in Table 2. Except in the case of region and duration of training, the reference variables are the categories with the largest figures. 'Firms with 10 to 49 employees' is the reference variable for 'company size'. The reference variable for 'training sector' is 'trade and industry'. In the case of 'type of occupation' the reference variable is 'commercial occupations'.

As expected, significant correlations can be seen in the training sectors: The cost of providing training is lower in the crafts and skilled trades, the agriculture sector and the liberal professions than it is in trade and industry or in the civil service sector. The findings from the descriptive studies could be confirmed for region, duration of training and training workshop, even when other qualifiers were controlled: In-company vocational training is approximately € 1,393 more expensive in Germany's western states. The duration of training has a significant effect in favour of three-year training programmes and the use of a training workshop has the greatest influence on net costs. The latter finding applies to both the gross costs and the gains. Providing training in a training workshop not only generates higher costs, the gains are also considerably less due to the periods that the trainee spends in the training workshop and is therefore absent from his/her company.

The number of trainees undergoing training for a particular occupation per enterprise has an insignificant negative influence on the net costs. By contrast, its influence on the gross costs is significant. As is to be expected: The more trainees in an enterprise, the lower the costs are for the individual trainee. The coefficient of determination of 0.17 shows that there must be other factors besides those included in this model that influence costs and gains. On the one hand, these can be occupation-specific factors. On the other hand, it is known from earlier studies that the costs can vary considerably even between relatively similar enterprises (see BEICHT, WALDEN, HERGET 2004 and MÜHLEMANN et al. 2007 for Switzerland).

As already explained, approximately one third of all trainees generate net gains for their company even before their training is completed. Consequently the other firms that invest in training must receive some other additional benefit that makes providing vocational training worth their while.⁰⁵ This potential follow-on benefit offered by vocational training has an effect only after training has been completed, in other words when a company subsequently employs a former trainee as a skilled worker.

The first thing to cite here are the gains that arise from not having to search for new skilled workers on the external labour market and therefore eliminating personnel recruitment costs. The possibilities for reducing costs vary by, for example, occupation or the region where new employees are being sought. The personnel recruitment costs were calculated at company level. Only those 1,010 firms were taken into consideration that had actually hired skilled workers in the particular occupation during the last three years.

All in all, enterprises spend an average of € 4,214 to recruit a new skilled worker. Consequently, they eliminate this expense when they retain a trainee upon completion of training, rather than hire a skilled worker from the external labour market (see Table 3). The most important cost factor here are the costs - an average of € 2,319 - that arise during the familiarisation period due to the difference in productivity between a newly-recruited skilled worker and a skilled worker who was trained in the particular company.⁰⁶ In addition, differences in the remuneration paid new employees and an employee who was trained by the particular company were also taken into account (higher wages / lower wages).

All other factors are of considerably less importance. The recruitment process generated costs averaging € 1,191. These costs include € 432 for advertisements, € 519 for personnel costs which are incurred for the entire selection process⁰⁷ and € 240 for external consultants who are brought in to help with the recruitment of a new skilled worker. Enterprises invest a total of € 704 on average in continuing training for a new skilled worker during the familiarisation period. A distinction was made here between direct costs (€ 405 for course fees and travel expenses) and indirect costs (€ 299 for loss of working hours).

A look at personnel recruitment costs broken down by various company attributes reveals sizable differences. For example, personnel recruitment costs average € 3,032 in Germany's eastern states, a good 30% less than in the western states where this figure is € 4,447. Given that the differences are quite large for all cost components in which wages pay a decisive role (differences in productivity during the familiarisation phase, the cost of lost working hours during continuing training, labour costs arising in connection with the recruitment process), the crucial factor here is the wage gap between Germany's eastern and western states. The cost of placing advertisements and for external consultants are also considerably higher in the western states (see Table 3).

Personnel recruitment costs can vary as much as € 3,000 between training sectors ⁰⁸ (see Table 4). The highest recruitment costs are reported by enterprises in trade and industry which have to budget € 5,370 for the recruitment of external skilled workers. For such companies, retaining one's own trainees upon completion of training is particularly worthwhile. At € 4,380, the civil service sector also has considerable potential for savings. By comparison, personnel recruitment costs are much lower in the liberal professions, crafts and skilled trades and particularly in the agricultural sector. It is striking that few costs are incurred for continuing training for new employees in these last three fields.

Personnel recruitment costs increase noticeably with company size: Very small firms with nine or fewer employees report average recruitment costs of € 3,432. By contrast, these costs average € 7,735 for companies with more than 500 employees. The costs for the recruitment process - and particularly for the cost of advertisements - are substantially higher for large companies, while the range seen in the factor 'differences in productivity during the familiarisation phase' is smaller. All in all, personnel recruitment costs vary considerably between companies, similarly to the differences between enterprises seen in net costs.⁰⁹

Retaining a trainee upon completion of training not only saves personnel recruitment costs. There are a number of further advantages this tactic offers an enterprise which are important but hard to place a monetary value on. These advantages include differences in the productivity levels of employees the company has trained itself and the productivity levels of employees who were trained elsewhere, differences which are likely to continue to exist for a certain period of time after the new employee has undergone familiarisation. These differences arise because skilled workers who the company has trained itself have already acquired knowledge about the special aspects of the company's operations during their training, are familiar with the 'company philosophy' and could be trained to meet company-specific needs (see BEICHT, WALDEN, HERGET 2004, pp. 172-173). On the other hand, costs arise in connection with lost working hours from skilled positions that remain vacant, hiring mistakes and employee turnover. When a company hires one of its own trainees the risk of hiring the wrong person for the position is smaller because the company has had the opportunity to observe the individual trainee's performance for a longer period.

The more difficult it is to recruit new employees on the external labour market, the greater the benefits that arise from providing in-company vocational training and subsequently retaiining trainees upon completion of their training. Enterprises that provide in-company training were asked how they viewed the number of workers available on the labour market. Only one-third said the supply was very good or good, while some 40% described it as poor or very poor. The views expressed on whether these workers would be suitable for the particular company were even more negative: Not quite one-quarter of the companies surveyed considered them suitable or very suitable.

It is not always possible to retain a trainee upon completion of training. This can be due to any of a number of reasons such as: The particular trainee did not accept the company's offer of employment, there were financial reasons not to hire or the company was not satisfied with the trainee's performance.

More than half of the firms that provide in-company vocational training in Germany (57%) retained at least one of their graduate trainees in 2007. At 53%, this share was stable in both 2006 and 2005 as well. This figure was 63% in the eastern states in 2007, higher than in the western half of the country. Enterprises in the training sectors 'trade and industry' and 'civil service' retained particularly large shares of their trainees. As to be expected, the share of companies that retained at least one graduate trainee in 2007 increased in tandem with company size. Large companies with correspondingly larger numbers of trainees and jobs are much more likely to retain at least one of their trainees upon completion of their training (see Chart 5).¹⁰

A large share of enterprises that provide in-company vocational training also keep former trainees in their company on a medium and long-term basis. A total of 65% of the companies surveyed reported that at least one of their trainees who had successfully completed their training was still working for them one year after the end of their training. This figure is 57% after three years and then 50% after five years.

Enterprises that retain trainees upon completion of their training and additionally hire skilled workers on the labour market have higher personnel recruitment costs on average than companies who do not retain trainees. The average costs in these two cases total € 4,631 and € 3,753 respectively. Companies that have retained trainees in each of the past three years invest an average of € 6,088 to recruit new skilled workers, the highest amount among the companies surveyed. For these companies, the incentive to retain their own trainees upon completion of training is therefore particularly strong.

The benefits that the provision of in-company vocational training offers enterprises consist of various elements that can be assessed only partly in monetary terms. In order to determine which of the elements is the most important for such companies, the firms in the sample were asked to assess a number of statements that describe different aspects of these benefits. The respondents answered on the basis of a scale from 1 (very important) to 5 (not important at all).

Asked about the reasons for providing in-company vocational training, 84% of the sample agreed¹¹ with the statement that an enterprise provides in-company vocational training in order to develop young employees who meet the company's particular requirements, making this the most-cited reason by far. Large segments of the sample also agreed with the following statements, indicating that enterprises are very interested in hiring their trainees following completion of training and in providing high-quality training:

• Enterprises provide in-company vocational training in order to be able to choose 'the best' trainees to retain (70%).
• Enterprises provide in-company vocational training in order to avoid hiring the wrong person when recruiting workers from outside (60%).

By comparison, reducing familiarisation costs (34%), saving the cost of recruiting outside personnel (27%) and using company-trained employees to familiarise new employees (22%, see Chart 6) are of less importance. A number of additional factors that probably compensate for the other costs also play an important role when deciding whether to provide in-company vocational training.

Many enterprises are also aware of the positive image associated with the provision of in-company vocational training and expect to enjoy an enhanced image among their customers, suppliers and the public. Eighty-one per cent of the enterprises that were asked about how important the provision of in-company vocational training is for personnel policy and their company's development said that this aspect was very important or important. Seventy-one per cent similarly felt that the provision of in-company vocational training made a firm more attractive to productive workers. The provision of vocational training is also important for employee loyalty. Eighty-seven per cent of the sample confirmed this.

The initial findings from the current BIBB survey Costs and Benefits of In-company Vocational Training show that enterprises generally benefit from providing in-company vocational training for youths. Although enterprises incur numerous costs as a result of providing training, these costs can be compensated for by retaining trainees upon completion of their training, thus eliminating the costs of recruiting and familiarising new skilled workers from outside. Compensation also arises from other less easily quantified factors such as image gains. At any rate, one third of the enterprises generate positive net gains by putting their trainees to productive use. For these firms, hiring their trainees is one way to generate further benefits. Retention is not however an absolute prerequisite for a positive cost-benefit balance. Just how important the productive work done by trainees is for enterprises is evident in other areas as well. Asked directly about this, 55% of the enterprises surveyed said that being able to deploy trainees as workers during their training is an important reason for providing in-company vocational training. Only 17% do not consider this important.

The companies' assessments also confirm that providing in-company vocational training is worth their while financially. The majority of firms surveyed are satisfied with the balance between costs and benefits. Only 11% are dissatisfied. The majority also view positively their ability to meet their training needs by providing dual vocational training. More than half of the enterprises surveyed said they were satisfied with the dual vocational training system, while only some 14% were not.¹³

One important finding from the BIBB survey is that examining just the average net costs is not enough to draw a complete picture of enterprises' level of involvement in the provision of in-company vocational training. The benefits that arise after training in completed also play an important role in the decision whether to provide in-company vocational training. Secondly, sizable differences can be observed between training sectors, regions, company size and occupations. Thirdly, considerable differences can exist even between firms that are comparable on terms of these attributes. BIBB will be conducting additional research projects in future to analyse these differences.

A second point that could only be touched on here is the comparison with findings from earlier surveys. Further empirical studies of the individual cost and benefit components in the provision of in-company vocational training are to be conducted in the future. These studies will be based on the surveys conducted in 2000 and 2007 and will take into account external conditions such as the economic situation and conditions on the labour and vocational training markets. The aim of these studies will be to identify and explain possible developments in company behaviour in the provision of in-company vocational training.