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

University of St.Gallen Economics Discussion Paper No. 2006-18

43 Pages Posted: 18 May 2006

See all articles by Kai-Joseph Fleischhauer

Kai-Joseph Fleischhauer

University of St. Gallen - Institute of Public Finance and Fiscal Law

Date Written: July 2006

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

Suggested Citation

Fleischhauer, Kai-Joseph, Welfare Effects of Penalty Charges to Firms that Do Not Offer Apprenticeship Training Positions (July 2006). University of St.Gallen Economics Discussion Paper No. 2006-18 , Available at SSRN: https://ssrn.com/abstract=903067 or http://dx.doi.org/10.2139/ssrn.903067

Kai-Joseph Fleischhauer (Contact Author)

University of St. Gallen - Institute of Public Finance and Fiscal Law ( email )

Varnbuelstrasse 19
St. Gallen, CH-9000
Switzerland

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