One of the most important things that a government can do to promote inclusive prosperity is to ensure that young people have access to the opportunities they need to succeed in today’s dynamic, high-skilled economy. In this respect, Canada’s public policy record is decidedly mixed. Although young Canadians have access to a world-class, publicly funded higher education system, far too many still face unemployment or underemployment because they are unable to find jobs that match their qualifications.
According to the 2016 census, the employment rate for young people aged 15 to 24 stood at 51.9 percent, with both full-year, full-time employment and part-year and/or part-time employment for students declining since 2006. The effects of precarious, temporary, part-time, low-wage and even unpaid labour threaten to be long-lasting, permanently reducing career stability and lifetime earnings for a generation that will struggle to enjoy the same standard of living as their parents.
At the same time, the labour market is suffering from a significant skills mismatch, as the qualifications and experience that young job seekers possess do not align with what employers are looking for, meaning that even as young people struggle to find work, many high-skilled jobs go unfilled. The current skills gap, according to the Conference Board of Canada, costs Ontario alone $24.3 billion in reduced growth and $3.7 billion in lost revenue each year. This represents a profound waste of human and economic potential. Technological change is likely to exacerbate this problem as rapid advances in automation, artificial intelligence and robotics render a significant share of jobs obsolete and force workers to acquire new skill sets to adapt to new occupational demands. Without the tools they need to meet the demand for highly specialized skilled labour, young people risk being further left behind in an increasingly competitive global economy.
It does not have to be this way. Indeed, experience elsewhere suggests that youth unemployment and underemployment are not natural by-products of the 21st-century job market but can in fact be addressed with intelligent and innovative public policy solutions. Germany’s experience offers particularly valuable lessons. While youth unemployment in Canada fluctuated around 11.6 percent in 2017, Germany maintained an annual average of 6.8 percent, one of the lowest in the world. PwC estimates that if every country in the OECD were able to replicate Germany’s success in reducing youth unemployment, they would boost their collective GDP by $1.1 trillion, and that if Canada were to do so, it would increase GDP by 1.7 percent, adding $23 billion to the national economy. Germany also maintains a strong industrial base with well-paid manufacturing jobs that remains the envy of the world. It has not only weathered the supposedly fatal challenges presented by globalization and technological change but has decidedly benefited from the same economic forces that Canada has struggled to adapt to.
Germany has had considerable success in easing labour market entry through an extensive dual education system that combines subsidized classes at vocational institutions with on-the-job apprenticeship training.
What is Germany’s secret? While the roots of its strong economic performance are complex, Germany has had considerable success in easing labour market entry through an extensive dual education system that combines subsidized classes at vocational institutions with on-the-job apprenticeship training. As with similar systems in Austria and Switzerland, high school students in Germany can apply to firms for temporary paid positions; once accepted, they split their time between work and mastering a curriculum that has been specifically designed with the input of employers to meet industry demands. The program lasts between two and four years and encompasses over 350 different career paths that require specialized skills, from automotive engineering and finance to computer science and retail management. Successful candidates are regularly offered full-time employment upon completion by employers who have invested heavily in their professional development. The clear path that the country’s dual education system provides to high-skilled employment makes it remarkably popular, taking in about 60 percent of high school graduates each year.
Replicating such a system in Canada would have several concrete benefits. Most obviously, it would provide young people with a realistic, affordable and attractive path to productive employment, easing the transition from education to the labour market that many find difficult to navigate. In doing so, it would ensure that a comfortable, middle-class life remains within reach for young people regardless of their backgrounds or particular talents, and that success at an academic institution is no longer the primary determinant of earning potential and employment prospects. More generally, it would create a highly skilled workforce that would attract investment, promote innovation, encourage growth and prioritize high-quality goods and services as the bedrock of the economy. By ensuring that young people have the valuable skills that employers demand, it would provide them with the tools they need to take advantage of the considerable opportunities that the modern global economy has to offer, and at the same time ease the pressures of degree inflation for those who still choose to pursue more traditional forms of higher education, by correcting for the oversupply of academic certifications in the labour market.
Like any public policy worth undertaking, the introduction of a large-scale, publicly funded dual education system throughout the country would have costs. While international comparisons are difficult, one relatively recent estimate puts the annual cost of Germany’s dual education system at about €15,300 per student, or about $24,000 at current exchange rates, a figure that is comparable to the average annual expenditure per student by Canadian colleges and universities.
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Allowing more young people to acquire stable, high-paying jobs means that they will have more disposable income to spend at Canadian businesses, boosting domestic consumption.
Fortunately, however, the costs of the program would be offset considerably by its substantial benefits. Participating firms would receive immediate returns from the work performed by apprentices as well as the longer-term advantage of being able, as apprenticeships are completed, to recruit highly trained employees with valuable practical skills, experience and familiarity with corporate culture and operations. German firms, for example, see an average annual return of €11,700 per student. A successful dual education system would boost economic output and, as a result, the government’s intake from corporate income taxes. Allowing more young people to acquire stable, high-paying jobs means that they will have more disposable income to spend at Canadian businesses, boosting domestic consumption. They will be able to afford major purchases, such as homes and cars, at earlier stages in life, contributing to higher receipts from personal income, sales, property and payroll taxes.
Investment in skills training and education almost always has a high fiscal multiplier given the considerable returns that such spending engenders; there is every reason to believe that a dual education system in Canada would be similarly rewarding. A popular and effective dual education system would not only improve revenues but also allow governments to reduce spending elsewhere, most notably on subsidizing universities that would attract fewer students as young people come to view academic credentials as no longer an essential prerequisite for success.
Designing and implementing a successful dual education system in Canada will not be easy and will require a great deal of commitment and cooperation with provincial governments, firms and unions. But the potential benefits are too significant to ignore.
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