Insights and recommendations from the Strategic Review of the Australian Apprenticeship Incentives System

The Strategic Review of the Australian Apprenticeship Incentives System aimed to determine its effectiveness in encouraging new apprenticeship commencements and increasing completion rates. The final report ‘Skills for tomorrow: Shaping the future of Australian apprenticeships’ critically investigates whether current and previous incentives have achieved these goals and provides recommendations for more effective incentive settings.

The final report covers significantly more than incentives and makes recommendations for apprenticeship settings across the economy. In this insights post, we aim to provide an overview of the key elements related to incentives and impacting on both commencements and completion rates.

You can read a general overview of the final report here and find a list of all recommendations here.

A note on language: This insights post uses the term ‘apprenticeship’ to cover both apprenticeships and traineeships under a contract of training.

Review aims

The review aimed to:

1. Assess whether incentives effectively encourage additional apprenticeship commencements and completion rates.
2. Recommend new incentive settings that support increase commencements, completion rates, and align with national priorities related to skills shortages and the participation of priority cohorts.

Impact of incentives

The review looked at current and previous apprenticeship incentives to assess what works and what doesn’t, and in what types of contexts.

Evaluation done for this review considered the impact of incentives on commencements and completion rates, taking into account skills shortage occupations and priority cohorts. A large number of submissions and consultations provided additional context for the reviewers.

Commencement numbers vs completion rates

Commencements: All incentives positively impact commencement numbers. When employers are incentivized, the number of apprenticeships increase.

Completion rates: No employer incentive positively impacted completion rates. In fact, increased commencements linked to incentives often led to declines in completion rates. However, some apprentice-specific incentives, like the Living Away from Home Allowance (LAFHA), positively impact completion rates.

Summary: Incentives are a good leaver for increasing commencements, but these are often poorer quality apprenticeships. Digging deeper into the data gives additional perspective into why this occurs, with large differences in incentives-produced behaviour depending on industry, employer size, and apprentice type.

Trade vs non-trade roles

When looking at the impact of incentives for trade vs non-trade roles, a distinct split in behaviour is seen. Employer incentives have almost no impact on commencements in trade apprenticeships, but significant impact in non-trade roles.

Trade apprenticeships: Incentives do not produce significant increases in commencements, meaning that most incentives go to employers who would already take on apprentices. Changes in commencements typically align with business cycles; when there is more work in the trade industries, there are more apprentice commencements.

While this does not mean that incentives are having no impact on apprenticeships in the trades, it means that incentives have little impact on overall commencement numbers. Incentives are typically not high enough to impact on the costs of a 3-to-4-year apprenticeship program. There are also strong indications that trade employers value apprenticeships as an employment and training mechanism beyond the pull of government incentives.

Non-trade areas: Incentives significantly impact commencements but often do not align with economic needs or priority cohorts. Non-trade employers are more reliant on incentives and participate mainly when these are available; a significant part of the value proposition is the availability of incentives.

Employer size and type

Small and medium enterprises (SMEs): Incentives have a larger impact on SMEs compared to large businesses. Under the Boosting Apprenticeship Commencements wage subsidy, SMEs saw increases in commencements of more than 90%.

SMEs also have lower completion rates compared with large employers and Group Training Organisations (GTOs). They need more support both financially and through non-financial methods to improve the quality of their apprenticeship programs.

Large employers: Incentives have minimal impact on large businesses, suggesting a need for different forms of support rather than financial incentives. Large employers also have higher completion rates compared with SMEs.

Group Training Organisations (GTOs): GTOs ‘pass on’ most or all incentives funding to their host employers; they typically benefit from incentives due to increased demand from employers, or from offsets to their fees. Incentives can drive increased commencements by GTOs, but these increases are often more modest than for SMEs. GTOs have higher completion rates than SMEs and large businesses.

Types of apprentices

Existing workers: These are apprentices who have been converted from a non-apprenticeship into an apprenticeship role by their employer. These are most common in the non-trade sectors.

The introduction and removal of broad-based incentives significantly affect non-trade existing worker commencements. The review makes specific reference to ‘sharp practices’, where employers convert existing workers to apprenticeships for the purpose of receiving wage subsidies, with little or no change in their role or training.

School leavers: Incentives that affect individuals under 20 have a larger effect around summer, coinciding with the end of the traditional school year when young people are moving into work and considering their career pathways.

Priority cohorts: Many incentives that target employers of priority cohort apprentices have outdated requirements and have not kept up with CPI increases, are difficult to access, and have not significantly shifted the dial on the poor workplace conditions faced by underrepresented and disadvantaged groups.

While these targeted incentives do result in increases to commencements, completion rates for priority cohorts are commonly well below that of their industry average.

Recommendations for incentive settings

The review final report made 34 recommendations, most of which have several parts which are suggested for implementation in the short, medium or longer term. The Australian Government has not yet published a reply to the report recommendations.

Flexible incentives

The report recommends that a future incentives program should be flexible enough that it meets the needs of the economy and labour market, and of employers and apprentices.

Some of the considerations for a flexible system include:

• Incentives for trade apprenticeships should adjust based on the unemployment rate and labour demand, to support employers take on apprentices when business cycles are poor, while recognising that there is less need for incentives during strong cycles.
• Higher incentive payments for trade apprenticeships compared to non-trade, reflecting the longer duration of trade apprenticeships. This would provide an equal cost offset to trade and non-trade employers of apprentices.
• Support for apprentices should increase during tight labour markets with rising cost-of-living pressures and decrease as these pressures ease. This will support apprentices as they need it, to remain in their apprenticeship resulting in higher completion rates.

Targeted incentives

The report recommends that incentives should be targeted to specific needs, whether these needs are around skills shortages and priority industries, aiming to increase participant by priority cohorts, or to support apprentices with costs.

Some of the potential targeted incentives include:

• Apprentice incentives that meet their individual needs for tools and equipment, travel and accommodation (this is typically through state-based incentives), and to address cost-of-living pressures.
• In increase to and reconsideration of the requirements for accessing the Disability Australian Apprentice Wage Support (DAAWS).
• Higher levels of incentives are paid to employers for trade apprenticeships, recognising the longer duration of these.
• SMEs continue to receive incentives for priority occupations, but new methods are developed to determine what these occupations are. Large employers are not eligible for these incentives, but are instead eligible for an ‘innovation fund’.
• The GTO Boost incentive (currently a pilot) is increased to better offset the employer fees, and this program is used to more effectively target new employers and priority industries.

Reward good practice in employment

The review recognises that many employers have high quality apprenticeship programs, despite poor behaviour from some employers.

In addition to the ‘sharp practices’ discussed in relation to existing workers, the review highlights employers who ‘churn’ apprentices to access higher levels of incentives during the early phases of the apprenticeship. The report also discusses some illegal behaviour by employers of apprentices.

The report recommends that the Australian Government play a role in rewarding good employer behaviour and encourage behavioural change where needed, while ensuring that incentives do not create or reward poor behaviours. Incentives programs should exclude poorly performing employers.

It is also recommended that performance frameworks are developed for any initiatives targeting GTOs and RTOs.

Summary

While current and previous incentives have increased apprenticeship commencements, they do not effectively improve completion rates. A more targeted, flexible approach, focusing on the needs of both apprentices and employers, is essential for a more effective apprenticeship incentives system.

GAN Australia perspective

Apprenticeships require employers who are willing to train and who are committed to quality in their apprenticeship programs. GAN Australia applauds the focus in the review on quality outcomes and supporting employers who are doing the right thing by their apprentices.

Targeted supports that meet the different needs of employers and apprentices are a step in the right direction to increasing both commencements and completion rates.

Governments need to be clear about the purpose of incentives, have clear and easily accessible information about the availability of these, and ensure that any changes are well-publicised up front so that employers and potential apprentices are able to plan accordingly.

When developing a new incentives system or making changes to incentives, industry, employers and apprentices should be consulted. Many of the negative impacts of previous incentives changes were predicted by stakeholders, and it is imperative to ensure that these mistakes are not repeated.