Apprenticeship in the United States: South Carolina's Success

44 Pages·2014·0.48 MB·English

Bryana Banashefski
Senior Capstone Project

Advisor: Dr. Robert Lerman
University Honors
May 2014

Apprenticeship in the United

States: South Carolina’s

Su ccess

“We can have clever initiatives, clever people, and willing technical colleges, but if
we don’t have business, we don’t have an apprenticeship program. Business is the
key to this whole thing.”

- Brad Neese. Director, Apprenticeship Carolina
Table of Contents
Table of Contents ............................................................................................................... 1
1. Abstract .................................................................................................................. 2
2. Introduction ........................................................................................................... 4
3. Literature Review ................................................................................................. 9
4. Research Methods ............................................................................................... 14
5. Apprenticeship Carolina ..................................................................................... 16
6. Conversations with Companies ......................................................................... 21
7. Companies in South Carolina ............................................................................ 23
8. Registered Apprenticeship ................................................................................. 27
9. Youth Apprenticeship ......................................................................................... 29
10. German Skills Initative ...................................................................................... 30
11. Analysis and Key Findings ................................................................................. 32
12. Conclusion ............................................................................................................ 33
13. South Carolina Snapshot .................................................................................... 35
Bibliography ..................................................................................................................... 44

1
Abstract

Apprenticeship depends on private companies choosing to begin and implement training
programs. Apprenticeship programs are not a common choice for companies in the United
States; currently there are only about 20,000 registered apprenticeship programs nationwide.
South Carolina, however, has been an exception in that it has seen a 600% increase in the
number of registered apprenticeship programs since 2007. This qualitative case study uses
research interviews to discover why companies in South Carolina have begun apprenticeship
training programs at such a rapid rate. This question is significant because with high
unemployment and conversations about a skills gap in the United States workforce,
apprenticeship training is gaining more attention from U.S. government officials. Apprenticeship
training is one way to address current workforce issues; understanding how South Carolina has
created an efficient and effective apprenticeship initiative and identifying the practices behind
South Carolina’s model will help highlight effective practices for investing in apprenticeship
programs nationwide.
This study uses information from seven research interviews to analyze how South
Carolina has developed an effective apprenticeship initiative. Interviews in this report include
private companies that have apprenticeship training programs, individuals working at
Apprenticeship Carolina, a representative from a South Carolina technical college, a
representative from the Department of Labor, and a representative from the German Skills
Initiative.
This study finds that apprenticeship programs have rapidly increased in South Carolina
over the past seven years due to heavier promotion, accessible consultation, a skills gap, and
registering existing training programs. The presence of Apprenticeship Carolina, an initiative
that helps promote and facilitate apprenticeship, has also contributed to South Carolina’s success.
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In the United States, companies often do not know that apprenticeship is an option, and therefore
apprenticeship is not a part of the conversation for addressing employee skill issues. In South
Carolina, apprenticeship has been a part of their economic development initiatives for the last
several years. This increased promotion paired with the team of people ensuring companies
understand the option of apprenticeship, has afforded South Carolina’s apprenticeship system
significant success. As apprenticeship gains more attention among policymakers, best practices
for the most efficient ways of promoting and facilitating apprenticeship (e.g., a free consulting
service for companies interested in apprenticeship) are important to know in order to use
government investments effectively.

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1
Introduction

Guiding Question: Why have companies in South Carolina rapidly increased their interest in
apprenticeship programs since 2007?

Research Purpose: Provide insight into a successful apprenticeship initiative in South Carolina
in order to better understand how to encourage successful practices in apprenticeship initiatives
across the United States.

South Carolina

Apprenticeship training offers the unique experience of learning by doing, and can be an
alternative to the traditional route of higher education. These formal training programs depend on
private companies implementing and registering the program. Apprenticeship programs are not a
common choice for companies in the United States, and currently there are only about 20,000
registered apprenticeship programs nationwide (Lerman, 2013). South Carolina, however, has
been an exception. The number of apprenticeship programs in South Carolina was only 90 in
2007 but increased to 637 by January 2014 (Dashboard Reports, 2014), a 600% increase.
Clearly, companies in South Carolina have either chosen to begin apprenticeship training
programs or to register their current training program as a formal apprenticeship at a significantly
higher rate than before 2007.
Apprenticeship in South Carolina is noteworthy for two reasons: rapid growth over the
past seven years and a large presence of apprenticeships in non-traditional industries (e.g.,
healthcare and information technology). Since apprenticeship is only successful when there are
willing and interested companies, this report looks at how South Carolina created an
environment that has encouraged more companies to begin apprenticeship training programs and
also gain interest from companies in non-traditional sectors. In the United States, there has been
an increased interest in apprenticeship from policymakers due to a growing workforce skills gap

1 I would like to thank all interviewees who made this report possible.

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in the United States, and understanding how to run an effective apprenticeship initiative is useful
to ensure federal investments in apprenticeship are spent wisely.
President Obama recently announced a $500 million per year investment for the next four
years to fund apprenticeship efforts with a goal of doubling the number of apprenticeship
programs in America (“The President Budget,” 2014). The United States has more than 19,000
existing registered apprenticeship programs (“Data and Statistics,” FY 2013). President Obama
is hoping that this investment will help produce about 20,000 new apprenticeship programs.
Under the current efficiency of Apprenticeship Carolina, $500 million over four years would
make doubling the number of apprenticeships more than possible.
Apprenticeship Carolina went from 90 apprenticeships in 2007 to 637 apprenticeships in
early 2014. This means that over the course of six years, Apprenticeship Carolina was able to
register 547 apprenticeship programs, which equals about 91 programs per year. Apprenticeship
Carolina has an annual budget of $1 million. By a simple calculation, we find that each
apprenticeship program cost Apprenticeship Carolina about $11,000. If we use these numbers
and apply them to the national investment President Obama has offered, we multiply $11,000 by
the number of apprenticeship programs the investment is supposed to produce, 20,000. This
equals to $220 million needed over the four years for managing, marketing, and consulting
purposes. Divided by four, this number tells us that each year $55 million is needed for logistical
costs to meet the goal of doubling apprenticeship programs at South Carolina’s rate of efficiency.
There is another cost that we must consider. To calculate the true cost of doubling
apprenticeship programs in the United States using South Carolina’s numbers, the tax credit of
$1,000 per apprentice must be considered. There are currently about 320,000 apprentices in the
United States (Lerman, 2013). If we divide this by the amount of current apprenticeship
programs, 20,000, we conclude that there are about 16 apprentices per apprenticeship program.
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Going forward, it is understandable to assume the size of apprenticeship program will be smaller.
Current apprenticeship programs are well established and have been able to grow over time, so
the new apprenticeship programs that are created over these four years will most likely be
smaller on average. Therefore, for this calculation, there will be an average of 10 individuals per
apprenticeship program. The 10 individuals per apprenticeship must be multiplied by the 20,000
new programs, and this equals 200,000 new apprentices. This means that businesses are
receiving tax credits for 200,000 apprentices at a value of $1,000 each. This equals another cost
of $200 million annually. To remain within the budget of $500 million per year, this tax credit
needs to be incremental. This means that companies can only receive this tax credit on new
apprentices. South Carolina was able to offer a tax credit for existing and current apprentices, but
this is because they had very few apprentices to begin with before implementing the tax credit in
2007.
From these calculations we can conclude the cost of doubling apprenticeship programs in
the United States will cost $200 million annually for the tax credit cost, and $55 million annually
for logistics, equaling a total of $255 million needed per year over the next four years. President
Obama has pledged $500 million dollars per year over the next four years, so if apprenticeship
programs are created at South Carolina’s efficiency, the goal should be met well within the
investment provided. We must remember, though, that South Carolina’s efficiency is an
exception, and not the rule. This report hopes to find what practices South Carolina has used to
make their efficiency possible, and in particular what methods worked best to create more
interest from private business in apprenticeship training.

The Benefits of Apprenticeship
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Apprenticeship training can be beneficial to private companies and the economy as a
whole. It can improve productivity in private companies through creating a strongly trained
employee base, and the OECD finds that apprenticeships help reduce rates of youth
unemployment in developed countries (“The G20,” 2012). Several countries have strong
apprenticeship training programs and have reaped the benefits of low youth unemployment and a
well-trained labor force. Germany and Switzerland are examples of countries that have had well-
established apprenticeship training programs for years. In both countries, when a company
cannot find employers that have the skills they need, the companies choose to train workers
themselves. This on-the-job training philosophy is starting to gain traction in other countries.
England’s government has promoted apprenticeship strongly over the past seven years after a
nationwide study showed a deterioration of needed skills in the economy. England’s pro-
apprenticeship government policies have helped develop large-scale apprenticeship training
programs across the country (“New Figures Show,” 2013).
Supportive governmental polices, such as England’s, are important in promoting
apprenticeship training. Apprenticeship training is unique in its dependence on private company
participation. Private companies are vital in apprenticeship success, as they must initiate the
programs. This structure provides a unique challenge for the growth of apprenticeship training
because firms must be convinced that the costs of apprenticeship training programs are worth the
benefits reaped later. Benefits of apprenticeship training programs are long-term, and will not be
fully realized until trained apprentices graduate from the apprenticeship program. Therefore, it
can be difficult to convince companies to implement apprenticeship programs when the
investment does not reap immediate benefits. Supportive government policies, on a state or
federal level, can help convince private companies that apprenticeships are worth the cost.
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The United States has a nationwide Registered Apprenticeship program that helps
support and facilitate the implementation and growth of apprenticeship training nationwide.
States can opt into the national Registered Apprenticeship program, or facilitate apprenticeship
on a state level. There was a study conducted in 2007 by the Employment and Training
Administration (ETA) to discover how apprenticeship training was progressing nationwide. The
study found encouraging results. The results showed that 97% of companies with
apprenticeships are happy with their training program, and 86% of companies would strongly
recommend apprenticeship (Lerman, Eyster, and Chambers, 2009). Also, when asked if the cost
of training is an issue for these companies, 63% found that cost was not a problem, and 30%
found it to be a minor problem (Lerman, Eyster, and Chambers, 2009). Overall, the survey
showed that companies that have apprenticeship programs in the United States find it to be
beneficial.
This qualitative case study focuses on South Carolina’s apprenticeship initiative,
Apprenticeship Carolina. This report uses the case of South Carolina to discover what practices
this state has implemented to encourage companies to begin apprenticeship programs in order to
see if these practices can be applied to apprenticeship initiatives other states. South Carolina’s
apprenticeship program is one of the strongest in the nation, and was recognized in 2012 by the
White House for having the fastest growth in Registered Apprenticeship programs in the United
States (“South Carolina Youth Apprenticeship”, 2012). Data for this study will be gathered
through thirty-minute research interviews with seven individuals involved with apprenticeship in
South Carolina.

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Literature Review: Evidence on Investments in Training

Apprenticeship programs are created within individual companies, and they require a
significant amount of time and resources to implement. Apprenticeship training, as well as other
forms of workforce training programs, are examples of human capital investment. The empirical
literature on human capital investment includes opposing views concerning whether or not
companies incur net costs or net benefits when offering training programs. Human capital
investment researchers also disagree about whether traditional apprenticeship training remains
relevant in today’s knowledge-based and high-skilled economy. To provide context for this
study, it is important to first look at trends in human capital theory literature, and then afterwards
move specifically to apprenticeship training literature.
Human Capital Theory
Traditional human capital theory stems from Gary Becker’s study of human capital
investment conducted in 1964. Human capital theory has the expectation that firms will pay only
for specific training that is relevant to their firm, and firms will not pay for general-skills training
(Becker, 1964). This is based on the understanding that general-skills training would lead to
higher wages in both the training firm and competitor firms. This is because competitor firms
would be willing to pay a higher wage for the employees who are trained in general skills, which
are widely applicable. This traditional understanding of human capital theory assumes perfect
competition. Over the years, researchers have amended Becker’s traditional human capital theory
approach, and a ‘new’ human capital theory, that assumes an imperfect market, is being
developed.
There is growing literature in human capital research arguing that firms have power in
wage setting, and therefore employers face an oligopsony, rather than a perfectly competitive
market. In oligoposnistic markets, firms face labor supply curves that are not perfectly elastic
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