Cracking the Code on America’s Jobs Dilemma

By Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics & Vice Dean of Faculty and Heinz Riehl, Former Senior Vice President at Citibank & Former NYU Stern Adjunct Professor of Finance

The US should learn from the apprenticeship masters of Europe.

By Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics & Vice Dean of Faculty and Heinz Riehl, Former Senior Vice President at Citibank & Former NYU Stern Adjunct Professor of Finance

Yet another disappointing month for US unemployment data. None of the last five recessions has shown such a sluggish job recovery. This time the “great American jobs machine” is running on empty.

Explanations abound, but we believe the US is facing a growing structural dilemma that makes cyclical unemployment pale by comparison. We offer here a solution with a proven record of success.

The problem is tough labor shortages in highly skilled professions at one end of the scale and unemployable young people at the other end, weighed down by poor secondary education and forced to compete with more motivated and skilled workers abroad.

This reality contrasts sharply with not only the usual suspects like China and India, whose youth exhibit voracious appetites for education and training, but also countries in “old Europe,” like Germany, which has performed superbly coming out of the recession and absorbing the unemployed.

Only a targeted resurgence in human capital formation will save the US from ending up a nation with millions of “hewers of wood and drawers of water,” as global patterns of production and trade continue to evolve.

The Germans also suffered in the recession, but they have bounced back faster and better. Why?

One reason may be marked differences in approach to human capital formation.

Though the US is not producing enough technicians and engineers, it falls particularly short at the lower end of the skills spectrum—hence the large numbers of college graduates looking for work or functionally underemployed. Neither are these grads good candidates for the many high-paying positions for skilled workers, technicians, financial professionals, and the like that are going begging.

The obvious question is, should everyone go to college?

The conventional American answer is “yes,” even though we are perhaps doing a disservice to many young people who find they are neither trained for a vocation nor capable of a higher-level profession.

The classic European approach, however, eschews traditional university training in favor of challenging, highly structured apprenticeships—distinctly different from US-style on-the-job training that often leads to dead-end jobs.

German-style apprenticeships, for example, have legs. They are tough to get into and complete. They combine practical training with classroom education equivalent to two years of college.

Tracing their roots back to the Guilds, apprenticeships provide an alternative path for people who do not pursue an academic education.

Such apprenticeship—in recent years renamed “dual education”—is available for hundreds of professions, ranging from crafts like auto mechanics, bakers, chimney sweeps, masons, electricians, and opticians to tax accountants, bankers, insurance agents, and hoteliers. Apprentice-based careers include telecommunications, farming information technology, marketing, public relations, and medicine.

Following secondary education, around age 16, professional education and training occurs predominantly via the "dual" system—"dual" because the know-how and skills for each profession are conveyed in two distinct settings: (1) A company, business, or workplace for the practical component; and (2) A related professional trade school for the more academic education content. Dual education takes between two and three years, with the apprentice working three or four days every week for the employer and attending professional trade school for one or two days. Besides the cost of training, the employer pays a modest wage.

The professional trade schools complement the practical learning with a profession-specific yet comprehensive, college-style education. Bakers learn the chemical composition of flour, bankers learn the difference between a mortgage and a loan secured by real estate, and all apprentices learn how federal, state, and local governments are organized and how elections work. Employers and schools cooperate closely.

Importantly, apprentices are exposed in their employer’s business to mature, skilled, and professional adults as successful role models.

The apprenticeship concludes with a government-supervised examination confirming the successful apprentice as a certified professional in his or her occupation. Certification almost always leads to successful placement in a permanent position.

The system also provides additional full-time schooling in a "master class," which again ends with a state-supervised examination. So the more ambitious can go on to become “master craftspeople,” supervising others and educating subsequent generations of apprentices. Only businesses employing one or more “masters” may engage apprentices, so that there is always someone from whom young people can learn.

Germany’s arrangement is a successful model that provides job opportunities and well-paid careers for high school grads—a time-tested system the US could emulate to generate more skilled workers who can compete with the best craftspeople in global markets and create goods and services that Americans and foreigners want to buy.

Apprenticeship is also a ready-made approach to promote entrepreneurship among small and medium-size businesses—where the bulk of new jobs get created—and rebuild the dwindling US middle class.

The US should learn from the apprenticeship masters of Europe.