In my article Going against the flow (and its postscript), I explored how the economic cycle has affected provider-based tertiary education in New Zealand through the global financial crisis (GFC) and since. As unemployment rose sharply from 2009, we saw enrolments rise. Provider-based tertiary education is counter-cyclical – as unemployment rises, so do enrolments, while a drop in unemployment leads to falling enrolments.
But work-based training is pro-cyclical…
Work-based training does the opposite. That’s because industry training funding is triggered by a person entering a training agreement – a contract that commits the trainee, his/her employer and an industry training organisation (ITO) to a training plan. The employer is a primary trainer. If the employer goes out of business or makes the trainee redundant, then the agreement, the training and the funding all lapse. This means that industry training has been pro-cyclical – when the economy booms and unemployment falls, industry training numbers increase. Conversely, a recession causes unemployment to rise and industry training numbers to fall.
That’s not just a consequence of the industry training arrangements that have operated since 1992 when a new Industry Training Act set up ITOs and created the Industry Training Fund. Previously, there was an apprenticeship system, governed by the Apprenticeship Act 1983, that was equally dependent on the trainee being an employee.
Figure 1 shows the impact of New Zealand’s acute recession of the early 1990s on the number of apprentices. Apprentice numbers began to fall as soon as unemployment rose and kept falling as the recession deepened.
Figure 1: Number of apprentices and unemployment rate 1987-1992
Nor is this issue confined to New Zealand. Canadian commentator, Alex Usher, writing in 2009 about how Canada’s training system was likely to manage during the GFC, stated:
…[the] apprenticeship system – the system that provides us with nearly all of our skilled tradespeople – leaves the decision about the level of student intake with the private sector. If companies are doing badly and do not wish to hire apprentices, it is the future supply of skilled tradespeople that is most affected.
We saw the same during the Canterbury earthquakes. At that time, it was obvious that there would be a need for thousands of trained trades staff to rebuild a shattered city. But, as everyone waited for the aftershocks to subside, as the labour market stalled, hundreds of construction trades firms waited, unable to take on apprentices in the absence of ongoing work, unable to get training underway in anticipation of the coming flood of work.
But the evidence is complicated by data issues …
Unfortunately, the data on industry training from the passing of the Industry Training Act 1992 and the policy reforms that started in 2010 can’t be relied on. Because of well-documented weaknesses in the design of the industry training funding system and in the implementation and monitoring of the system, the data simply doesn’t provide a good index of the amount of training that was going on. The official statistics imply that between 1995 and 2009, trainee numbers rose by 507%. No one, no one at all, least of all the compilers of those statistics, believes that the volume of training increased by anything like that figure – it is a result of system failure.
But we can pick up the analysis again from 2011 when most of the problems had been purged, when the new data collection system was implemented, when the reforms of 2010 had cut out much of the padding in the training volume and when the major structural reforms that came from the policy review of 2011/13 were underway.
Figure 2: Number of apprentices and unemployment rate 2011-2018
This again shows the unemployment rate and the apprenticeship number going in opposite directions. Apprenticeship numbers continued to be pro-cyclical.
Will the Covid-19 recession strangle industry training?
Waiting for the coming recession, let’s look at whether we can expect to see apprenticeship numbers fall over the next two years. There are two protections that mitigate the risk of the sort of collapse in apprenticeship numbers we saw in the early 1990s recession, illustrated in Figure 1.
First, the government has signalled that, as part of its fiscal stimulus package, it will invest in “shovel-ready” projects, many of which will be related to construction and infrastructure. The sorts of skills that are likely to be needed to support this investment include many that are acquired through the work-based training system. By my count of the published statistics on industry training, around two-thirds of apprentices were in occupations likely to be required for these projects. That, we hope, should reduce the severity of any downturn in training.
Second, and more important, is the government’s reforms of vocational education, the RoVE, currently under implementation.
One of the complexities of vocational education is that there have long been two streams – provider-based vocational education, mostly delivered by polytechnics, and work-based training, managed by ITOs. These two strands have had different funding streams, with different funding rates. That has led to tensions between the two. We have developed two different training cultures. One stream – the provider-based strand – is counter-cyclical while, as we see above, work-based training is strongly pro-cyclical. That suggests that the two strands should be complementary. But the funding systems and institutional arrangements have thwarted collaboration.
The creation under the RoVE reforms of the NZ Institute for Skills & Technology (NZIST), with responsibility for both strands of vocational education, creates an opportunity to exploit the complementarity between the two. To ensure that apprentices who are laid off as a result of the recession have their training programmes adjusted but maintained, maintained with a substantial on-job component. Apprentices need the opportunity to continue their training to completion, even if they lose employment. And aspiring apprentices need to be able to get their training underway during the economic downturn; they need training that includes an on-job component and that can be transferred to an employment-linked apprenticeship, even if there are few employment opportunities on hand at the outset.
NZIST is at the very start of its life – it’s only six weeks old as I write – and there is an extended phase-in period for the new arrangements. But one critical measure of the benefits of the merger of the two strands of vocational education under NZIST will be how well it copes with the challenge of the Covid-19 recession, how well it succeeds in exploiting the complementarity of the two vocational education strands.
But that’s not the only challenge facing our newly-reformed vocational education system as we count down to the recession. As I explained in an article in February 2019, at the start of the public consultation on the reforms, the main obstacle to collaboration between the two strands has been the funding arrangements. The one matter on which there was unanimity during the RoVE consultation was the need for a new funding system for vocational education, a unified funding system, that recognises the types of learning and the types of learner, that reflects the costs of learning, the costs of supporting on-job training, the costs of supporting employers in their role as trainer and the costs of capital.
Documents released on the development of the unified vocational funding system show that the principles underlying the development of the new funding model are exactly right. The design needs to be completed soon, so that we can look forward to implementation from 2021. It can’t come soon enough.
Mahoney P (2015) What is a managed apprenticeship? Ministry of Education
Ministry of Education (2019) New Zealand industry training demand forecast 2019 Ministry of Education
Ministry of Education (2012) History of industry training Ministry of Education
Piercy G and B Cochrane (2015) The skills productivity disconnect: Aotearoa New Zealand industry training policy post 2008 election New Zealand Journal of Employment Relations, 40(1): 53-69
Smart W (2009) Ebbs and flows: Participation in post-compulsory education over the economic cycle Ministry of Education
Usher A and R Dunn (2009) On the brink: How the recession of 2009 will affect post-secondary education, Educational Policy Institute
1 Figure 1: Apprenticeship numbers were sourced from Green N, C Hipkins, P Williams, C Murdoch (2003), A brief history of government funding for industry training 1889-2002.
2 Figure 2: Numbers are only of those funded through the Industry Training Fund that met the definition of “apprenticeship”. This includes, but is not confined to, those designated as NZ Apprentices from 2014. The numbers exclude “managed apprenticeships”, offered by polytechnics and funded through the Student Achievement Component fund.
3 An apprentice is defined as a trainee whose main programme meets or exceed the NZ Apprenticeships criteria, that is, consisting of 120 or more credits and set at Level 4 or higher of the New Zealand Qualifications Framework.
4 There were around 1,300 managed apprentices in 2018. For information on managed apprenticeships, see Mahoney (2015).