Apprentices vs. Graduates: Mike Hoffman, SMRS


April saw the official launch of the most anticipated piece of employer legislation since the Minimum Wage: The Apprenticeship Levy. From April 2017, large employers in the UK whose payroll exceeds £3m will be required to pay a training tax based on their total wage bill. The broad aim is to raise £3bn a year to meet a target of 3m new ‘high quality’ apprenticeships by 2020.

At the same time, the UK graduate market, in the last 12 months, appears to be stuttering. The last year’s AGR employers survey showed the first decline in graduate jobs since 2009. The 208 firms that responded to the 2016 survey had 19,732 graduate positions to fill – compared with 21,427 the previous year.

While there may be multiple reasons for uncertainty in the graduate labour market, one may be the fact that there are more than 10,000 apprenticeships on offer in the AGR companies this year – a rise of 13% on 2015.

So will the Apprenticeship Levy force employers to address the relative merits of graduates and apprentices, as pressure on recruitment budgets contrasts with government-mandated allocations for Apprenticeships? While graduates may have be considered the blue riband entry-level roles over the last 30 years, for the first time employers now have a powerful incentive to actively reassess each type of role to their business, and how much value their entry-level intake actually contribute.

How much are graduates worth?

Those looking for answers to the question of Graduate Schemes’ worth will come up against a much-quoted statistic: according to a study by Anthony Hesketh of Lancaster University Management School, within three years of launching a mid-sized graduate recruitment programme, employers benefitted from a £5.30 return for every £1 invested. So, QED, graduate recruitment works – much to the delight of the Graduate Recruitment Industry, though evidence outside of this study remains thin.

By contrast with the slim pickings of evidence to back graduate recruitment, the impact of Apprenticeships has been measured, in some detail, thanks to government involvement.

In 2009, the Department for Business, Innovation and Skills (BIS) commissioned a study to examine the impact of the Further Education (FE) sector as a whole in providing people with the skills they need to work. The aim was to produce a framework for estimating Net Present Value (NPV) that could be continually updated as more evidence became available.

BIS concluded that the total NPV of all publically-funded FE qualifications started in 2013/14 is estimated to be £70bn over the years in which successful learners remain in the workforce and the average return for each qualification started is £34,000. Level 3 Apprenticeships deliver the highest value, in terms of both NPV per qualification started and the return on government investment.

It should be noted that these calculations are broad, covering public aims such as ROI per £ of government funding, and overall benefit to the UK economy rather than the ROI to the individual employer. In other words, these impressive returns suggest a lifting of all boats, rather than pointing to a cash amount each employer can anticipate when allocating budget to an Apprenticeship scheme.

The threats to the entry-level model

Two things strike me about the infamous Hesketh statistic. First, Hesketh’s original paper was written in 2004, but that doesn’t stop people quoting that favourable ROI ratio to this day. Think how much education and employment have changed in the last 13 years – in terms of both marketplaces and expectations on both sides. Imagine if graduate recruiters were still relying on recruitment strategies from before social media and smartphones.

The rise of the Apprenticeship and launch of the Degree Apprenticeship means there’s a threat to the current entry-level model. The disruption that universities are feeling, caused by the removal of caps, flexible fees, modularisation, MOOCs, Accelerated Degree programmes, Apprenticeships and CPD, which all threaten the traditional three-year degree, will soon be felt by the graduate recruitment industry.

This in turn is going to give all employers a giddying range of choices when thinking about their future talent pipeline – school leavers, apprentices, graduates and all shades in between. How do they measure the relative merits of each audience? How do they work out who is right for their business? Which horse do they back?

For the candidate, Apprenticeships provide a flexible alternative to study-based development that delivers new work-based skills in a short time (short when compared with, say, medicine). For a business the apprentice appeal is obvious as their contribution is almost immediate, and measurable.

Which brings me to the question about the Hesketh study – that ROI figure itself: “a £5.30 return for every £1 invested”. The sheer variety of schemes and graduates should be enough to at least question whether one case study hasn’t been extrapolated to death.

Measuring graduate value

Attempts to measure graduate value typically concentrate on the candidate, as that’s where most quantifiable data lies. So the ‘lifetime earning potential’ of a graduate vs. a non-graduate – the so-called Graduate Premium – is sometimes used as a measure of worth. But apart from its tenuous nature and tricky application for your own business, it ignores the large discrepancies in earning between different types and subject areas of graduates. This discrepancy will only increase as we see more ‘protected status’ jobs, such as nursing and the police, roles requiring degrees at entry level and more graduates in roles that wouldn’t have been considered ‘graduate level’ even five years ago.

More to the point, graduate recruitment is supposed to be about the long run, yet most studies focus on the first 3-5 years. Graduate fees have been raised to eye-watering levels because of the Graduate Premium a degree is supposed to promise. In turn, established graduate recruiters are looking to their graduate intake to provide the leaders of tomorrow. Every scheme may well promise early responsibility and promotion, but the real impact a graduate can make is most likely to be felt several years down the line. To judge the ROI of your graduates by such a short-term measure is to judge an iceberg by what appears above the surface. On the other hand, measuring the impact of university study so far after the event makes it impossible to provide any sensible monetary value.

So, the inevitable comparison between apprentices and graduates shouldn’t be based on outmoded preconceptions of what they are. The disruption in the post-16 education market, including the Apprenticeship Levy, means it makes less sense to think in terms of either/or. Qualifications and skills need to be considered on a spectrum. Employers need ways of understanding the skills they need and testing, measuring and monitoring these among candidates from application to joining and beyond. It’s not a question of apprentice vs. graduate; ultimately, all a business has is candidates. They’re not an off-the-shelf product that can be slotted in. They need to be understood for the true value they can add.

Tuesday, 2 May 2017

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Apprentices vs. Graduates: Mike Hoffman, SMRS