Welfare Effects of Penalty Charges to Firms that Do Not Offer Apprenticeship Training Positions

Abstract

In Germany, there is currently a discussion about the implementation of penalty charges if firms refuse to offer apprenticeship training positions to school graduates. This paper aims at analyzing the policy instrument of penalty charges by a theoretical model that systematically compares its costs and benefits. Building on recent training literature, a two-period partial-equilibrium model is designed that allows for worker heterogeneity in ability and covers special features of the German apprenticeship system.

With respect to overall welfare, the implementation of penalty charges solves a trade-off. On the one hand, penalty charges increase the number of apprenticeship training positions and thus the fraction of trained workers in the workforce. On the other hand, some firms will leave the market to avoid the financial burden, which generates unemployment among workers with low ability. Altogether, we demonstrate that optimal penalty charges increase the overall welfare compared to the laissez-faire equilibrium if the productivity-enhancement of apprenticeship training exceeds some lower bound.

Keywords: Human Capital Formation, Apprenticeship Training, Inefficient Training Decision of Firms, Penalty Charges

JEL Classification: I28, J24, J31