I was honored to work with my former colleagues at the Department of Commerce Office of the Chief Economist on the report that Secretary Penny Pritzker released today, “The Benefits and Costs of Apprenticeships: A Business Perspective.” 

Our report is based on data from 13 leading businesses and intermediaries, including a hospital, a pharmacy chain, and an advanced manufacturer. Businesses in a variety of industries can benefit from apprenticeships.

A key finding is that apprenticeships stand out as a way that companies can align their workforce strategies with their innovation strategies. Apprenticeships provide workers with both practical skills and an understanding of fundamental principles. Because apprentices understand the principles behind the work they are doing, they are often more adept at problem-solving, can adapt to new technologies, and can operate with less supervision than employees who are not apprentice graduates.

Apprenticeship is thus not just a way of financing education, it also reflects a philosophy of knowledge—that education is most effective when it integrates both practical skills and an understanding of fundamental principles.

For example, at Siemens, an apprentice was able to figure how to set up a job that had stymied his own mentors. He fabricated three new metal components to use in the setup of a machine, something he was able to do because he understood principles of physics and was able to write the program code that tells the machine tool what to do.

At Dartmouth-Hitchcock Medical Center, creating an apprenticeship program for medical assistants (MAs) was a necessary step in in the adoption of an innovative team-based care approach.

Apprenticeships can help small companies innovate as well. For example, apprenticeships offered jointly by construction firms and the North American Building Trades Union allow small firms to keep up with new developments in technology. Joint training centers have staff that ensure that new skills (e.g., installing fiber optic cable or solar panels) are incorporated into apprentice training and continuing education.

We used internal company data to find that the benefits of two firms’ apprenticeship programs were even greater than the firms had realized. That is, even these leaders in apprenticeships are not fully accounting for all the benefits of their apprenticeship programs.  

Siemens USA obtains at least a 50 percent rate of return on its apprenticeship program, compared to hiring machinists off the street.  Most of the gains stem from the way that apprenticeships allow Siemens to more flexibly fill its capacity in Charlotte, NC, which makes generators for electric utilities.  Apprentice graduates’ flexibility helps the plant make full use of spare capacity, when available, such that the plant can seek generator repair work.  Because Siemens’ apprentice graduates have a strong grasp of the principles of their work, they are particularly well suited for tasks like repair work, which involve more judgment than standard projects. One year of this additional capacity is worth an amount similar to the cost of a worker’s apprenticeship program. 

Dartmouth-Hitchcock Medical Center found that its Medical Assistant apprenticeship program nearly paid for itself within the first year.  The program had an internal rate of return of 40 percent compared to using overtime with existing medical staff, and it was essential to a major expansion and re-organization of its provision of medical services.   Reducing the long-term use of overtime also helped relieve staff burnout and turnover, while quality of care remained high after the MA apprentices were introduced.

Our report thus shows that companies may be missing an opportunity -- the metrics they use don't capture the full benefit of investing in workers.  In our experience, when firms analyze the benefits of having workers who have both conceptual knowledge and practical skills, they find these benefits are surprisingly high.  The report shows companies how they can use data they already have to look at the returns to investing in apprenticeships. That is, firms can use our analysis to help them evaluate investments in their workforce in the same way they evaluate investments in marketing or in acquiring another firm.

These benefits lead to a potential win-win-win -- for companies, for workers, and for communities, helping them stay strong and to compete by providing innovation and good jobs. Apprenticeships train workers who understand the principles behind what they are doing, and thus prepares them to help create new technology, rather than being victims of it.  That is, apprenticeships can help communities as well, by helping them develop strong innovation eco-systems (rather than a race to the bottom of ever more generous tax incentives and “smoke-stack chasing”).  Several companies found success by partnering with strong secondary school vocational programs or community colleges.  To the extent communities can create such programs, the more attractive they become to potential investors.  Ultimately, expanding the use of apprenticeships could help the United States become both more innovative and have more good jobs. 

Speaking of partnerships for innovation, our study would not have been possible without an innovative partnership among foundations, academia, and government. We are grateful to the Joyce, Annie E Casey, and JP Morgan Chase Foundations, whose support made the study possible.