Apprenticeship contracts and credit markets in Ghana

The shortage of skilled manpower is broadly considered to be a severe constraint on economic development in Africa. The past two decades have seen a dramatic expansion of educational systems throughout the continent (see Psacharopolous and Woodhall, 1985, and Knight & Sabot, 1990), many of which have included the establishment of government vocational and technical schools. While the expansion of primary and academic secondary education is expected to have an impact on overall labor productivity, as well as on health, political participation and other social goods, vocational education is geared toward the development of specific industrial skills. The fields in which the schools are established, and the numbers of students who are accepted and trained, are often decided in conjunction with national manpower planning efforts. In many African countries, this expansion of vocational training has occurred alongside a traditional system of vocational training in the form of apprenticeship. African apprenticeship systems generally exist outside the formal educational system, with little interaction with vocational schools and neither control by nor intervention from government. While a great deal has been written about the expansion of formal education in Africa, with particular attention on evaluating the impact of education on productivity, earnings, inequality, and growth, (see Collier and Lal, 1986, and Knight and Sabot, 1990) little is known about the role of apprenticeship in generating human capital for the manufacturing sector, or about the influence of apprenticeship on earnings. Steel (1979) notes the widespread existence of apprenticeship training in Ghana, voicing concern about the ability of manufacturing to absorb these workers, but does not discuss the institution itself in detail. Without an examination of this institution, it is impossible to generate a coherent picture of the nature and extent of skill formation within manufacturing, or to assess the role this form of training could play in improving productivity or expanding the manufacturing sector. In addition, analysis of apprenticeship systems allows us to extend our understanding of the nature of contracting behavior in manufacturing sectors and of African economic institutions more generally. The institution itself, and the relationship between firms and apprentices imbedded in it, potentially provide insight into the way manufacturing firms are organized and operate, and their mechanisms for overcoming the constraints imposed by market failures in a variety of arenas. Although there is a small literature in education and anthropology focusing on the structure and educational content of individual firms' apprenticeship programs, the economics literature includes no systematic quantitative portrait of either the prevalence and scope of apprenticeship in manufacturing or the microeconomic details of the contracts involved. The growing literature on economic institutions in developing countries provides strong additional motivation for this work. This paper takes a first step in creating such a descriptive portrait and beginning an institutional analysis by reporting findings from a 1992 survey of 185 manufacturing firms in Ghana. The report highlights three major findings. First, the training of apprentices is a widespread activity among manufacturing firms in Ghana, and apprenticeship training is part of the background of a large fraction of entrepreneurs and manufacturing workers. Apprentices, and former apprentices, are, however, concentrated in the small end of the size spectrum. A broad quantitative description of the incidence of apprenticeship is presented in Section II. Second, there are two primary types of apprenticeship contracts apparent in the data, differentiated by their use of apprenticeship fees. A description of these contracting forms and their importance is presented in Section III. Third, for those firms training apprentices, the choice of contract type appears to be strongly correlated with other characteristics of the firm, particularly its use of credit. An analytical framework for the examination of contract choice is provided in Section IV, while Section V presents an attempt to evaluate the implications of this framework using the Ghanaian data. As background for the discussions of the prevalence and structure of apprenticeship contracts in Sections II, III,IV and V, the paper begins with a description of the data and the study from which it is drawn, presented in Section I. Finally, Section VI presents a summary and, most important, raises some questions for future research in this area.