Apprenticeship contract and firm performance

Introduction
Regulatary framework
Results
Discussion
The effects of the apprenticeship contracts on ﬁrm
performance: TFP losses and capital-labor substitution in the
Colombian manufacturing sector.
Carlos Ospino1
1Universidad de los Andes
Seminario IEEC.
Barranquilla, Colombia.
May 6th, 2016
Carlos Ospino The effects of the apprenticeship contracts on ﬁrm performance 1/26

Introduction
Results
Discussion
Motivation
Literature
Preview of results
This paper
I evaluate the intent to treat and local average treatment effects of the Colom-
bian apprenticeship contract on manufacturing ﬁrm dynamics taking advantage
of an exogenous variation generated by the reform it went through in 2002 and
the regulation design.

Introduction
Results
Discussion
Motivation
Literature
Preview of results
This evaluation is appealing for
several reasons:
1 Very little is known about the effects
of apprenticeship policies on firm
dynamics in developing countries.
2 This regulation although in place for
more than a decade, has not been
evaluated.
3 The multithreshold nature of the
regulation generates rich variation in
firm’s apprenticeship share which is
useful for parameters identification.
Source: Blog Factor Trabajo. BID

Introduction
Results
Discussion
Motivation
Literature
Preview of results
Related literature I
This paper is related to at least three different branches of the economics literature.
1 Impact of size-dependent policies on ﬁrm outcomes.
(Guner et al., 2008; Braguinsky et al., 2011; Garicano et al., 2013)
2 Impact of apprenticeship contracts and other forms of training on ﬁrm labor
productivity.
(Dearden et al., 2006; Mohrenweiser and Zwick, 2009; Konings and
Vanormelingen, 2010)
3 The effects of labor regulation reforms on the manufacturing sector
performance.
(Besley and Burgess, 2004; Eslava et al., 2004)

Introduction
Results
Discussion
Motivation
Literature
Preview of results
Preview of results
1 Results from regression discontinuity design (RDD) (Binary Treatment):
Robust positive effects on capital to labor substitution (32%) and skilled to
unskilled labor substitution (17%).
I also find negative effects on total factor productivity and positive effects on
output per worker. Less robust.
2 The results of estimating a “Fuzzy” RDD (Continuous Treatment):
Positive impacts of the share of apprentices on output per worker (14%), capital
per worker (76%), capital investment (36%), skilled to unskilled ratio (9%) and
the wage bill of direct labor (5%).
I also find a negative effect of the share of apprentices on firm total factor
productivity of 14% as a response to regulation.
Results suggests capital-labor substitution as a possible channel of misallocation
of factors of production.

Introduction
Results
Discussion
Regulation until the year 2002.
Law 188 of 1959: AC is labor contract.
Decree 2838 of 1960: Sets quota at max. 5% of labor force.
Accordance 007 of 2000: Regulated Quota must be calculated based on the
number of skilled workers.
Regulation as of the year 2003.
Law 789 of 2002 (December 27): Major labor reform.
Firms with at least 15 workers are required to comply with this regulation.
Apprentices no longer are workers.
Compensation (Min. W): 50% during classroom training, 75% during productive
phase.
Regulated Quota: 1 apprentice for every 20 workers. +1 if number of worker is
multiple of 10. (e.g. 15-29=1AP; 30-49=2AP; 50-69=3AP,...)
RQ is based on the number of direct workers.

Introduction
Results
Discussion
¿Difference-in-Difference?
ITT RDD
Continuous treatment RDD
Assesing DD: Leads and Lags model I
yit = αi + λt +
2011
τ=1995
βτ I(Nd ≥ 15|τ = 2002) × λτ + µit (3.1)
Model 3.1 formally tests the DD assumption of no difference in trends
previous to treatment by testing βτ = 0 ∀ τ < 2003.

Introduction
Results
Discussion
ITT RDD
Assesing DD: Leads and Lags model II
Figure: Common trends: Log(Total Factor Productivity)
Source: EAM 1995-2011. Treatment is deﬁned in 2002.
Figure: Common trends: Log(Output per worker)
Source: EAM 1995-2011. Treatment is deﬁned in 2002.

Introduction
Results
Discussion
ITT RDD
Assesing DD: Leads and Lags model III

Introduction
Results
Discussion
ITT RDD
Assesing DD: Leads and Lags model IV

Introduction
Results
Discussion
ITT RDD
What is the impact of the apprenticeship contract on ﬁrm
performance? I
Parametric ITT Regression Discontinuity Design.
yij =β0 + β1I(Nd ij ≥ 15|τ = 2002) + β2Ndij + β3N2
dij
+ β4I(Nd ij ≥ 15) × Ndij + β5I(Nd ij ≥ 15) × N2
dij + µij
(3.2)
Carried out:
Parametric McCrary (2008).
Local continuity of baseline covariates: Materials, Energy consumption, Firm
age.

Introduction
Results
Discussion
ITT RDD
performance? II
Panel C: Log(Total Factor Productivity)

Introduction
Results
Discussion
ITT RDD
performance? III
Panel A: Log(Output per worker)

Introduction
Results
Discussion
ITT RDD
performance? IV
Panel B: Log(Capital/Labor Ratio)

Introduction
Results
Discussion
ITT RDD
performance? V
Panel E: Skilled/Unskilled Ratio

Introduction
Results
Discussion
ITT RDD
What is the impact of the share of apprentices on ﬁrm performance?
I
RDD with a continuous treatment variable
Yij = τTij + m(Ndij, k)γp + µij
Tij = Dijk φ + m(Ndij, k)γp + νij
Dijk = 1[Ndij ≥ k] ∀ k ∈ [15, 30, 50, ..., 150, 170, 190]
(3.3)
Tij is the share of apprentices in direct labor.
m(Ndij, k) is a piecewise linear continuous spline, with knots at each value of
k.

Introduction
Results
Discussion
ITT RDD
II
Graphical representation of the 1st stage in Fuzzy RD.
Instrument is assignment rule. All ﬁrms.
Graphical representation of the 1st stage in Fuzzy RD.
Instrument is assignment rule. Complier ﬁrms.

Introduction
Results
Discussion
ITT RDD
III
Panel A: Log(Output per worker)

Introduction
Results
Discussion
ITT RDD
IV
Panel B: Log(Capital per worker)

Introduction
Results
Discussion
ITT RDD
V
Panel C: Log(Total Factor Productivity)

Introduction
Results
Discussion
ITT RDD
VI
¿How can worker productivity increase and TFP decrease?
Start with Cobb-Douglas production function Y = AKαL1−α
Dividing both sides by L and taking logarithms:
ln
Y
L
= ln(A) + α ln
K
L
Using back of the envelope calculations and the parameter estimates suggests an
α parameter of 0.366, close to what has been found by Eslava et al. (2004) for
Colombia.

Introduction
Results
Discussion
ITT RDD
VII
Panel D: Log(Investment)

Introduction
Results
Discussion
ITT RDD
VIII
Panel E: Skilled/Unskilled Ratio

Introduction
Results
Discussion
ITT RDD
IX
Panel F: Log(Average Wage bill)-Direct labor

Introduction
Results
Discussion
Wrap up
Discussion I
The apprenticeship contract has clear economic costs: ⇓ TFP, ⇑ labor costs.
Other effects not so clear: ⇑ skilled/unskilled composition, ⇑ Capital/Labor
composition.
and benefits as well: ⇑ labor productivity, ⇑ investment.
Other potential benefits: ⇑ human capital, school to work transitions, wages,
and employment, deserve attention as well. (Data limitations).
These results are consistent with compulsory training having a negative effect
on firm performance via misallocation of labor and capital.

Introduction
Results
Discussion
Wrap up
Thank you.
cg.ospino20@uniandes.edu.co
carlos.ospino.h@gmail.com
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