Size of training firms – the role of firms, luck, and ability in young workers’ careers

Abstract

Purpose The purpose of this paper is to analyze how long-run unemployment of former apprentices depends on the size of their training firm and their ability. Design/methodology/approach The authors use a large administrative data set that follows graduated apprentices during their working life. They show that training in large and medium-sized firms is associated with considerably less unemployment. This, however, may simply be the result of sorting processes, i.e. larger training firms with higher wage levels attract and choose the most able young workers. Therefore, the authors use a proxy for ability to estimate and control for the impact of ability on long-run unemployment. They assume that rank-order tournaments for the most attractive training positions take place and take into account an institutional peculiarity of the German training system, the empirically observable regional immobility of apprentices. Accordingly, they use a region-specific ranking based on training plants’ size or median wages, respectively, to proxy for apprentices’ ability. Findings The negative association between training plant size and long-run unemployment is muted but still statistically well determined even after controlling for the rank of an individual’s training firm in the local plant size distribution or the local wage distribution, respectively. Thus, the rank itself is a predictor for long-run unemployment of apprentices. The fact that the position in the local size distribution matters conditional on plant size shows that there is a local competition for training places. Practical implications Lacking mobility may increases aggregate unemployment, as mobility reduces the risk of unemployment. Social implications The results imply that supporting regional mobility of young workers, e.g., by informing them better about existing mobility subsidies and dormitories for apprentices and by creating additional mobility incentives is warranted. Originality/value This is the first study to investigate long-run unemployment of former apprentices. Furthermore, the authors develop new variables to proxy for ability.