Firm-Side Substitution Bound
RCTReview
Subsidizing trainees within private firms risks inducing host employers to displace existing un-subsidized workers or apprentices with subsidized ones, blunting overall net employment expansion.
Picture this
Think of a restaurant owner who receives government funds to hire two subsidized dishwashers and responds by firing one existing un-subsidized dishwasher. The net increase in positions is only one, because the subsidy partially crowded out a non-subsidized job.
What the evidence says
For every 1.398 formal apprentices placed per firm, host firms displaced 0.318 traditional apprentices, yielding an estimated firm substitution parameter $\psi = 0.227$ (p = 0.128) and bounding net position creation between 74.1% and 77.3% of formal placements.
- Who was studied
- N = 674 informal enterprises evaluated at follow-up across 7 urban localities in Côte d'Ivoire.
- How
- Enterprise-level instrumental variable estimation on firm apprentice inflows using randomized treatment assignment.
What to do
Measure host-firm displacement parameters ($\psi$) in subsidized employment schemes to ensure net position creation remains significantly above zero.
From the source
"Substitution effects are also observed: for each formal apprentice placed, 0.23 traditional apprentices is displaced... the net number of new apprenticeship positions created is between 0.74 and 0.77 percent of the number of formal apprentices placed."
Direct_and_Indirect_Effects_of_Subsidized_Dual_Apprenticeships.pdf