Germany has become a hub for high quality and specialized manufacturing, with many world leading companies such as Siemens, Volkswagen and Miele having headquarters in Germany. Yet, behind any good manufacturing company is a productive and skilled labour force, which drives the company to produce the best quality goods and services. In Germany, they have a system which incorporates vocational education and work placements at Mittlestadd companies (which are medium and specialist enterprises) with the aim to make students highly skilled and specialized in a field. The improvements in the labour stocks skill level ultimately have an impact on their productivity as they can produce greater output for the same level of input, which for the firms will increase revenues, competiveness, and ultimately generate higher Gross Domestic Product (GDP). English policy makers might be able to exploit this successful system to improve the economic gap because if London was no longer part of the UK economy, GDP would fall by 11.2% . It is important to recognize that skill acquisition and development are not the only factors that are necessary for productivity growth, yet this essay looks to evaluate and identify potentially beneficial polices, using Sheffield as an example, in isolation of other factors or in Ceteris paribus.
The German model of dual education is important to replicate as Germany is a world leader in many aspects of high tech and advance engineering, their dual vocational education and cohesion with Mittlestadd is a key factor in the country’s’ economic competiveness and capacity for high tech innovation. Mittlestadd, is the name given to small individual enterprises who are specialised in advanced fields such as engineering or technology, normally they are well regarded in the field or are world renowned. The main characteristic of the dual system is the long-standing cooperation with the Mittlestadd companies and publicly funded vocational schools (Fachschules) which provide over 370 training contracts for students . Whom, spend part of their week studying the academic side of their courses at the school (Fachschule) then the other part with the firm. On successfully completion of their course they are awarded a nationally recognised qualification which ensures ‘that the needed expert technicians are trained to service the future German economy’
Policy makers have incorporated the Northern Powerhouse scheme which incorporates , in the "Core Cities" of Manchester, Liverpool, Leeds, Sheffield, Hull and Newcastle
with innovative education initiatives which link vocational training in advanced areas with development institutes in the industry. The overall aim of this scheme is to improve productivity as this subsequently reduces production costs while increasing returns on investments. This increased expenditure can then be reinvested into the economy in the form of consumer spending (from higher wages) or direct investment by the firm, which would lead to an outward shift in Aggregate demand, a signpost of economic growth. The particular area that this essay explores is that of improving the quality of labour by specialization in certain areas such as STEM or scientific and high-technology manufacturing. The Northern Powerhouse hopes to create an educational system that creates specialized and highly skilled labour, which will work in partnership with other Powerhouse projects to increase the economic competiveness and growth within the North.
It is the shared view of the German Federal Institute for Vocational education (Bundesinstitut für Berufsbilding) and the countries’ leading economists that the mix of skilful qualifications and practical experience is indispensable for the future growth of the key market areas and the Germany economy. A key thing to note is the governments investment in the system, where they provide financial support for the companies that take part in the system and for those who undertake the education. The governmental support in human capital and labour stocks aids the endogenous growth of the German economy. Over 500,000 positions are available every year in the field of advanced technology alone through the aid of governmental investment. As a result of this intervention, individuals who before wouldn’t have carried on with higher education or sought a low skilled job are able to broaden their horizons and seek employment in highly sought after and advanced fields, As a result the youth unemployment rate is only 6.6% in Germany compared to the European average of 17.7% , and 51% of those in highly skilled jobs have been trained through the system of Vocational Education Training (VET) although there may be other contributing factors, the most prominent is perceived to be the well regarded system of dual education.
Vocational education and training in Germany has been the foundation for other European countries such as Romania and Slovakia, who have both engaged with a system of dual vocational education with great success. Since it is a ‘well-regarded and effective method for improving economic performance and workforce skill’ as stated by Professor Gorard of Durham University therefore, English policy makers have recently used the foundations of the German system in conjunction with other Norther Powerhouse schemes to establish England’s own equivalent to a dual vocational system.
By working with the Northern Powerhouse scheme the government has created ‘enterprise hubs’ where there are clusters of regional enterprises in a specific field. Emerging enterprise hubs have been concentrated in 39 established and upcoming cities such as Liverpool, Northumberland and Sheffield. These hubs provide government support for new and expanding firms as well as increasing the level of foreign investment in the Northern counties, with over £2.4 billion pounds being invested by 2017 . Businesses are created around the ‘hubs’ using the universities leading faculties to promote specialized sectors, such as the University of Sheffield Advanced Manufacturing Research Centre for advanced engineering, automotive, and renewable energy. Thus, allowing it to gain international recognition for its collaborative research with the university, business, academics and students of all ages and abilities. The engineering students at Sheffield University can work closely with the over 100 international and industrial partners such as Boeing, BAE systems, Airbus and Rolls-Royce to solve current issues and manufacturing complexities. The cluster of firms can use a synchronized production method, where there is a continuous supply of highly skilled labour from the Sheffield University Technical College (UTC) and Sheffield University.
The skills of the emerging workforce in the cluster are a priority as they need to have the specialised skills for that particular enterprise hub, for example, Sheffield needing highly skilled labour in engineering. Thus, the Northern Powerhouse has worked with the Sheffield Council in the development of the UTC School in the city centre, which focuses on vocational courses with a keen interest on engineering. The school provides vocational qualifications as well as projects with local firms to improve the needed skills of creativity, innovation and flexibility which are deemed as highly useful and value adding skills . The students then undertake informal training in small local enterprises, outside of school hours who provide dynamic, careers-focused learning. Here they may work alongside an employee on a current project in the business, applying the classroom learned academia and wider knowledge to solve contextual problems. By working in an informal setting that reflects the formal education being undertaken, the individual is able to improve all the necessary skills for this work area. With the Sheffield region becoming an ‘enterprise hub’ for advanced manufacturing, the students at UTC Sheffield work along-side world leaders in this field such as Boeing and BAE. The Sheffield hubs’ ongoing investment and international prestige for its capability has acted a catalyst for firms such as McLaren, whose confidence in the region has led them to build their International Composite factory in the city.
The development of a labour force being acquainted with the needs and disciplines of the industrial sector, increases the overall productivity of the labour as they have the correct vocational skills to complete the task at hand. Thus, as in the German model it successfully increases the level of output from the same impute levels. The improvement in productivity and the subsequent increase in GDP, in aggregate, would overall improve the economy of the North. If GDP continued to grow and develop at a faster rate than the London economy then the dominance of the capital would decrease. However, the likelihood of Northern growth exceeding that of London’s’ forecasted rate of 2.9% in 2019 is slim. Hence, it is important to recognise that central economic power house cities don’t have to be deemed as detrimental to the economic performance of the country, as they can become an agglomeration economy itself. Germany is abnormal in regard to its lack of economic dominance as a capital city, if it was to secede then the German GDP per capita would increase by 0.2% . Whereas, a megacity such as London can see the benefits of rapid progression, wider cultural diversity and economic prosperity. Within London the internal economy is likely to face the benefits of external economies of scale, with there being whole networks of industries and ancillary services such as suppliers, experts and labour located in a small geographical area. The benefits of the close proximity can be lower average costs of production, which could lead to an increase in post-tax profits of the firms, which could then be reinvested into the economy in the form of consumer spending or direct investment by the firm. Furthermore, with regards to consumers there is access to a more diverse array for goods and services available in an agglomeration economy like London.
To conclude there are lessons that can learned from Germany and their model of vocational education. The adaption of a similar model in England could have an impact on youth unemployment and northern attainment which would address the economic issue of London’s dominance. More importantly the increase in the skill level of the labour stock will have an impact on productivity, the positive impact can be shown using the following mechanisms; the adaptation of new technology and the improved costs of production. Firms, having higher skilled labour who are willing and able to adapt to new technologies and on the job learning are more likely to invest in new technology and innovation as their labour is competent in adapting this new technology. Also, skilled labour is more adept to learning and using their skills in new experiences, thus businesses wouldn’t need to constantly train and retrain their labour. Instead the businesses could expand and diversify the work they complete with the knowledge that their labour is capable of adapting. The mechanism of lower productions costs occurs from surpluses in skilled labour or from labour being highly specified. Vacancies in firms are filled quicker thus less resources are devoted to recruitment so the marginal cost of recruitment for a firm would decrease and therefore so would costs of production. The improved productivity of labour could have a multiplier effect on the economy of the North as it can translate into higher incomes for those employed which would have a positive impact on the level of Aggregate Demand in the Northern economy. The 2015 City and Guilds report forecasts that improvements to vocational education in the North would increase GDP by £163 billion in 2025. Furthermore, the investment into vocational educational will have a multiplier effect on the enterprises within the region. The Sheffield Manufacturing hub has grown and developed due to the stream of highly skilled labour readily availability. The hub is able to focus on developing the newest in manufacturing technologies to aid their international competitiveness in the market for advanced manufacturing. The availability of skilled labour can keep Sheffield at the forefront of advanced engineering and manufacturing as well as a major contributor to the Northern Powerhouse. However, it is important to recognise that the economic dominance of the London is not likely to reduce and therefore the focus of policy makers should be on improving the economic performance of the North, so that the gap will not continue to grow. The chancellor of the Exchequer George Osbourne encapsulates the message within this essay ‘we should all learn lessons from the Mittelstand Model’