Do apprentices alleviate firms’ labour constraints? Evidence from a unique experiment in Ghana

We study small firm labour constraints in the context of a national scale, government implemented apprentice placement program in Ghana. A large body of literature has shown that microenterprises rarely grow and transition into the formal sector (Mead, 1994; Mead and Liedholm, 1998). In particular these firms rarely increase the number of employees (Mead and Liedholm, 1998). Recent literature has focused on the role of capital constraints and training as the main impediment to informal sector growth. Studies such as Karlan, Knight and Udry (2013), and Fiala (2013) focus on the combination of business training and capital, whereas studies such as del Mel, Mckenzie and Woodruff (2008, and 2012) and Fafchamps, Mckenzie, Quinn and Woodruff (2013) focus on the importance of various forms of capital. However, much less is known about the importance of labour constraints in the informal sector.

In the Ghanaian context, apprentices are a particularly relevant labor input for small firms in informal sector manufacturing and services. Data from the Ghanaian Living Standard Survey shows that over a quarter of working age Ghanaians are (or were at some point in their lives) apprentices (Monk, Sanderfur and Teal, 2008). Moreover, our baseline data shows that apprentices account for approximately 80% of the labor input in the firms in our sample.

This project builds on a two stage randomised controlled trial (RCT), done in collaboration with the Ghanaian government. In the first stage, applicants to the government apprenticeship training program were randomly assigned to treatment and control. In the second stage, treatment apprentices were paired with training firms. As there was excess demand for apprentices by firms, the apprentice-firm placement was randomised among the set of geographically feasible and apprentice preferred firms for each treatment apprentice. This second randomisation creates two sided exogenous variation. Firms have exogenous variation in the number and quality of apprentices assigned to their businesses (conditional on apprentice preferences), and apprentices have variation in the size and quality of the firm with which they are invited to train. Currently, our ongoing research explores the short run impacts of apprentice labour on firm outcomes and the training response to random variation in match using baseline data for both matched firm and apprentice samples, and two rounds of firm level follow up data.

The IGC funding is co-supporting two additional rounds of firm level follow up data collection, allowing us to explore longer term effects on firm performance. We will examine firms’ subsequent hiring decisions over the four follow-up surveys, in an effort to understand whether the placement of apprentices from this program crowds out or encourages the hiring of other apprentices and paid labor. Coupled with apprentice level follow up data collection scheduled for after training is completed, the study will also examine how training firm and firm owner characteristics affect apprentice labour market outcomes.