Abstract
A firm’s expectation about the future business cycle is an important determinant of the decision to train apprentices, especially as German firms typically offer apprenticeships to either fill future skilled worker positions, or as a substitute for other types of labor. The current coronavirus crisis will have a strong and negative impact on the German economy, according to the current business cycle expectations of German firms. To the extent that the training decisions of firms depend on these perceptions, we expect a downward shift in firm demand for apprentices and consequently also a decrease in the equilibrium number of apprenticeship contracts. To assess the impact of changes in business cycle expectations, we analyze German data on the apprenticeship market at the state-level and at the occupation-level within states from 2007 to 2019. We apply first-differences regressions to account for unobserved heterogeneity across states and occupations, allowing us to identify the association between changes in two popular measures of business cycle expectations (the ifo Business Climate Index and the ifo Employment Barometer) and subsequent changes in the demand for apprentices, the number of new apprenticeship contracts, unfilled vacancies and unsuccessful applicants. We find that the German apprenticeship market prior to the current crisis can be characterized by excess demand for apprentices (although there are matching problems in some states, with both a high share of unfilled vacancies and a high share of unsuccessful applicants). Taking into account the most recent data on business cycle expectations up to June 2020, we estimate that the coronavirus-related decrease in firms’ expectations about the business cycle can be associated with a predicted 8% decrease in firm demand for apprentices and a 6% decrease in the number of new apprenticeship positions in Germany compared to 2019 (− 30,000 apprenticeship contracts; 95% confidence interval: ± 8000).
Highlights
The Covid-19 pandemic is fundamentally altering outlooks in many parts of society.With the immediate health implications playing out across the globe, the economic impact is starting to show in labor markets as well
We apply first-differences regressions to account for unobserved heterogeneity across states and occupations, allowing us to identify the association between changes in two popular measures of business cycle expectations and subsequent changes in the demand for apprentices, the number of new apprenticeship contracts, unfilled vacancies and unsuccessful applicants
The large and unexpected economic shock associated with the Covid-19 pandemic and the lockdown measures that came in its wake are likely to affect the German apprenticeship market in 2020
Summary
The Covid-19 pandemic is fundamentally altering outlooks in many parts of society.With the immediate health implications playing out across the globe, the economic impact is starting to show in labor markets as well. We direct our attention towards the impact of business cycle developments on the demand for apprentices. If such vocational education and training (VET) programs appear more robust to economic downturns, they may plausibly play a larger role in supporting the labor market as a whole. To further differentiate the mechanisms of the expected labor market effect, we utilize additional data on the demand for apprentices (i.e., the sum of posted apprenticeship vacancies and unfilled positions) as well as the number of both successful and unsuccessful applicants for apprenticeship positions from the Federal Employment Agency (2007–2019). Expectations about business cycle developments are measured through the ifo Business Climate Index (BCI) and the ifo Employment Barometer (EB), two publicly available, monthly surveys among German firms, which provide current and useful insights
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