Estimating the impact of the October 2015 increase in the apprentice rate

Frontier Economics was commissioned by the Low Pay Commission (LPC) to study the impact of the 2015 increase in the Apprentice Rate (AR) on the number and characteristics of apprenticeships in the United Kingdom. The AR is a minimum wage applicable to all workers in the first year of their apprenticeship, and to apprentices aged 16 to 18 throughout the duration of their apprenticeship. In March 2015, it was announced that the AR would increase from £2.73 to £3.30 per hour, starting in October 2015. This is the first study using an econometric approach to estimate the impact of a minimum wage in the United Kingdom specifically on the number and characteristics of apprentices.

Our main econometric specification finds no statistically significant evidence of a negative impact of the AR increase on apprentice numbers or on completion rates. In contrast, we find positive and statistically significant coefficients on apprentice numbers in January and April 2016. This is robust to a number of robustness checks. However, this effect appears to be driven by course frameworks where relatively few workers would be covered by the AR hike (e.g. Management and Engineering). Therefore, we cannot rule out the possibility that the faster increase in apprentice numbers in low-paying areas is driven by other policy changes, rather than by the AR increase. Specifically, the introduction of the National Living Wage in April 2016 may have decreased the cost to employers of apprenticeships relative to other forms of employment.

 

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