Not only has manufacturing come back to the U.S., it has also changed in the meantime, asking for new and different skill sets compared to previous times when the U.S. had a competitive edge with products “Made in America.” The “old” manufacturing used to be dark, dirty, and dangerous; the “new” manufacturing looks very different, and involves highly automated machinery. With increasing digitalization, workers today need competencies and skills at the complex intersection of electronics, mechanics, and information technology. In Germany, this broader trend is discussed under the catchphrase “Industrie 4.0.” Industrie 4.0 is intended to describe the fourth industrial revolution, in which manufacturing processes become increasingly automated, computerized, and integrated. This development reconfigures existing supply chains and production processes, and it also asks for uniquely new skills.
Germany is known for its high productivity in manufacturing, making it one of the most competitive economies, and consistently securing it one of the top spots measured by exports. Much research traces this strength back to the way Germany trains its workforce: by relying on dual apprenticeship training models, and—increasingly—dual study programs. Not surprisingly, Germany envisions dual training models to play a key role in seizing the opportunities arising out of Industrie 4.0. But how worthwhile is it for U.S. companies and policymakers to look across the pond for inspiration on how to prepare its own workforce for challenges arising out of the return of a different kind of manufacturing?
How Germany Creates Skilled Workers: The “Dual” Approach
Germany provides skills to its workforce in a remarkable and largely unique way: about 50 percent of each age cohort opts for an apprenticeship program. This means that they join a company after graduating from high school and become an apprentice, being trained for two to three years in a particular occupation, such as mechatronics technician, to become a specialist at the intersection of electrical, mechanical, and computer engineering. Upon completion, they receive a certificate issued by the chamber of industry and commerce, which is valid nationwide, and thus enables them to switch companies within the same industry rather easily. Prospective apprentices can choose from a list of about 350 certified occupations, not only in manufacturing, but also in services, such as occupations in the field of Information Technology or Financial Services. During their apprenticeship, they receive both theoretical education at a local vocational school, and practical on-the-job experience at the company.
It is often argued that this unique approach of combining theory and practice in a systematic and integrated way provides deep and contextualized knowledge and skills sets, which are increasingly important in today’s high-tech manufacturing environment. For example, German firms typically give their skilled workers on the production line rather broad responsibilities and the freedom to make many on-the-spot decisions during the production process. This helps smooth production and thereby increases productivity, since production problems are addressed right away and solved by tackling the underlying cause—as opposed to only the symptom. From a policy standpoint, it is also noteworthy that Germany’s very low rates of youth unemployment (7.1 percent, compared to 20 percent in the European Union, in October 2015) are oftentimes attributed to the existence of the dual approach to workforce development, which ensures a close match between skill demands and skill provision. As such, dual training models may be a powerful tool to overcome the often lamented skills gap here in the U.S.
It is also true that the dual apprenticeship system has recently come under pressure. It has been lamented that it is sometimes slow in adapting to new demands and changes in the work environment. For example, the creation and certification of new official occupations may take years, as it involves a complex process with various stakeholders involved. What is more, an increasing proportion of young adults strive for university-level education. As a consequence, dual study programs are increasingly popular. In these programs, the main idea of dual vocational training is taken and moved to the level of higher education, now involving a company and a university, as opposed to a vocational school, as is the case in apprenticeship training programs.
Both models of dual training, the dual apprenticeship model as well as the dual study model, are less flexible than the strong market-based training approaches common in the U.S., where training typically is the responsibility of the individual worker, who oftentimes has to purchase more general education and training programs on a competitive market for education, before then acquiring more firm-specific knowledge through on-the-job training. For example, the dual apprenticeship model of Germany is occupational, meaning that each program is typically linked to a particular occupation, thereby leading to more industry-specific skills. While the certificate received upon completion is transferable across companies, it is often more difficult to switch occupations; in these cases, the worker may suffer wage cuts, as he or she is not formally qualified for another occupation.
On the other hand, it is often argued that today’s manufacturing environment may actually require these rather time- and resource-intensive training programs, leading to more in-depth and industry-specific competencies, in order to succeed and adapt to an increasingly competitive landscape and radical technological changes. Increasingly, new production methods and processes require deep knowledge and skills, oftentimes involving complex theoretical components, which are best taught and learned at an educational institution, as opposed to within the firm.
Driving Demand for Training in the U.S.: Economic and Firm-level Factors
As innovations and reconfigurations in production techniques and processes are often global, rather than local or regional, one would expect that firms in different country settings may face similar challenges. And in recent years, we indeed witness increased interest in workplace-based training programs in the U.S. as one promising pathway to grapple with new complexities in the production environment. Importantly, this involves not only businesses, but also political actors at local and state levels as well as the Obama administration, which has made great efforts to revive old and design new programs intended to connect skilled workers with open jobs. The Workforce Innovation and Opportunity Act, signed into law in 2014, is a direct result of this effort, and creates a funding stream for workforce training initiatives in the country. And it seems likely that these efforts will continue even after the 2016 presidential election. For example, Hillary Clinton, the likely Democratic candidate, has proposed a $1,500 tax credit for businesses hiring trainees. And investments in workforce development appear to be even a bipartisan issue, garnering support from Republicans, such as Representative Virginia Foxx (R-NC) or presidential candidate Senator Marco Rubio (R-FL).
As the U.S. recovers from the deep slump caused by the financial and economic crisis, the U.S. economy benefits from a number of factors: the Federal Reserve (Fed) as well as the European Central Bank (ECB) have provided cheap capital over extended periods of time; the oil price is as low as it was during the height of the economic and financial crisis; and energy prices remain low—all factors which combined contribute to renewed U.S. competitiveness. Accordingly, the U.S. has ranked No. 1 in the past three years in A.T. Kearney’s Foreign Direct Investment Confidence Index, a position previously held by China. Almost half of this foreign direct investment (FDI) is in manufacturing, and a significant amount of it comes from European countries, such as the UK, Germany, and Switzerland.
But as FDI flows into the country, it is looking for a workforce with adequate skill sets to produce goods and services. While some of these skill demands stem from broader changes in the production environment, such as increasing digitalization, others are more firm-specific. Firms are known to have different capabilities and competencies, for which they require distinct sets of skills. If they move abroad, they often look for ways to replicate their traditional strategies, which oftentimes also involves strategic attempts to transfer training models. German or Swiss companies might look for ways to offer apprenticeships, and in the process create the kinds of skills they need to sustain their competitive advantage. Meanwhile, the twenty-first century poses unique challenges and opportunities from a workforce development standpoint to both domestic and foreign firms, which is why increasingly U.S. firms look into dual training models as well.
There is growing consensus that education and training in the U.S. could benefit from a stronger emphasis on work-based learning and career orientation, and a stronger integration of industry and firm partners. This is often argued to have potentially important social and economic policy implications; what is more, there are strong arguments to make that manufacturing processes requiring highly skilled labor are conducive to innovation in the broader economy. In fact, it seems likely that radical product innovations will in many cases occur in parallel to process innovations in manufacturing. For example, self-driving cars will reconfigure how manufacturing and IT companies will work together and co-create value.
Apprenticeships and dual study programs are promising candidates to help rebuild and create manufacturing competencies in the U.S., which have been lost in the past, as manufacturing was outsourced or just vanished because of increasing competition from new players in the game, such as China. In fact, apprenticeships do exist in the U.S., but they continue to be a marginalized training pathway. While an increasing number of voices ask for reviving apprenticeships and scaling it up beyond the growing number of success stories at the local level to state and even nation-wide implementation, barriers remain, and one key task will involve adapting these training models to fit the specificities of local contexts in the U.S.
Outlook: Making Training Work
The U.S. landscape poses certain challenges to the implementation of dual apprenticeship or dual study programs. For example, U.S. firms are often reluctant to make the necessary long-term investments in educating and training their workforce for future challenges and opportunities. In fact, it is frequently argued that their competitive advantage lies in the flexibility and adaptability, which enables them to engage in more radical innovation patterns, while German or firms from Continental Europe tend to have unique strengths in more incremental innovation. At the same time, manufacturing in the twenty-first century seems to require those kinds of deep and more holistic skills, as provided in more long-term apprenticeship or dual study programs.
This raises the question if and how policy initiatives may help solve the kinds of market failures that occur when firms either don’t make long-term investments, or when they are unable to reap the returns on their skills-related investments, as may be the case when apprentices or apprentice graduates are lured away by competing firms that do not invest in workforce training themselves, but rather poach workers. In Germany, this problem is resolved through the dual apprenticeship system, in which more than 450,000 businesses participate. Here, a common pool of skilled workers is created and sustained collectively. For the individual company, this means that the negative consequences of losing an apprentice to a competing firm are not very big, as it may draw from the collective pool to find an adequate replacement.
The U.S., in contrast, lacks such a nation-wide system. Instead, we see more local and regional initiatives popping up, which try to create this pool of skilled workers at a more local level. This may involve regional public-private partnerships or the formation of inter-organizational networks, where firms and colleges come together to create and sustain apprenticeship or dual study programs in collaboration. This strategic approach seems particularly suitable for small and medium-sized enterprises, which may lack critical resources to run an apprenticeship program on their own. For example, they may lack sufficient financial funds, but also often miss relevant social capital to attract talented students—after all, these are demanding training programs, asking for high levels of technical aptitude. In fact, some German firms at home follow a similar approach when they engage in Verbundausbildung, meaning that they collaborate to substitute for missing resources or capabilities within the firm. For example, if a particular regulation requires an apprentice to gain practical experience in a particular specialty department that a smaller firm might not have in-house, it may partner with other firms and offer a network-based apprenticeship program, where it sends its apprentices to that partner firm to receive the required practical training there.
In supporting these local initiatives to work, U.S. actors may learn from Germany, where intermediaries, such as chambers of industry and commerce, play a significant role in helping to coordinate training. In the U.S., local workforce development boards may play a functionally-equivalent role, and bring business, state departments of labor and commerce, and local community and technical colleges together. Similarly, supporting local or regional-level initiatives ask for particular policies. Rather than developing and implementing national standards and curricula, smaller and more targeted grants may be more effective in helping to kick-off local initiatives. For example, state and federal governments may provide grants to fund intermediary organizations which may help coordinate local initiatives. This may reduce the burden and costs for participating organizations significantly, and may have the aggregate effect that the U.S. prepares its workforce for the twenty-first century to lead technological changes in advanced manufacturing.
Dr. Johann Fortwengel is a Postdoctoral Fellow at Freie Universität Berlin, Department of Management, and the University of South Carolina, International Business Department. While in the U.S., he is doing research on how companies implement apprenticeship-based training at their facilities.
Acknowledgements: Jessica Riester Hart, Parke Nicholson, Manuel Nicklich, and Justin Powell provided helpful comments and feedback on an earlier version of this essay.
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