Welfare Effects of Penalty Charges to Firms that Do Not Offer Apprenticeship Training Positions

In Germany, there is currently a discussion about the implementation of penalty charges if firms refuse to offer apprenticeship training positions to school graduates. This paper aims at analyzing the policy instrument of penalty charges by a theoretical model that systematically compares its costs and benefits. Building on recent training literature, a two-period partialequilibrium model is designed that allows for worker heterogeneity in ability and covers special features of the German apprenticeship system. With respect to overall welfare, the implementation of penalty charges solves a trade-off. On the one hand, penalty charges increase the number of apprenticeship training positions and thus the fraction of trained workers in the workforce. On the other hand, some firms will leave the market to avoid the financial burden, which generates unemployment among workers with low ability. Altogether, we demonstrate that optimal penalty charges increase the overall welfare compared to the laissez-faire equilibrium if the productivity-enhancement of apprenticeship training exceeds some lower bound.Human Capital Formation, Apprenticeship Training, Inefficient Training Decision of Firms, Penalty Charges

A Review of Human Capital Theory: Microeconomics

With the beginning of the new millennium it has become more and more apparent that education and human capital constitute a key element of modern economies. Despite the important role of human capital in modern societies, there are still many unknowns about the process of educational production as well as individual and collective decisions concerning how much and what kind of education to obtain. This literature review aims at providing a better understanding of the process of human capital formation and educational attainment. Although human capital plays an important role in both microeconomics and macroeconomics, we focus on the former branch of literature in order to analyze the individual incentives to acquire skills. This review is divided into six parts each of them representing an important stream of human capital literature. First, we introduce the basic concept of human capital that models individuals as investing in skills in response to the expected returns to education. After this, we investigate the different implications of investments in general and specific human capital and then provide an overview of various empirical studies measuring the rate of return to education. Because educational attainment may also be affected by other factors such as school characteristics or family background, we review the literature on educational production functions and discuss the significance of potential inputs into the process of educational production. Subsequently, we refer to models of human capital accumulation over the life-cycle that manage to replicate the empirical life-cycle patterns with respect to the age-earnings profile of individuals. Finally, we analyze the effects of taxation and education subsidies on the formation of human capital.Human Capital, Return to Education, Education Production Function, Life-Cycle of Earnings, Education Subsidies

Optimal Tax Credits in the Context of the German System of Apprenticeship Training and Social Security

There is an ongoing discussion in Germany about the implementation of tax credits in order to reintegrate low-skilled workers into the labor market. This paper aims at analyzing the policy instrument of tax credits in a theoretical model that systematically compares its costs and benefits in the context of the German system of apprenticeship training and social security. Building on recent training literature, a two-period partial-equilibrium model is developed that allows for worker heterogeneity in ability. In our model, the implementation of tax credits in terms of a negative income tax solves a trade-off with respect to overall welfare. While tax credits reduce the number of unemployed workers at the extensive margin, they increase at the same time the opportunity costs of apprenticeship training, which implies that human capital formation is decreased. Furthermore, the model suggests that the reintegration of those workers at the bottom of the ability-distribution into the labor market is not optimal. The additional implementation of minimum wages is counteractive to the reduction of unemployment because firms would thus be prevented from employing workers with very low productivities.Unemployment of Low-Skilled Workers, Tax Credits, Labor Supply, Human Capital Formation

The Effects of Pension Reform on Retirement and Human Capital Formation

The demographic transition in industrialized countries poses challenges to the pension system which is essentially organized according to the pay-as-you-go principle in most countries. This paper aims at analyzing two proposals for pension reform in a theoretical model that endogenously explains the retirement and training decision of workers who are heterogeneous in ability. Because the economic benefits of motivating late retirement strongly depend on the employment prospects of workers near retirement age, the model includes the firms' employment decision at the extensive margin. The first reform proposal, the implementation of individual retirement accounts, increases the workers' incentives to acquire skills and to postpone retirement. However, if the capital funded pillar of the pension system becomes strong, low-ability workers may not attain their optimal retirement age because firms refuse to employ them any longer. In a similar manner, the second reform proposal to increase the minimum retirement age may not work for lowability workers if their separation date is determined by the firms before the minimum retirement age is achieved.Pension Reform, Endogenous Retirement, Human Capital Formation, Tax-Benefit Link, Individual Retirement Accounts, Minimum Retirement Age