THE ROLE OF APPRENTICESHIP TRAINING IN THE . SMALL - SCALE INDUSTRIAL SUB - SECTOR OF WESTERN NIGERIA Dissertation for the Degree of Ph. D. MICHIGAN STATE UNIVERSITY ADEWALE MABAWONKU ‘ 1977 lHllHlllll ll]llllllllllllllllllll ”41,3131qu 01591 3753 MCmSnn State University This is to certify that the thesis entitled The Role of Apprenticeship Training in the Small-Scale Industrial Sub¢Sector of Western Nigeria presented by A. F. Mabawonku has been accepted towards fulfillment of the requirements for 211.0. degree in Agricul tural Economics <64? gifts/re Major professor Date May 17, 1977 0-7639 ABSTRACT THE ROLE OF APPRENTICESHIP TRAINING IN THE SMALL-SCALE INDUSTRIAL SUB-SECTOR OF WESTERN NIGERIA BY Adewale Folarin Mabawonku The main objective of this study deals with the description of the apprenticeship system as an institution of skill acquisition, analysis of the costs and returns from training and a comparative evaluation with trade school training in Nigeria. Information about apprentice training in the small- scale industries was collected in three locations in Western Nigeria, namely Oyo, Ijebu-Ode, and Aiyepe. Choice of location was determined by evidence of a large population of small industries in the area. Based on the income elasticities of demand for the products of the small industries, four industries were selected. These are Tailoring, Blacksmithing, Auto-repairs and Furniture- craft in each location, except at Aiyepe where only tailoring was surveyed. Two trade schools, Oyo Trade Center and Ijebu—Ode Trade Center were included in the study. Information collected included the organization of training, in both types of institutions, apprentice fees Adewale Folarin Mabawonku and allowances and other costs of training. Input—output data was collected in 238 establishments, while 273 pro- prietors and 146 apprentices were interviewed. In addition 200 trainees in the trade schools and 307 workers in large- scale industries were interviewed to provide information on costs of training in the trade schools and post- training earnings in wage employment. The recruitment of apprentices, among the findings of the study, was limited to the immediate environment in which a prOprietor works, with patrons, neighbors and relations bringing their children for training. It was also observed that a higher proportion of the apprentices were not blood relations of their masters. The average age of the apprentices was seventeen years, with the oldest apprentice in tailoring. In nearly all the indus- tries and locations apprentices were more educated than their masters. The average apprentice fees (for a training lasting three to four years) was, on the average, N23 while the average allowance per apprentice for the duration of training was estimated at N50.60. Other estimates of the cost of training include the value of the pr0prietor's time and the equipment used for the training. Estimates of training costs in the trade, schools, other than foregone earnings averaged 31,600 per annum . Adewale Folarin Mabawonku Estimates of earnings in the small-scale industries showed that the average earnings per proprietor ranged from N270 in tailoring to N973 in furniturecraft per annum. Rates of return to training in various skills and under different employment forms were estimated. For apprentice-trained workers in wage employment the private rates of return was 59.41 percent in auto-repairs and 62.22 percent in furniturecraft. For similar skills the private rates to training in the trade school were 68 percent (auto-repairs) and 76.79 percent (furniturecraft). For both training types the social rate of return ranged from 23 percent to 32 percent. Rates in apprenticeship train- ing and employment in the small-scale industries as a self- employed worker were lower than wage employment; with private rates ranging from 4 percent in tailoring to 30 percent in furniturecraft. On the other hand, the social rates ranged from -0.24 in tailoring to 16 percent in furniturecraft. It is recommended that earnings in the small-scale industries can be increased by teaching the proprietors the basic of business management and by improving their techniques of production. With respect to apprenticeship training it is recommended that both personnel of the National Manpower Board and Ministries of Industry design the retraining program. Moreover proprietors especially in auto-repairs and furniturecraft who offer apprentice- ship training should be encouraged through grants or Adewale Folarin Mabawonku changes in fiscal policies. Trade center trainees should be encouraged into self-employment so that secondary effects could be generated by their retraining of appren- tices. Further research is recommended to provide a national perspective to the problem of apprentice training. THE ROLE OF APPRENTICESHIP TRAINING IN THE SMALL-SCALE INDUSTRIAL SUB-SECTOR OF WESTERN NIGERIA BY , ‘C" ‘ (' V Adewale Mabawonku A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1977- To My Children So That They Can Start The Struggle From A Higher Platform ii ACKNOWLEDGMENTS Special Thanks to: Dr. Derek Byerlee Prof. Carl Eicher Prof. Carl Liedholm Prof. Lester Mandershield Prof. Allan Schmid African-American Institute Department of Agricultural Economics, University of Ibadan My wife, Iyabo My Dad My fellow African students on M.S.U. campus iii For: Academic Guidance and Tutorship Financial Support Everything The spirit to keep on when the going is rough The sunshine when the weather is bleak TABLE OF CONTENTS Page LIST OF TABLES O O O O O O O O O O O O 0 Chapter I. THE PROBLEM SETTING. . . . . . . . . 1 Objectives of the Study. . . . . . . 4 Outline of the Study. . . . . . . . 5 II. DEVELOPMENT OF A FRAMEWORK FOR ANALYZING THE APPRENTICE SYSTEM . . . . . . . 6 Evaluation of Training Programs . . . . 8 Objectives Of Apprentice Training . . . 13 Valuation of Training Inputs . . . . . l4 Valuation of Training Effects. . . . . 19 Which Investment Criteria . . . . . . 22 I I I O METHODOLOGY 0 O O O O O O O O O O 2 4 The Area of Study. . . . . . . . . 24 Industry Selection . . . . . . . . 25 Sampling Procedure . . . . . . . . 27 Data Collection . . . . . . . . . 29 Data Collection in Trade Schools. . . . 31 Data Collection in Large-Scale Industries . . . . . . . . . 32 Shortcoming of and the Problems Associated with the Study . . . . . 33 IV. NIGERIAN SMALL-SCALE INDUSTRIES AND APPRENTICESHIP SYSTEM . . . . . . . 36 Firm and Its Environment . . . . . . 36 The Socio-Economic Characteristics of Proprietors . . . . . . . . . . 38 Socio-economic Characteristics of the Apprentices . . . . . . . . . 44 The Apprenticeship System . . . . . . 49 The Organization of Training . . . . . 56 iv Chapter Page Apprentice Fees. . . . . . . . 57 Training Programs in Trade Centers . . . 61 V. INCOMES AND FACTOR PRODUCTIVITY IN SMALL-SCALE INDUSTRIES . . . . . . . 67 Production Activities. . . . . . . . 71 Specification of Production Relations . . 72 Specification of Outputs and Inputs . . . 74 Returns to Proprietors . . . . . . . 80 VI. COSTS AND RETURNS TO APPRENTICESHIP TRAINING O C O O O O O O O O O O 87 Effect of Education and Experience on Earnings of PrOprietors in Small- Scale Industries. . . . . . . . . 87 Prospects of and Earnings in Wage Employment for Apprentices . . . . . 93 Components of Costs and Benefits . . . . 100 Cost of Training in Trade Centers. . . . 104 Estimates of Benefits. . . . . . . . 110 Adjustment of Earnings for Socio— Economic Variables . . . . . . 112 Estimates of Internal Rates of Return . . 114 Rates in Wage Employment. . . . . . . 115 Returns in Self-Employment . . . . . . 118 Sensitivity Analysis . . . . . . . . 120 VII. SUMMARY AND POLICY RECOMMENDATIONS . . . . 123 Implications for Industries. . . . . . 131 Implications for Apprentice Training. . . 132 Implications for Trade Centers. . . . . 134 Implications for Further Research. . . . 135 NOTES 0 O O O O O O O O O O O O O O O 138 BIBLIOGRMHY. O I O O O O O O O O O O O 140 Table 3.1 4.11 4.12 LIST OF TABLES Sampling Frame and Size-—Number of Establishments. . . . . . . . . Percentage Distribution of Proprietors by Age 0 O C O O O O O O O O 0 Percentage Distribution of PrOprietors by Years of Education . . . . . . . Percentage Distribution of Proprietors by Years of Experience . . . . . . . Percentage Distribution of Apprentices by Age 0 O O O C C O O O O O 0 Percentage Distribution of Apprentices by Years of Education . . . . . . . Distribution of Apprentices According to Father's Occupation . . . . . . . Job Experience of Apprentices Prior to Training. . . . . . . . . . . Distribution of Apprentices According to Length of Unemployment Prior to Training. . . . . . . . . . . Distribution of Apprentices According to Who Made the Decision for Them to Be Apprentice . . . . . . . . . . Distribution of Apprentices by Type of Contract Signed with Proprietors. . . Relationship Between Masters and Apprentices. . . . . . . . . . Average Apprenticeship Fees and Allowances (in Naira, N) by Industry and Location. vi Page 30 39 41 43 45 46 48 50 51 53 54 58 60 Table Page 4.13 Trade Centers in Western Nigeria, Course and Students Population as of 30th September, 1974. . . . . . . . . . 62 5.1 Average Capital Stock (in Naira) by Industry and Location. . . . . . . . . . . 69 5.2 Estimated Parameters of the Cobb-Douglas Production Function, Average and Marginal PrOduCts I C O O O O O O O O O O 77 5.3 Output-Capital and Output-Labor Ratios in Western Nigeria Small Industries . . . . 79 5.4 Distribution of PrOprietors by Earnings and Industry . . . . . . . . . . . . 82 5.5 Average Personal Monthly Income Distribution (Gross) by Occupations--All States (Nigeria) 1971/72 . . . . . . . . . 84 5.6 Mean Monthly Earnings (N) of Proprietors by Industry and Locality. . . . . . . . 85 5.7 Comparison of Returns to PrOprietors in Sierra Leone and Western Nigeria . . . . 86 6.1 Relationship Between Earnings, Education and Experience . . . . . . . . . . 92 6.2A Distribution of Intermediate Skilled Workers by Sources of Training--Auto- mobile Firms. . . . . . . . . . . 96 6.28 Distribution of Intermediate Skilled Workers by Sources of Training-- Furniture Firms. . . . . . . . . . 96 6.3 Relationship Between Training, Education, Experinece and Earnings of Trainees-- Estimated Coefficients . . . . . . . 99 6.4 VMP and Opportunity Cost of Inputs Used in Apprentice Training . . . . . . . . 103 6.5A Cost Components--Tailoring. . . . . . . 105 6.5B Cost Components--Auto Repairs. . . . . . 106 6.5C Cost Components--Furniturecraft . . . . . 107 vii Table Page 6.6 Cost Components--Trade Centers. . . . . . 109 6.7 Distribution of Returns to PrOprietors by Years of Experience. . . . . . . . . 111 6.8 Rates of Return in Wage Employment . . . . 115 6.9 Internal Rates of Return (IRR) (Self- Employment) by Training Type, Industry and Location . . . . . . . . . . . 116 6.10 Internal Rates of Return (IRR) by Industry (Social Costs Adjusted Downwards by 30 Percent) . . . . . . . . . . . . 121 viii CHAPTER I THE PROBLEM SETTING A common feature of the economy of many developing countries is what has been termed the urban subsistence sector (Lewis, A., 1964) in which workers who cannot find wage employment in the large-scale industrial sector and in government departments find employment either in small industries or in transportation. Examinations of this sector in recent years (Berry, R. A., 1972; Creslick, P. C., 1971; Kilby, P., 1962) have shown that there exists an array of economic activities that provide more employment per unit of capital and add considerably to national income than the capital intensive large-scale industrial sector. These findings have led, in recent years, both to changes in development policies and research efforts in many deve10ping countries. Of particular importance to both policy makers and researchers are what are now called small-scale industries. To many students of development, these industries are seen as the cure for urban as well as rural unemployment, mal- distribution of income and poverty. But while it is possible that strategies of promdting the growth of small industries can reduce unemployment and a redistribution of income, access to the sector is to a greater extent depen- dent on skills, both technical and entrepreneurial that can- not be acquired readily. Indeed available evidence (Callaway, 1971; Chuta and Liedholm, 1975) indicates that a greater proportion of entrepreneurs in the small-scale industries in Africa acquire their skills by being appren- ticed to entrepreneurs in the sector. How effective a training the apprenticeship system in African small-scale industries is, is not clear. Avail- able knowledge about the system is at best scanty, being limited to descriptive analysis (See Callaway, 1968). As a form of training, apprentice training uses inputs and produces outputs. The outputs produced are the skills and the entrepreneurial ability which are used to generate earnings by the proprietors in small-scale industries. To the extent that growth in a country's national income is determined by the mix of skills embodied in its labor force and the technology in use (Dennison, 1962), the training of small-scale industrial entrepreneurs is of crucial impor- tance to policy makers. In Nigeria, formal training of entrepreneurs for small industries have been approached by the establishment of Trade Schools, Handicraft Centers and through other formal educational institutions. In the same vein, the Third Deve10pment Plan contains prOposals for establishing Industrial Development Centers and Extension Services for the prOprietors in small-scale industries. These strate- gies, effective as they may be, completely neglect research findings about the commonplace nature of the apprenticeship system. Moreover, evidence is not available to indicate how successful training programs such as trade centers have been in producing entrepreneurs for small-scale industries. Nor is it clear whether the deficiencies or problems of proprietors in the sector, which extension programs are designed to alleviate, are rooted in the type of training they received through the apprenticeship system. Among the many characteristics of the apprentice- ship system include on-the-job training in both skills and entrepreneurship and as an avenue of employment for primary school leavers. It can be viewed as a labor intensive program that requires little or no overhead costs. In addition to skill acquisition, addition to natural income is generated by use of the apprentice labor to produce output while at the same time reducing unemployment. Unlike government training programs which are often located in urban areas, apprentice training can be undertaken in rural as well as urban areas. Based on these facts this study focuses on the apprenticeship system in Nigerian small-scale industries. As an important avenue by which small-scale entrepreneurs are trained, the apprenticeship system can be viewed as an investment activity, the effect of which will determine the performance in the small industries. Moreover, as an institution that has a longer history in Nigeria than formal education, apprentice training can be used as a benchmark against which the investment of the society's resources in Trade Schools or Handicraft centers can be compared. Objectives of the Study In broad terms this study will focus on analyzing the structure, conduct and performance of the apprentice- ship system in Nigeria. Bearing in mind that our concern is the relationship between training and performance we will focus on such specifics as: l. a description of the apprenticeship system as an institution for skill acquisition 2. analysis of the economics of apprentice training, analysis of the incomes and factor productivity in small-scale industries and hence the contribution of apprentices to the prOprietor's earnings a. estimation and analysis of costs and returns to apprenticeship training in both self and wage employment b. comparative evaluation of training and returns from apprenticeship system and trade school training 3. Recommendations of policies regarding training of small-scale industry entrepreneurs. Outline of the Study A framework for examining apprentice training pro- grams is presented in Chapter II. In Chapter III, we present the approaches used in data collection, including the selection of area of study, choice of industries, sampling of establishments and procedure used to collect the data. In Chapter IV, the institutional set up of the apprenticeship system is presented together with the economic and social environment in which small-scale entrepreneurs carry out both production and training. In this chapter, we shall also examine training patterns in government established alternative institutions to appren- ticeship, that is, Trade Schools. In Chapter V, we shall examine the production process in small industries and estimate the marginal productivities of proprietors, apprentices and journeymen. Such estimates will provide us with some of the parameters needed in Chapter VI where we attempt to estimate the costs and returns to apprenticeship training. The last chapter, Chapter VII, summarizes our findings in the previous chapters, and contains an analysis of policies aimed at promoting small industries in Nigeria. This is followed by recommendations based on the findings from the study. CHAPTER II DEVELOPMENT OF A FRAMEWORK FOR ANALYZING THE APPRENTICE SYSTEM In this chapter an outline of the theoretical framework for evaluating the apprentice system in small- scale industries in Nigeria. Training of apprentices, being a sub-set of activities in small-scale industries, cannot be evaluated in isolation without a clear picture of the interrelations between the activities of small- scale industries, the environments in which those activi- ties are carried out and the effect on the performance of the sub-sector. The apprentice system prescribes a process by which young people, bound by indenture or by legal agree- ment, serve another person for a certain time period with a view to learning an art or trade. The apprentice system is not by itself a separate closed institution but part of the productive activities of the small-scale industries and as such subject to all the economic, social and political forces of its environment. Small-scale industries can be regarded in this respect as multiproduct firms producing both material output or services and skills, which skill again is used to produce material output. In other words, there exists a causal relationship between the structure, the conduct of apprentice training and the performance of small-scale entrepreneurs. Moreover, as an economic system, small-scale industries attract necessary resources, organize and combine them to produce desired goods and services, and distribute returns among the participants involved. But in performing this function, it interacts and influences the other parts of the larger society. Many attempts to evaluate the economic activities of small industries have ignored such interplay with other sectors and thus neglected the effects on the environment, social values and the political system. The structure of a system is the configuration of decision units making up the system; conduct are the decision rules and strategies, while performance defines the flow of consequences, results or outputs from a parti- cular activity, proqram or organization (Scherer, 1973). Structure and performance are related, but not in a linear fashion. Rather, certain structural variables can be used as a proxy measure of performance.~ Viewed from a social system perspective the struc- ture of small-scale industries include the economic characteristics of the firms such as size, amount of capital employed, the number of workers in a firm, their socio-economic characteristics and labor market experi- ences. Conduct includes the organization of production and training, the contracts and obligations of the parti- cipants. Performance dimensions are the characteristics resulting from the behavior of the firms making up the industry which are selected as being important criteria of the firm's performance and when capable of being measured are appraised by performance measures. Identi- fiable relevant performance dimensions include employment, incomes and productivity in small industries and the outcome of training activities undertaken. Evaluation of Training Programs Attempts to evaluate training programs are of recent origin with relatively little work on training programs in Africa, and many past studies have been approached from a macro viewpoint (Thias and Carnoy, 1972). Analytically, training programs evaluation takes many forms among the most important of which are: (a) descrip- tive evaluation (CIRF, 1966); (b) comparison of one form of training with another based on human capital theory in which benefit-cost, or the internal rate of returns are estimated (Somers and wood, 1969). Benefit-cost and internal rate of return analyses involve the application of investment theory to training programs. The purpose of the cost—benefit approach is generally to provide information about the yields to investment in education. Analysis of training also takes the form of comparing one form of training with another on a standardized ideal. Usually the training output, that is the skills acquired, are evaluated in monetary units. When the output is compared to the costs of the training, it becomes a cost-benefit analysis (Bowles, 1972). By ranking training types on the basis of their cost-benefit ratio, it can be argued that a training form that yields more per dollar invested should be selected. Cost-benefit analysis of training programs, however, has a number of short-comings. Firstly, such analyses are usually a posteriori in nature and are hence not effective guides for making decisions on whether a particular training pro- gram should be initiated or not. Secondly, cost-benefit analysis assumes that wages are a valid measure of produc- tivity and often overlooks the effect of unemployment. Thirdly, cost-benefit analysis usually treats the differ- ence between the earnings of those groups which receive the training and those groups which do not as the benefits due to the training program. But differences in earnings may be due to varying socio-economic factors and the sector in which a worker is employed. It is, however, possible to correct market wages for effect of unemploy- ment and also to adjust the income status of workers for ‘socio-economic and occupational variables (Thias, H., and Carnoy, M., 1972). Cost-effectiveness analysis considers non-monetary benefits in a specific form in the comparison of training costs with benefits. Unlike cost-benefit analysis, it 10 avoids imputing values to non-quantifiable and non- marketable by-products of training programs such as good citizenry, effect on crime rate, and occupational mobility. However while it is possible through the use of cost- effectiveness method of analysis to describe these side- effects, it is often difficult to judge the desirability of one form of training over the other on this basis. The human capital approach to the study of a training program is another derivation of cost-benefit analysis and attempts to rank training prOgrams in terms of their rates of return both to the individual who under- goes the training and the society at large. Essentially it seeks answers to the question, "How much higher or lower is the rate of return to investment in training when compared with a given rate of discount or the rate of interest in the capital market?" As a form of cost-benefit analysis, it too suffers from the short-comings of cost-benefit calculations, but adjustment of income streams for unemployment, and other variables that affect income can be made before the rate is calculated. An assumption of the rate of return calculation states that employers and trainees often act rationally and that there exists alternative activities which are forgone in undergoing training. When information about alternative opportunities are imperfect or when the choice of the mode of training is limited to those available in the immediate locality, the assumption of 11 rationality breaks down. It is therefore essential to examine both the institutional setup and the decision making process in any training program before valid state- ments can be made about a calculated rate of return. The objectives behind any type of training, formal and informal, are generally multidimensional. An indivi— dual may acquire training as a consumption activity and/or an investment good. Apprentice training can be designated as an investment activity when such training is undertaken with the objective of increasing a worker's future income through improvement in skills, and a firm's revenue through improvement in worker productivity. Following Becker (Becker, 6., 1971), the training offered by a firm can be either general or specific. In general training, the skills acquired can be marketed outside of the firm reSponsible for the training, while specific training deals with skills that are particular to a given firm. In other words, general training increases a worker's produc- tivity in firms providing the training as well as in other firms, while specific training has no effect on the pro- ductivity of a worker once he moves to another firm. Rational firms in competitive labor markets would provide general training either in response to government policies or regulations which stipulate that firms must devote a particular percentage of their profits to training the nationals of the country; or as part of their production activities. Where general training is part of 12 a firm's production activity, it can be expected that a firm will undertake training when the returns from training in the form of fees equals the costs of training. On the other hand, a worker is likely to undergo general training if such a training would yield returns that are greater than alternative opportunities, and facilitate mobility between areas, for example rural and urban areas, and among firms within a given locality. In specific training, the costs of training would be borne by the firm undertaking the training since the skills acquired cannot be used outside the firm. Firms, to recruit trainees, would have to offer workers the going wage rate which would be independent of any amount of training a worker might previously have received. However, firms would collect the benefits from such a training in the form of higher profits as a result of increased worker productivity. Returns to the worker, besides increased wage rates resulting from increased productivity, are likely to include stability of employment but a lack of occupational mobility. Apprenticeship training, as organized in Nigeria, involves elements of both general and specific training in that both employers and trainees share the costs of training and while the skill is specific, it can be used elsewhere. In the apprenticeship system under considera- tion, wages are not directly paid to workers. Rather, employers' costs often include provision of board, food 13 and allowances to apprentices besides the costs of materials and time used up during the training program. Apprentices, on the other hand, often pay training or apprentice fees and may provide for their own upkeep, and engage in the firm's production activities. Objectives of Apprentice Training Application of investment theory begins with a clear specification of the objectives of the program which are to be maximized, more so where the method of appraisal are determined by these objectives of the program. Where economic efficiency is the primary objective, appraisal can be carried out with the single objective in mind. On the other hand, where multiple objectives are identified, other than that of obtaining the greatest output per dollar spent, appraisal requires in most cases that a common denominator be found and/or weights, either determined politically or arrived through use of market prices be attached to these objectives for the purposes of appraisal. What are the objectives of apprenticeship training? From the individual trainee's viewpoint, acquisition of skill, by raising the productivity of the worker, leads to increase in personal income. Viewed from its social impact, acquisition of skill, by raising the productivity of the labor force, leads to increase in national income. Thus, in essence, the main objective of a training program that aims at equipping the labor force with skills can be 14 taken to be maximization of both personal and national income. Valuation of Training Inputs In order to measure the inputs used in training it is often necessary to reduce them to a common denominator. Usually this is done by use of market or shadow prices. Two main prices have effect on the valuation of a trained program. These are the prices of capital and labor. According to neoclassical theory, prices should reflect the Opportunity costs of resources, that is, the alterna- tive retursn foregone in using resources in one activity rather than another. But market prices do not always reflect the Opportunity cost of resources. For example, the price of capital is affected by an array of factors such as government monetary and fiscal policies (Baumol, 1971), subsidized credit and capital rationing, and differ- ences in the time preference among individuals and between individuals in a country and the government. In a similar way, wages are affected by monOpsony power of unions, government wage policies and artificial scarcity created by political and ethnic barriers to mobility. These imperfections have led to arguments as to the relative merit of using market prices in project appraisal. Among the approaches used to overcome the imperfections in the case of interest rates include: (a) the social time preference rate (Marglin, 1963), 15 (b) the Opportunity cost of capital, and a combination of both. The social time preference rate involves the use of a social discount rate that reflects the society's choice between present and future consumption. The opportunity cost Of capital deals primarily with the question of static efficiency in the use of capital. From a practical view- point, its essential element is that the rate to be used in evaluating government programs must be the same as the average rate of return to capital in the private sector. In Western Nigeria the main access to funds by the prOpri- etors of small industries are money lenders and relatives (Callaway, 1971), a money market in which interest rates average about 20 percent. Using this rate to evaluate training in the private sector while using another rate for public sector programs will only lead to distortions. Valuation of labor under such imperfections as mentioned earlier involves use of shadow prices. Shadow prices are what obtains after a number of market prices have been corrected for externalities (Mishan, 1976). In principle, it is similar to the Opportunity cost concept especially with respect to labor. For example, the shadow wage for an unemployed worker whose foregone earnings is zero is Often equated to zero in valuing labor in public projects. But arguments as to which shadow wage rate to use are legion. While some analysts argue that the cost to society of an unemployed worker should be valued at zero, others argue that the cost to society of an 16 unemployed worker should be valued in terms of the average productivity of workers in the rural area. Still some argue that costs should reflect the worker's valuation Of his time (Mishan, 1976). With respect to apprenticeship training, the training produced can be viewed as a by-product of the production activities of the prOprietors in the small-scale industries. Training is Offered in such a way that the skills gained by the trainees during the training program are used to generate income to the prOprietors. For a proprietor who can engage his time in producing saleable commodities, to be induced to devote his time to training, he would have to be paid, at least, the earnings foregone which equals his value Of marginal product. Assume, for example, that the prOprietor spends his time (L1) in producing commodity (Q), and L2 to train apprentices [Z]. The 2, that is, the training produced, is also employed in the production Of Q since prOprietors often make use Of their apprentices in production activi— ties. The relationship between L, z, and Q can be specified as (for simplicity, we assume no capital is involved): (1) Q fm pocnn.m.ze 30 hh.mo we mm «.¢.z mafiuoHHme moo>w< em.ao om msH was meauoaflaa oo.mh om ov ma muflmoomiousd no.mm ma mm mm uwouomnsuflcuom {ma.aa as mm m anaemxoaam omo ma.e mm Hmv ems mcfluoaflme mv.mm mm mv mm muwmoomlousd mm.om mm mm . mm uwmnomuouflcusm oo.oa as om ma spasmxomam meonsamnH AOL Ame Amy Omamamm Omuo>ou ofimum mfimum muumsccH OOHDMOOA ommucmoumm maofimm poawoeoo wuouoonfia OMH mDGOESmHHnmumm mo HOQEOZIIONHm can OEOHm mcfiHmEmm H.m manna 31 of apprentices to production and the incomes of the pro- prietors, followed immediately after the first phase ended. Stock forms were used to collect information about each establishment's capital stock, inventories and inputs. This was followed with flow forms to provide data on each firm's output, sales, hours worked by proprietor, journey- men and apprentices, and value of inputs purchased.' To collect this information each firm was visited by enumera- tors twice in the month for six months to collect data on production activities covering the entire two-week period preceding the visit. Liedholm and Chuta (1976) showed that small indus- tries are characteriZed by irregular seasonal patterns of' production. They showed that peak production activities in carpentry and tailoring occur between the months July and November. Auto-repairs it seems have no seasonality of production. Based on these findings data collection Of the input-output relations Of the establishments were collected from June through November. Data Collection in Trade Schools In order to facilitate a comparative analysis of the apprenticeship system, two trade schools in the area in which the small industry survey was carried out were included in the study. The data collected deal with training programs, institutional arrangements and training costs. The trade schools included were Oyo Trade Center, 32 and Ijebu-Odo Trade Center. Directives from the Oyo and Ogun State governments were Obtained after several visits and communication with ministry officials. From both Ministries of Education reSponsible for the centers and the principal Of each school, information about the number of students, salaries and number of personnel (both teaching and administration), other items Of expenditure and the trading program was collected. Information about buildings and equipment were Obtained from the Technical Education Division Of the Ministry Of Education. Also from each center addresses of fromer students were Obtained. Using these addresses, 500 questionnaires were mailed out to provide information on employment and incomes after training. To obtain information on student costs, forms were distributed to a random 20 percent of the students in the schools. Questions asked included amount of fees paid annually, expenditures on uniform, books and personal upkeep. Data Collection in Large-Scale Industries In order to obtain information as to whether 'apprenticeship trained workers are hired in other sectors of the economy besides small-scale industries, as well as their earnings in these sectors twelve large industries comprising of seven auto-repairs and five furniture firms located in Ibadan were included in the survey. (NO large industries are located in the survey areas.) Discussion 33 with the personnel managers provided us with their personal evaluation Of apprenticeship training as well as the list of apprenticeship and trade school trained workers in their firms. Permissions were Obtained to interview these workers. With the use of questionnaires, 307 workers were interviewed to provide information on earnings, work experience, previous employment and earnings and where trained. The data on earnings thus Obtained were used in our estimate of the rates of returns to apprenticeship training in wage employment. Shortcoming Of and the Problems Associated With'the Study It seems apprOpriate at this juncture to spell out some of the problems associated with the study and its shortcomings, especially as they affect our findings. To begin with, the study was conceived in the U.S. without an adequate knowledge Of the cost of conducting such a survey in Nigeria. This led to a gross underesti- mation of the cost and hence the scope Of the study. Past survey costs in Nigeria and other countries in Africa of which we are aware of provided at best a crude guidance that became irrelevant when confronted with the infla- tionary impact of the oil boom in Nigeria. For example, while it was estimated that wages and claims of field workers could not exceed $165.00 a month, it was dis- covered that as a result of the Udoji Wage Award in 34 Nigeria, overnight allowances alone totaled $184.00 per field worker per month, not including transport claims. Data collection and interview began with 273 establishments (see Table 3.1) in the first phase Of the study. But during the third month of the study when infor- mation on each firm's input and output began to be collected, a number of proprietors refused to cooperate, especially in Ijebu-Ode area and were dropped from the survey. However, the information gathered during the first phase Of the study are utilized in the study. Even for those enterprises surveyed for the entire duration of the study, incentives in one form or the other hand to be provided. By interviewing the apprentices separately and when their masters were not there, it was discovered that there was no consensus between the number Of hours per day that the apprentice says he spends in learning his trade and the number of hours his master says he trains him. Hence in compiling information about the apprenticeship system, reliance was placed more on the recorded observa- tion of the researcher and the field staff and also on the information provided by the apprentices--which information, observations showed to be more reliable than that provided by the master. In other words, we found that question- naires were not enough, one has to Observe many establish- ments for a number of weeks in order to get an accurate picture of the mode and pattern of training as well as the firm's activities. 35 Problems were also encountered in dealing with individual establishments. Among the Blacksmiths, especi- ally, it is the usual pattern that ten or more Blacksmiths are located under one roof, sharing or jointly using equip- ment. To compute a capital stock value for each proprietor in this case involves a knowledge of the history and organization of the establishment.1 Small as the sample size is, it is the belief Of the writer that the information provided in this study reflects an accurate assessment of the small industries in Western Nigeria, and that the limitations of the study are only in projecting from such a small sample to a larger population. Moreover, since this study was conducted in towns Of relatively small size, a different picture from what Obtains in such big towns as Ibadan, Onitsha and Lagos is to be expected. CHAPTER IV NIGERIAN SMALL-SCALE INDUSTRIES AND APPRENTICESHIP SYSTEM The environments--politica1, economic, and social-- in which a group of persons Operate and in which activities are carried out, considerably affect the performance that results. Small business Operators, like any other group, influence and are influenced by these environments. In this chapter we will examine the impact of these environ- ments on apprentice training, especially the recruitment of apprentices. This will be followed by a descriptive analysis of the socio-economic characteristics of prOprie- tors and apprentices in an attempt to identify the principal participants in the system. Third, we will examine how the system Operates, how training is organized, and the costs of training. Firm and Its Environment The environment in which the small-scale industry proprietors Operate can be divided into categories, the forces external to the firm and those internal to it. External environment includes the economic and social impacts which outside forces exert on an establishment. 36 37 For many proprietors the economic horizon in which buying and selling take place is limited to the neighborhood where they have their firms. Knowledge Of this environ- ment and social interactions with neighbors, customers and other proprietors are key determinants of success (Sonaike, 1975). In the absence of an organized labor market for apprentices, recruitment of apprentices are undertaken through informal discussions between the pro- prietor and the neighbors, customers or relatives. Good- will On the part of the prOprietor not only helps in attracting patrons and hence business success, but parents or sponsors who have at one time or the other interacted with the prOprietor base their judgment on the ability of theprOprietor to train their children on such considera- tions. The common practice by which apprentices are recruited is by a parent approaching the proprietor or the proprietor discussing his needs with neighbors, patrons or relatives. Within the firm, once recruited an apprentice is not regarded as a worker with definite hours Of work. Rather, he is seen as part of the establishment and is expected to perform activities that are even unrelated to his training schedule. Callaway (1968), for example, documented complaints by apprentices that they were often made to serve as house servants to their masters' wives. It was observed during the course of this study that for many prOprietors there is no separation between business 38 and family or social interests. Rather, the two are seen to be closely related. Proprietors may take time Off from their duties to attend to family problems; he can send one of his apprentices to perform duties or services in the prOprietor's household--duties that are unrelated to the training program. The apprentice training is viewed in most cases as not just training a child to acquire some skills but part of a larger process of bringing up a child. One important facet of this is that the responsi- bility of bringing up the child is transferred from the parents or sponsors to the master. This cannot be other- wise because apprentices generally stay at their master's worksh0p for up to twelve hours a day, irrespective Of the business condition. The Socio-economic Characteristics of Proprietors In this section attempts are made to answer the question: Who are the prOprietors of small-scale indus- tries in Western Nigeria? We shall examine the age, educational level and the experience of the prOprietors. Evaluation of how these socio-economic characteristics affect performance will occur later (Chapter V) in the study. As shown in Table 4.1, the proprietors in the four industry categories range in age from nearly 20 to over 60. Proprietors in blacksmithing seem to be older than prOprietors in other industries, an Observation 39 pump ho>usm "OOHOOm one some "m muouowumoum mo Honfisa "a mo m.oe ov.wa mm.vH ov.m~ mH.om ~m.m ha.m nufiamxomHm NOH H.om III mm.m em.h Hm.v~ mm.mm mm.m mcfiuoaflma mm m.vm III mw.m mv.mm oo.ov nm.nm mm.H ummuoououwcusm mcowumooq mm m.vm III oo.m m>.om mm.vm na.>v mm.a mnemommIousd Has 44 a.om III a~.~ om.HH a~.am mm.¢m mm.¢ mcfluoaama mammaa av o.He mv.~m mo.¢ mv.o~ mh.mm vm.~a mo.v nuflmeomam om o.mm III III hm.m oo.o~ no.wo mm.w mcfluoaflms ma h.Hm III III -.Nm m~.mm oo.om mm.m ummnoonsuwcnsm om m.mm III mm.m mm.mH no.mm em.mm III mnflmammIousa omo ea H.ov III oo.om mm.mv va.n III III cuHmeomam mm m.om III an.oa mm.m oo.m~ oo.om ah.oa mcflHoHHma hm m.hm III oa.m mo.>m mw.m¢ -.wa III ammuoonouflcusm mm n.mm III oa.m mv.om vs.am ma.¢m mm.¢ muamammIousa meOIsnmflH c m omA omIam omIHv ovIHm OMIom omv muumsch cowumooq Annemav mmd om< Sn mHODOAHooum mo sowusnwuumflo mmmusmouom H.v manna 40 consistent with our earlier discussion on income elastici- ties and the dynamics of each industry. In blacksmithing, however, the relationship is not as symmetrical. Average age of prOprietors in tailoring, furniturecraft and auto- repairs is 35 years; in blacksmithing, the average is 45 years. The age distribution also varies not only among trades, but among locations as well. Analysis of variance procedures, when applied to data, revealed significant variation only among the industries; locational variations were not statistically significant. The Observed varia- tion among the industries is a result of the newness of some of the industries in the Nigerian economy. Black- smithing and tailoring for example have a long history in the economy, while auto-repairs and furniturecraft are relatively of recent origin. The distribution of the proprietors by level of education (Table 4.2) shows an astonishing variation across all industries and locations, the variation (between industries and locations) being statistically significant at the 1 percent level. A substantial majority of pro- prietors in blacksmithing have no formal education as compared with other industries. In both Oyo and Ijebu- Ode, proprietors in tailoring and furniturecraft appear to be more educated than those in auto-repairs. However, _proprietors in Ijebu-Ode and Aiyepe seem to have more education than their counterparts in Oyo; this is visible in all the industries including blacksmithing. The 41 Table 4.2 Percentage Distribution of Proprietors by Years of Education Years of Formal Education Location Industry None 1-6 7_9 § n (%) (%) (%) Ijebu-Ode Auto-Repairs 21.74 78.26 --- 4.6 23 Furniturecraft 27.03 70.27 2.70 4.8 37 Tailoring 14.29 71.43 14.28 5.3 28 Blacksmith 57.14 42.86 --- 3.3 14 Oyo Auto-Repairs 53.33 46.67 --- 2.8 30 Furniturecraft 44.44 50.00 5.56 3.3 18 Tailoring 10.00 70.00 20.00 5.5 30 Blacksmith 87.76 12.24 --- 0.6 49 Aiyepe Tailoring 9.09 79.55 10.82 5.4 44 All Auto—Repairs 11.11 88.89 --- 3.7 54 Locations Furniturecraft 32.73 63.64 3.63 4.1 55 Tailoring 10.78 74.51 14.71 5.4 102 Blacksmith 80.95 19.05 --- 1.9 63 n: number of prOprietors i: mean years of education Source: survey data 42 variations in levels of education among the industries can be explained in terms of the demand which the skills in each industry place on education. Tailoring and furniture- craft require ability to make and read measurements or calibrations in a precise manner; auto-repairs while requiring less of such skills as ability to make measure- ment, however, demand more education than blacksmithing because of the differences in the level of technology in the two industries. Years of experience, that is, the number of years since a proprietor completed his apprenticeship to estab- lish his own business, as presented in Table 4.3, follow the same pattern as the age distribution of the proprie- tors. More than 20 percent of the blacksmiths in Oyo have been in business for over 36 years. Variation in years' experience between locations was not statistically signi- ficant; while interindustry variation was found to be significant at the 1 percent level. Proprietors in all industries but blacksmithing appear to have long established in Ijebu-Ode when compared to Oyo. Ijebu-Ode being a commercial town will attract more craftsmen than a predominantly farming community as Oyo. In all the locations tailors appear to have the least experience, with about 40 percent of the proprietors having been less than five years on the job. A downward pressure in the years of experience in tailoring may, however, have 43 open >O>H9m “condom mocmflummxo mo whom» some _m muouoflumoum mo Hogans “a mo q.o~ «a.» «a.» am.ma mm.o~ mm.mm vm.s spasmxomam mos m.m III ea.o em.~ ma.ma ma.~e o~.oe mcauoaama mm m.oa III mm.a mv.m om.mH mm.em oo.o~ ummuomusuaausm maoaumooq mm m.oa III mm.H sa.m mm.mH m~.mv mo.~m muaaammIousa sea 44 III III III sm.¢ em.ma mH.m4 4m.mm mcauoaama mamaaa as a.mH o~.oa o~.oa mm.sa m~.vH ~m.oe o~.oH anaemxomam om m.a III III III mm.ma ae.mq oo.oq meauoaaaa ma ¢.m III III III HH.HH oo.om mm.mm ummuomusuaauam om ~.m III III III am.ea oo.om mm.mm muaaammIousa oso 4H .o.H~ III III m¢.H~ me.aa 4H.a III auaemxomam mm m.m III pm.m am.m m~.va Ha.mm om.~e mcfluoaame am a.mH III oh.~ HH.m ~m.ma m¢.mm Hm.oa ummuomuauflauss mm m.~H III mm.4 oa.m mm.aa ma.mm me.om muamammIousa meoIaamflH Ame Ame Awe Ame Ame Lav a m mSA vamm mmIom mmImH mHIm mv muumsecH coauaooq moccaummxm mo mummw mocowummxm no name» an mHODOHHmoum mo coflusnflupmfio mmmpcoouom m.v OHQOB 44 occurred due to the influx of youths into the industry within the last ten years. Essentially, our data indicate that older proprie- tors have less education but greater on-the-job experience. Industries such as tailoring and furniturecraft attract more educated workers. Third, prOprietors in Ijebu-Ode appear to be more educated than those in Oyo. Industry variation in age, education and experience was statisti- cally significant. Locational variation was only significant with respect to education. Socio-economic Characteristics of the Apprentices In this section we will discuss some of the salient characteristics of the apprentices in tailoring, auto-repairs and furniture industries. Family members rather than apprentices are employed in blacksmithing with the skills of the trade being passed from one genera- tion to another. In the other industries, as we will show later in this section, apprentices are recruited among the larger population than family workers. Table 4.4 and 4.5 show a common trend among the apprentices with over 70 percent still in their teens and about 80 percent having completed at least primary school education, with an average age of 14 years and average level of education of 5 years. Analysis of variance indicates a statistically significant variation in age among the locations, with apprentices in Oyo being older 45 Table 4.4 Percentage Distribution of Apprentices by Age Age (years) Location Industry _ <20 20-30 31-40 x n Ijebu-Ode Auto-Repairs 86.49 13.51 --- 14.9 37 Furniturecraft 83.33 16.67 --- 16.8 18 Tailoring 80.00 20.00 --- 16.4 10 Oyo Auto-Repairs 35.29 64.71 --- 19.5 17 Furniturecraft 57.14 35.72 7.14 16.3 14 Tailoring 72.22 27.78 --- 17.5 18 Aiyepe Tailoring 81.25 15.63 3.12 18.4 32 A11 Auto-Repairs 70.37 29.63 --- 17.2 54 Locations Furniturecraft 71.88 25.00 3.12 16.6 32 Tailoring 78.33 20.00 1.67 17.4 60 n: number of apprentices x: mean age source: survey data 46 Table 4.5 Percentage Distribution of Apprentices by Years of Education Years of Formal Education Location Industry None 1-6 7_9 E n (%) (%) (%) Ijebu-Ode Auto-Repairs 2.70 91.90 5.40 5.7 37 Furniturecraft 11.11 88.89 --- 5.3 18 Tailoring 10.00 90.00 --- 5.1 10 Auto-Repairs 29.41 70.59 --- 4.2 17 Furniturecraft 42.86 57.14 --- 3.0 14 Tailoring --- 100.00 --- 6.0 18 Aiyepe Tailoring 6.25 84.38 9.37 5.2 32 A11 Auto-Repairs 11.11 85.19 3.70 5.0 54 Locations Furniturecraft 25.00 75.00 --- 4.2 32 Tailoring 8.13 90.00 5.00 5.4 60 n: number of apprentices E3 mean years of education source: survey data 47 than those in Ijebu-Ode and Aiyepe. Compared with their masters (the proprietors), apprentices appear to be better educated in all the industries. How much inter-generational mobility occurs in occupations or industries in Western Nigeria? In a survey of craftsmen in Ibadan, Koll (1969) observed that less than 10 percent of his respondents were engaged in similar trades as their parents. As presented in Table 4.6, over 90 percent of apprentices in Oyo have parents whose main occupation is farming. In Ijebu-Ode, however, only about 50 percent of the apprentices have parents in agriculture. Trading or commerce constitutes also a substantial activity among parents of apprentices in Ijebu-Ode as compared with Oyo and Aiyepe apprentices. A number of explanations can be offered for these observations. First, agriculture is the dominant employer of labor in the country, hence, the predominant number of parents from that sector. Second, nearly all of the occupations of the parents of the apprentices are low income occupations. Such low income parents are Often unable to pay the high cost of education for their children and hence send them to seek their fortune in the apprenticeship system, where costs of training are lower. In many countries in Africa, young men enter the labor force at a relatively young age. In Nigeria no law exists against child labor and many youth, on completing primary education, move into the cities in search of wage 48 came >O>H5m "OOHsOm oo.ooa ova oo.ooa mm oo.ooa mm oo.ooa av ow.v n mm.mH m wo.m m III II A.ouo .uo>fluo .HOHOQMHV Honuo mh.ma mm NH.m a Hm.~m Hm vo.~ H Honeys vn.m v III II ma.o v III II uoxuo3 HMOAHOHU om.m ma om.~H v m~.m m ~H.O m cmmwuum Hm.am mm ma.mm mm m~.me mm 4m.am me maaeuam w 02 w oz w oz w 02 coaumooooo m.uonumm mcowumooq Had omomwd OOOIDQOMH omo cowummsooo m.uospmm ou mcflonoood mmowocoumm< mo cowusbwuumflo o.e manna 49 employment. But knowledge about the scarcity of jobs, for primary school leavers seems to have changed the orienta- tion of parents as well as their children. As shown in Tables 4.7 and 4.8, nearly 90 percent of the apprentices had no previous job experiences and about 60 percent never sought for wage employment but moved from formal education into apprentice training. Of those who sought employment prior to training, about 29 percent remained unemployed for one to twelve months. The relative unattractiveness of farming as an occupation to youths is shown in Table 4.7 in which only 3 percent of the apprentices were ever engaged in farming. The Apprenticeship System Following a description of the socio-economic characteristics of both proprietors and apprentices, this section will examine the institution of apprenticeship training, including recruitment of apprentices, relation- ship between masters (proprietors) and apprentices, organization and costs of training. Entry into apprenticeship has no age limit nor restrictions based on educational attainment. A youth just out of the primary school may be apprenticed directly; an older farmer from a land scarce community may migrate to an urban area to learn a trade. So can a married unemployed woman. In general, however, parents apprentice their children at a relatively young age, often 50 must >o>usm "condom mm.mm ova H0.00H mm Ho.ooa mo mm.mm av mv.m m mm.m m mm.v m III II Amuox3mm Odomv mumcuo mo.m m mH.m a vm.a a vo.m H AOOflucmuoomv somfiuud ~4.m m III II vm.a H mH.m v manages hm.H N III II III II mo.¢ N ucm>nmm owummfioa mn.¢m Hma mm.om mm Hm.mm ow H>.mm Nv Ocoz w 02 w OZ w 02 w 02 cocoauooxm non mooHumoon HH< mmo>w< OOOIOQOnH mcflcflmua ou Hoflum mooaucmhmmfl mo oocmflnmmxm non h.e OHQMB 51 dump >O>H5m "condom oo.OOH mvH oo.oOH mm Ho.OOH mm oo.OOH me III II III II III II III II msucoz mMA HH.v m hm.m m mm.¢ m III II mnucoz mmImm om.m mH om.mH e Hm.NH m vo.~ H mnucoz wmImH hn.mm mv om.hm NH mo.mm mH Hm.om mH msucoz NHIH mm.mm mm mm.ov mH oo.oo mm mm.sm mm ocoz w oz w oz w oz m oz unoeaonEomm mo mango: mOOHumooq HH4 ommmH< OOOIOQOnH Oho mchHmua o» HoHum ucoEMOHoEmcD mo camcoq o» mcHOHooom OOOHucmummm mo OOHuanHuumHO m.v OHQMB 52 between twelve to fourteen years of age. Given the rela- tively young age of the apprentices, the decision to seek training will have to be made either by their parents or relatives who can give or undertake to finance the cost of training. Even when apprentices are old enough to make decisions that will affect their life, essentially the same parameters would be considered as when parents make the decisions. Important among these parameters is the rate of return to training in different industries. While no data are available to parents on rates of return to alternative skills, their perception of the labor market often depends on the demand and supply of skilled labor in their locality, and the relative success of peOple who have learned similar skills in the area. Looking at Table 4.9 it is clear that for the majority of the appren- tices decisions regarding where and to whom to be appren- ticed were made by the parents. Those who made the decision by themselves (mostly tailors in Aiyepe) were mainly married women. Having decided on the trade and master, the next step involves some form of agreement on the length of training period, the fees to be paid and whether a youth will leave his parents to live with his master. Sometimes a written document specifying the obligations Of both parties is prepared but in many cases the agreements are unwritten. As shown in Table 4.10, written agreements are more common in Oyo than Ijebu-Ode. In Aiyepe and 53 pump >O>upm "OOHDOm oo.OOH mvH Ho.OOH Nm co.OOH mm co.OOH me om.m NH mN.m N mo.m N hm.mH m H.0uo .mccmnmsn .mpcmHumv muonuo III II III II III II III II coHumHom ea.~ s mH.m H em.H H mo.v m umpmHm\umauoum vv.mm mm mm.vm HH mm.nm hm mH.mm mN mucoumm Nm.HN Nm mN.mm mH mm.h m nm.mH m MHom m oz w oz w oz w oz mm mom: conHooa mOOHumooq HH< moode OOOIsnOmH oao OOHucmHmmd on on Edna How conHooa on» one: 0:3 on mchHooofl mmoHusmHmmd mo OOHuanuumHa a.v OHQOB 54 Table 4.10 Distribution of Apprentices by Type of Contract Signed with Proprietors . Written Oral None n Locat1on Industry (%) (%) (%) Ijebu-Ode Auto-Repairs 18.92 32.43 48.65 38 Furniturecraft 27.78 72.22 --- 18 Tailoring 60.00 40.00 --- 10 Oyo Auto-Repairs 58.62 35.29 5.89 17 Furniturecraft 50.00 50.00 --- l4 Tailoring 44.44 33.33 22.23 18 Aiyepe Tailoring 68.18 29.55 2.27 44 All Auto-Repairs 31.48 33.33 35.19 54 Locations Furniturecraft 37.50 62.50 --- 32 Tailoring 61.11 31.94 6.94 72 n: number of apprentices source: survey data 55 Ijebu-Ode more apprentice tailors had written agreements than apprentices in other industries. Examination of a number of written agreements revealed the following essen- tial elements: (1) the proprietor or master agrees to train the apprentice for a specified length of time, usually between three to five years; and (2) the sponsor agrees to pay the apprenticeship fees either in part during the training or at the end of the training period and to perform the "freedom ceremony." Signatories to the agree- ment usually include the master, the parents or sponsors and a witness. Agreements are prepared not in a court of law or in front of a lawyer, as is normally the case in many EurOpean countries, and disputes over the fulfillment of obligations are settled among the parties concerned without recourse to legal or judicial authorities. When asked what they would do should an apprentice violate the content of the agreement, nearly all the prOprietors said they would report the apprentice to his sponsor and after repeated violations he would be dis- missed. However, should an apprentice or his sponsor refuse to pay apprentice fees, the master can deny performing the freedom ceremony, in which case no certifi- cate or evidence of training would be given to the apprentice. 56 The Organization of Training The organization of training in the Nigerian apprenticeship system can be described as informal. The entire training is carried on on the job. A hierarchy of authority is established in each firm. The master dele- gates authority to the oldest apprentice or journeyman who them delegates part of the authority to the next apprentice and then down the line. The length of training depends on the industry and the age of the apprentice. Young apprentices often spend more years in training than older ones. The average length of training in Oyo, Ijebu- Ode and Aiyepe ranges from three years in tailoring to four years in auto-repairs and furniturecraft. Except among tailors who keep records of measure- ments, no related training in the form of an organized lesson on the theory of the skill is provided. How much learning takes place depends on the number and variety of orders the firm receives in a given time. PrOprietors with large orders engage their apprentices in the produc- tion activities and in order to speed up production will teach them faster than the prOprietors with relatively less orders. Apart from learning the skills of the trade apprentices are often sent on errands, to buy raw materials and equipment and are thus able to learn about purchasing and marketing in the process. 57 Apprentice Fees One of the important components of the costs of apprentice training is the amount each proprietor charges per apprentice. Variations in apprentice fees between establishments in the same industry and between industries have been documented in Nigeria and Sierra Leone (Callaway, 1968; Liedholm and Chuta, 1976). In a survey of small industries in Nigeria the I.L.O. team (I.L.O., 1971) reported that apprentice fees were a source of capital and income for the prOprietors in the area of the survey. In this section we will examine the relationships between apprentice fees and allowances received by apprentices. Do prOprietors pay in the form of allowances more than they receive as training fees? As more and more proprie- tors demand more apprentices, the supply of trainee- workers to an establishment could only be increased by offering higher inducements in the form Of allowances relative to apprentice fees. On the other hand, the demand for training in a firm would increase the lower the apprentice fees, other things being equal. Before discussing the implication of our model, we shall examine one aspect of apprenticeship system that more often than not governs the amount of fee paid. In Table 4.11 is presented the distribution of apprentices according to the relationships between them and their masters. A youth may be apprenticed to his parents, a relative or his brother. In this case, he may not have 58 dump >O>H5m ”condom oo.OOH wwH oo.OOH Nm oo.OOH mw oo.OOH me mm.o H HH.m H III II III II A.ouo .m3MH Ich muonuo mm.w OH mm.m m em.H H vN.NH m H.0uo .chsoov mm>HumHmm III II III II III II III II mucoumm Ho.mH mH mm.mH m Hm.NH m VN.NH O umumHm\Honuoum m¢.mh mHH mm.Hn MN mH.mm om Nm.mb hm poumHom uoz w .cmumm< w .coumm¢ w .smumm< w .cmummd mo .02 mo .02 mo .oz mo .02 mOOHDMOOH HHd moo>H¢ OOOIOnoflH omo mOOHucoumod pom muoummz ammzumm mHamcoHumHmm HH.¢ «Hams 59 to pay apprentice fees for which others are charged. In all the locations, a large prOportion of the apprentices (about 80 percent) are not related to their masters. Rather, they are the children of neighbors, patrons or friends of the prOprietors. Blood relations predominate in Oyo as compared with Ijebu-Ode and Aiyepe. Not with- standing this, however, over 95 percent of the apprentices alleged that they have to pay apprentice fees in the Oyo area. In Ijebu-Ode and Aiyepe only about 65 percent reported having to pay apprentice fees.2 The computed apprentice fees/allowance ratios presented in Table 4.12 indicate the degree to which prOprietors derive income by offering training and the relationship between fees constituting allowances in each location. In Ijebu-Ode apprentice fees constituted on the average 20 percent of the allowances received during the training period. Furniturecraft and auto-repairs pay a higher allowance in order to induce apprentices in Ijebu-Ode. In Oyo area the average apprentice fees/ allowance ratio was 1.42, with allowances lower in auto- repairs than in other industries. While it is true that proprietors, by engaging the apprentices in on-going production activities would derive an increase in earnings (which would increase progressively as the apprentice's skill improves), our estimates of transfer payments (allowances less apprentice fees) indicate a positive net gain for the apprentices rather than the prOprietors. 60 dump >o>usm u OOH—90m mm.Hw n oo.Hz . . . .o o . . .o . m .0 . . . mOHuumsocm 0v 0 00 cm m0 MN 0m m mN 5N OH 0N 0H mm H H Nv H 00 mN >0 mm HHm How coo: mm.0 00.mm mm.mN III III III 0H.0 mm.vm mN.nH mm.N mo.MH Hv.mm muHmmmmIousd 0N.0 00.mm mm.mH III III III 0H.0 00.Nm 00.0 mH.H 0N.0H 00.HN uwmnoousuHchsm 00.0 MN.Nv 0m.mN 0m.0 0m.mN hN.¢H vm.0 00.m0 0m.NN v0.H 0v.mm mm.mm OOHHOHHOB :3 :3 :5 :5 m\< 1x0 mmmm m\< sz mama m\a Axe mama mxm Axe meme 0 . o o o o o I O 0Q“ onHm doc :32 one 30H 2 mod 3 Ha < #3305 m a m a m a m d mOOHuoooq HH< omomHa OOOISDOnH Oho OOHHMOOH cam mhumoccH wn A! .muHmz :HV moocmsoHHm can mmom mHanOHucoummd ommum>m NH.v OHQMB 61 Training Programs in Trade Centers Before concluding this survey of apprenticeship training in the small-scale industries we shall examine training in government trade schools, an alternative institution established and run by the governments of Western Nigeria. Unlike apprenticeship training which has a long history in Western Nigeria, formal training of craftsmen came into being in the late fifties with the establishment of Ijebu-Ode Trade Center in 1959. The main objective of the Trade Centers was to provide "facilities for trade training for male and female students, with the right aptitude for technical education which will qualify them for direct employment in industry at craftsman's level, or enable them to establish small-scale businesses of their own in due course" (Ministry of Education, 1972). Between 1959 and 1963, five Trade Centers, including a women's center, were established in different locations in Western Nigeria, each center offering specialized courses in many trades (see Table 4.13). Between 1962 and 1971 enrollment in the centers has increased from 854 to 1,853. Admission into the centers requires prospective students to be between fifteen and eighteen years of age and have a secondary Modern School certificate, that is, th have spent nine years in formal educational institutions. A common entrance examination 62 omm mOH Hme va mm moH mvH om mNH mum Ho AHN Hmuoa mm HNH o4 HH mm as a ow mm AH mm qumH>mHmaoneam mm aOH mm m om mm m an no mH mu mchoHuHeaoo “He can OOHumuomHHmom mm we on a mH mm a mH om em mm 0Heanomz newssuumem a amH mm 4 am we H me mm m cm umHaHaomz umuuHm muucmo momma onmonmo Hem II Hem mmH II mMH omH II omH mmH II mmH Hmuoe 5H II II II II II II 5H II 5H mcHuHu3cmHm\Houmom cmouom II mm Hm II Hm em II am mm II mm meanesHm II om mH II mH Hm II Hm om II om sumcHon\»uuamaumo II as om m om m4 II me am II 4m meHumuoomaxmaHuaHmm II omH mm II am we II me am II an eye: onum II vHH mm II mm ow II ow mm II mm ummuomuspHausm muucou momma OOOIDQUflM .a.o m z a a z a a z a a z mmusoo Hmuoa Hem» cum Ham» OON MOON uwH ean .umnemuomm room no we OOHumHsmom mucmcsum can OmHDOO .MHHOOHZ cumumos OH mumucmu mucus NH.v OHQMB 63 MON II MON OHH II OHH OM II OM OM II om kuoa II we ON II ON HN II HN MN II MN mOHcmnoszoudd II Hm OM II OM NN II NN MN II MN mcmHOHuuomHmIou94 II omH HO II HO mw II mw ww II ww OOHumHHmumcH HOOHHuoon onuswo OOOHB 030 OMM O MMM NwH II NwH OOH 0 HOH II II II Hmuoe II MN II II II MN II MN II II II Hmumz Doonm M OH II II II HN M OH II II II mcHuchm mmnmm II Nw mH II mH mm II mm II II II meHeHHsm seem mHoHam> II Ow ON II ON NN II II II II II II mw MN II MN NN II ww II II II OHcmcoozIous¢ N OM OH II OH NN N II II II II II OM OH II OH NN II Nw II II II mchHm3 Hmumcow H OM ON II ON ON H II II II II II Nw ON II ON NN II Hw II II II OHcmnooz .OHHOO muucmo moose Oho .B.0 .m 2 .H. .m E .H. .m 2 .H. .m 2 omusoo Hmuoa new» OHM . moo» OON new» umH emsaHuaoo MH.w oHnme 64 COHHOOOOM mo anuchHz OOHHOOHZ cumumo3 «mousom OHmEom u m OHmz u z OOOH Hmuoa cacao wON wON II II II II HOH HOH II MOH MOH II Hmuoa wm II II II II II II II wm wm II maHumumo Hmumamo Ow II II II II II II II mw mw II ucoammmcmz omoom HOH II II II II HOH HOH II II II II usmfiommcmz Omsom om II II II II II II II ON ON II quumumo HmHHumsoaH muomoond um OHDOOOINOHOHOHB coEoz .B.U m S B h 2 B m 2 B m 2 omusoo Hmuoa new» OHM new» OON new» umH emscHucoo MH.w «Hams 65 is offered, the outcome of which determines those to be admitted. Training lasts for three years and a fee of N72 is paid annually. Students are also required to buy books and work clothes, but the fees paid cover accomodation, feeding and instruction. Viewed from the costs of running the institutions the amount of money paid by the students represents an insignificant portion. Thus, like all forms of formal educational institutions in the country, the Trade Centers are heavily subsidized. Training is Organized along three lines, theory and language, practicals and "vacation employment" to provide real world experience for trainees. The theory curriculum includes General and Related Science, English Language, General and Practical Mathematics, Technical Drawing and General Factor, Regulations. These subjects as well as craft practice are taught at different levels in each of the three years on the following basis: first year--15 hours class work and 20 hours of practicals per week; second year--10 hours of class work and 25 hours of practicals per week; and third year--10 hours of class work and 25 hours of practicals per week, excluding about three months of vacation. Vacation employment are pro- vided by attaching trainees who have completed two years to industries or government establishments. At the end of the training the centers conduct internal examinations for the award of the Federal Craft 66 Certificates. Students are also encouraged to take exter- nal examinations such as the City and Guilds of London Institute examinations for Ordinary Craft Certificates. Compared with the traditional apprenticeship system a greater part of the cost of training is borne by the state even though trainees still pay about five times the average cost of training under apprenticeship system.3 A higher level of education is required and the training is patterned along the British apprenticeship system. In summary, the indegerous apprenticeship system in the small industries operates within a social environ- ment that influences both the recruitment of apprentices, the type of training provided and the distribution of the costs of training. Proprietors in the small industries, rather than charging the full cost of training often subsidize their apprentices. This is especially the case in areas where scarcity of labor prevails. On the other hand, the government provides subsidy for trade school trainees. CHAPTER V INCOMES AND FACTOR PRODUCTIVITY IN SMALL-SCALE INDUSTRIES In the previous chapter we examined the environ- ment in which small-scale entrepreneurs operate in Western Nigeria. This chapter examines their production activi- ties and incomes. Analysis of productivity and returns to the factors employed will enable us in the next chapters to calculate Opportunity costs of such inputs as the prOprietor's time and capital equipment as well as returns which are vital to the rates of return to be estimated later. We begin this chapter by defining the industries of concern, the employment of labor and capital, the production process and the productivities of the inputs employed. The industries with which we are concerned are tailoring, blacksmithing, furniturecraft and auto-repairs, located in Oyo, Ijebu-Ode and Aiyepe. The input-output data used in this study were collected for a period of six months. Sales, expenditures and the flow of services of capital and labor were for the entire six months. 67 68 The components of capital employed by each firm include equipment, building and working capital. As shown in Table 5.1, the capital per firm varies from one industry to another and by location. Equipment is essentially hand tools, either bought or made by the firm itself (Koll, 1969). The amount of working capital employed by each firm constitutes the highest component of the capital stock except in tailoring and auto-repairs. For example, working capital per firm in furniturecraft constitutes nearly 75 percent of the capital stock. In blacksmithing the proportion of working capital is about 70 percent. On the other hand, in tailoring and auto-repairs equipment rather than working capital constitutes the greatest percentage, about 68 percent in tailoring and 58 percent in auto-repairs. The observed variations in capital stock compon- ents across the industries can be explained in terms of the technology in each industry, the type of clientele that are served and the product mix of each industry. Among the tailors the technology is such that the ratio of machine to labor is technologically determined--at least one machine to one worker. Unlike in Sierra Leone (Liedholm and Chuta, 1976), rental of sewing machines is not a common practice in Western Nigeria. In auto-repairs, the level of technology embodied in the machines is relatively higher than what obtains in furniturecraft or blacksmithing. For example, while in furniturecraft and 69 Table 5.1 Average Capital Stock (in Naira) by Industry and Location Ijebu- All Oyo Ode Aiyepe Locations Furniturecraft Equipment 24.07 69.40 -- 46.74 Building 31.25 53.41 -- 42.33 Working Capital 178.13 325.87 -- 265.50 Total Capital Input 233.45 475.68 -- 354.57 Auto-Repairs Equipment 51.29 148.55 -- 99.92 Building 45.71 85.54 -- 65.63 Working Capital 8.70 5.30 -- 7.00 Total Capital Input 105.70 239.39 -- 172.55 Tailoring Equipment 137.28 206.78 201.49 181.85 Building 55.07 47.64 35.07 45.93 Working Capital 10.98 26.15 23.36 20.16 Total Capital Input 203.33 280.57 259.92 247.94 Blacksmith Equipment 32.72 37.49 -- 35.11 Building 66.47 52.14 -- 59.31 Working Capital 211.98 88.55 -- 200.00 Total Capital Input 311.17 178.18 -- 294.42 _.¥< source: survey data 70 blacksmithing simple hand tools predominate, auto-repair firms have in addition to hand tools hydraulic equipment and pumps. A high prOportion of working capital among furniture makers and blacksmiths is due to the fact that prOprietors in these industries have to buy the raw materials they use such as planks, formica, polish, nails and scrap iron. Tailors and auto-repair workers on the other hand provide services on materials or equipment brought by their clientele and hence require little or no inventory of either raw materials or finished products. The categories of workers common in small indus- tries in Nigeria include the prOprietor and his family, apprentices and journeymen. Journeymen are master- craftsmen who are hired by the prOprietors to assist them in their production activities. Usually they are young graduates of the apprenticeship system, who too impover- ished to start their own business, often look for wage employment. Unlike employment in large—scale industries wage employment in small industries is irregular and the pay is poor. While large industries are compelled to comply with wage regulations it was observed that wages in small industries were not only lower than minimum wage rate stipulated by the government but arrangements or contracts between employee and employer often vary a lot. One week an employer may agree to pay the journeymen on a daily basis, another week the pay could depend on when the prOprietor himself got paid for the job done. Among 71 the furniture workers in Oyo area the average daily wages of journeymen was 31.25. In Ijebu-Ode area the arrange- ments were not on the basis of a stipulated or agreed wage rate but employers and employees agree on the share of the returns that goes to the journeymen. One auto-repairs prOprietor was paying his journeymen 25 percent of the daily earnings. Apprentices, in general, receive no wages but rather are paid allowances which are Often irregular and vary with the experience and diligences of the appren- tice. Among the proprietors observed in this study, the use of family labor is not a common phenomenon. The only exception was among the blacksmiths in Oyo in which wives and children of proprietors all work together. In other industries and locations virtually all the prOprietors either use a hired worker, an apprentice or work alone. Asked why many nover employed their family members, many proprietOrs answered that they were not making enough money to employ family labor. Production Activities Production activities are in general geared to individual customer requests. For example, a customer may request a furniture maker to make him a chair, a table or a stool. A tailor may be requested to sew a shirt or a pant. Blacksmiths and some furniture makers often produce five to ten items for sale. These products are displayed 72 in front of their workshOps or in the case of blacksmiths taken to the market by their wives. Many firms in all the industries are multi-product firms. Blacksmiths produce hoes, traps and guns. Tailors produce shirts and trousers. Furniture makers who make household furniture often are engaged in such jobs as house-roofing and coffin making, although some degree of specialization is more common in Ijebu-Ode than in Oyo. Specification of Production Relations In this section attempts are made to estimate the returns of the proprietors in the small industries as well as the value of marginal product of apprentices. These, as well as other parameters to be estimated, will provide the data to be used in the internal rates of return in Chapter VI. Measures of the performance of small-scale indus- tries are at best ambiguous. Available studies vary widely in their choice of measurement and the performance they set out to measure. Our goal in this section is to pro- vide appropriate measures that can be used in further analysis, especially analysis dealing with income streams. In his study on small industries in Nigeria, Sonaike (1975) used factor and canonical analysis to construct an index of performance and concluded that significant measures of performance should include net profit, reinvested profit, gross input and gross output. Liedholm and Chuta (1976) 73 used returns to the prOprietors and economic profit. Returns to proprietors they obtained by deducting from each firm's value addedthe Opportunity costs of hired labor, apprentices and the Opportunity cost of capital services. Economic profit rate is obtained by subtracting from returns to the proprietor of each firm the Opportunity cost of the proprietor's labor. Returns to proprietors, estimated in this way, seem to provide a more valid approach to the computation of an earnings profile than the use of sale figures or net profit, especially among self-employed workers where other forms of reliable esti- mates cannot be obtained. A production function is a mathematical expression which relates inputs of productive factors to outputs of desired commodities. Among its many characteristics include: (a) the function deals solely with technical relationships and is given independently of factor and product prices; (b) the inputs are flows of productive services such that each input relates to a specific type of physical factor; and (c) the function can be defined to allow for constant, increasing or decreasing returns to scale. In its general formulation the function is specified as: Q = 0 (X1,X2...xn), where Q is the output and the X's are the inputs. One of the many forms of production functions commonly used in empirical studies and which is used in this study is the Cobb-Douglas production function, 74 specified for two factors as Q = Ax:,X28, 0<¢<1, 0< I .3 0002 8:80.060 0:8 .80 0 00 0:80:53 82. 1' “000.: III TII III III 00.8 30.8 00 00.0H 00.0 3.0 000.0 III III III II 00.0 00.0 00.0 00.0 00.0 .000 520320 “000.8 I TIII II. 00.8 30.8 100.8 00 94 00.0 00.0 000.0 I 00.0 00.0 00.0 00.0 00.0 0H0 00.0 00.0 .0H0 050280. 300.8 00.0 0043 30.8 100.8 3.8 30.8 S 00.0H 00.0 00.0 000.0 :0 00.0 00.0 00.0 00.0 00.H 00.0 3.0 00.0 1.00 8880602 50.8 00.0 00.0 20.8 20.8 30.8 90.8 S r0000 00.H 00.0 000.7 00.0 00.0 00; 00.0 00.0 00.0 i; 00.0 0040 :00 88083th 96383 :0 200.8 I III II 00.8 100.8 3.8 00 00.0 00.0 00.0 0004 III 00.0 00.0 00.0 00.0 00.0 00.0 004 5.0 9.0 05.0208. 803 000.: III III II III 00.8 00.8 00 00.00 00.0 00.0 000.0 III II III III :0 0.0 00.0 :0 00.0 .000 580.0650 000.8 I III III 20.8 8.8 100.8 00 0;: 00.0 00.0 084 III 00.0 00.0 00.0 00.0 00.0 00.0 2.0 00.0 .000 M5803. 1000.8 00.0 00.0 30.8 100.8 30.8 30.8 0H 00.00 00.0 000 02.0 00.0 00.0 004 00.0 00.0 00.0 00.0 00.0 00.00 .80 0.00.899»; 1000.: III II III 00.8 10.0.8 10.0.8 00 00.00 0.0 H00 030 III 00.0 00.0 0H0 00.0 00.0 00.0. 000 00.0 .000 88000602 I 98 $0.18 -.|.I II III 00.8 100.8 3.8 00 00.0 00.0 00.0 000.: III 00.0 00.0 00.0 00.0 00.0 0.00 0H0I 00.0 .00.? 98230. 800.8 004 00.01“ 30.8 100.8 008 2.0.8 . 0H 00.0 00.0 2.0 000.0 00.0 00.0 00.0 00.0 00.0 SA 000 00.0 00.0 .000 2880.32 £00.: I III III III “00.8 . $0.8 1 III 0H0 00.0 000 III III II III 00.0 00.0 0H0 00.0 00.0 .000 580.030 000.: .II III III 00.8 0T8 8H8 00 00.00H 00.H 00.0 0H0.0I II 0H0 00.0 00.0 00.0 00.0 004 0H0 00.0H .80 82095358 . 80.38? c IaI H: 00 05088 0: 00 00 0: .2 00 .2 H0 00: 1: a 03805 Wm 00% 0 150.2500 0839803 2802 081308 0338 08 830.80 0 $8: 50 use: .89: 3385 Huang: 0:0 00.890 .6335 838800 0.0380080 05 .8 8320.80 630580 N.m 0H3 78 The estimates in the table (Table 5.2) also include evidence of widespread decreasing returns to scale in all the industries and locations except furniturecraft in which the sum of the coefficients was greater than unity; moreover, the output elasticity with respect to capital services in all industries except tailoring was not signi- ficantly greater than zero. Output elasticities of the prOprietOrs, apprentices and journeymen were all signifi- cant but the greatest contribution to output was by the prOprietors themselves. The sum of output elasticities with respect to labor relative to the elasticity with respect to capital shown in the last but one column in the table measures the relative contribution of labor and capital in the small-scale industries. This ratio was highest in furniturecraft and lowest in tailoring. The output-capital and output-labor ratios shown in Table 5.3 indicate that output per value of capital services was highest in the furniture industry, followed by auto-repairs; the lowest output-capital ratio was in tailoring and blacksmithing. This trend is evident in all the three locations of the study. The output per hours worked by the proprietars was highest in auto-repairs in all locations and lowest in blacksmithing. Thus, to generate a naira of output, blacksmiths and tailors work longer hours than furniture makers or mechanics. Further examination reveals that the output/capital stock ratios follow the same pattern as the output/capital service 79 mama >w>ysm "wouDOm 00.0 v0.0 III III III 00.0 0m.m III III no.vhm no.vv ov.o~H mzu08mxoodm 00.0 09.0 om.o III mm.o 00.0 00.0 III av.am~ v0.00v nm.n¢ mh.0va wcwuonmk Nv.00 mm.~ ma.o mo.vv mm.o 00.0 0m.m 00.¢ mm.mov hN.0~N 00.00 hm.mam muflammmI0u3¢ mcodumuoq no.0 om.m 00.0 No.0 no.0 mv.o on.H~ oo.mvNH mm.vom ov.mmoH mo.v~ om.-m uwmuowusuwcusm 00¢ mo.m 00.0 00.0 III mm.o vm.0 0v.0 III No.0Nm cm.mmm m~.mm om.~0H moanedame wmo>04 00.0 mm.a «0.0 III III «0.0 bh.m III III ov.mnoH nm.vv 0m.mma mnuwfimxumHm 00.00 mo.o mv.o III v~.0 mm.o 00.N III vv.oo~ mm.~m~ mm.oo 0m.v~a wcwuones mo.~m mo.~ mq.o III mo.o mm.a ov.0 III vm.mm~ m~.v- m0.o~ Hm.wma wuwwmmmlous< 00.0 v0.00 H~.o mv.o mm.a 00.0 Hm.vM vH.HmmH V0.~mv 00.9000 00.00 mouhmm uumuowuauwcusm 000 v0.0 mm.a 00.0 III III 00.0 mm.~ III III wo.vnm oo.mv 00.000 mnuwsmxuuam om.h v0.0 m~.o III mv.~ 00.0 ov.v III vH.0mH mo.avm mm.mv 00.mm0 weanedwme 00.0w 00.0 m~.o 00.m~ mm.o om.o mv.v o~.n~ mw.mmo m~.~00 mh.0m Hm.~v~ muwmmmmtous< vo.~ 0m.m o~.o III v0.0 mv.o v0.00 III mm.mmn Om.vmoH mm.m~ om.o~v uumuuausuwcuam ovoIsnwflu 03003 0030 0.6.6? 02 02 o? 0} a: 8 .8 .8 2. 0.3905 5333 vcaxuox ku0QMU cwExocuson moaucwummt noumfiuQOum .2 :0. A: say 0 m wanna owvvd Umpp< @0004 Amusomv usmcH nonmq coo: Hmuwmmu ou~m> .m:~m> wa~m> can: :00: zap" III" mmfluumsvcH HHmEm mwuwvaz :uoumwz :0 modumm uondqnusmuso can HuuwmmUIusmuao 0.m manna 80 ratios. It was highest in furniturecraft and lowest in tailoring. The output/capital stock ratio, while facili- tating international comparisons is, however, silent on which type of capital is more crucial to which industry. The estimation of the output/working capital ratio thus enables us to determine which form of capital is more pro- ductive in which industry. As shown in Table 5.3, indus- tries with low output/capital stock ratios have the highest output/working capital ratio. This confirms our observa- tion that tailors and auto-repair workers use little amounts of working capital relative to equipment and buildings. On the other hand, furniture and blacksmithing industries are characterized by a greater need for working capital relative to equipment and buildings. Returns to Proprietors One of the questions which this study is set to answer is, what is the real income of prOprietors in small- scale industries relative to incomes in other sections of the economy; do incomes vary by industry and location? Small-scale industrial entrepreneurs, because of the long periods of apprenticeship, scarcity of capital and the risks and uncertainties associated with venturing alone into the business world are scarce resources and hence will command a higher rate of returns than peasant agriculture or unskilled labor. 81 To estimate returns to a proprietor's labor input estimates of the opportunity costs of other inputs employed by the firm were obtained by multiplying each input's (other than proprietor's labor) value of marginal product by the total number of hours worked and the opportunity cost of capital services, obtained from Table 5.3 (Lied- holm and Chuta, 1976). Specifically, from the fitted production function, the average returns to proprietor's A A labor is: Q.. = Q - Vi 13k and jk ’ BjkLaijk ' BjkLijk where Qijk is the returns to proprietor in firm i, ijk R Vijk the rental value of capital serVices, Laijk appren- industry j and location k; Qijk is the firm's value added, tices' hours of labor input, Likj journeymen's hours of labor input and B'sjk the estimated MVP from the regres- sion equation. A summary of the computed returns shown in Table 5.4 indicates that 42 percent of the proprietors in the tailoring industry earned less than N100.00* for the six month period of the survey, while another 45 percent earned between 3100 to R200. Among the proprietors in the furniture industry less than 25 percent earned less than 3300, while about 28 percent earned between N300 and H400, and up to 38 percent earned above 3500. In the auto-repairs industry over 80 percent of the proprietors earned less than 3300. Indeed, no prOprietor in the *HLOO = $1.56 82 .00500 Hmnfim>oz on 0:500 nausea me How kusmfioo mmGHGHmm .mm.0w n 00.0! H mm.m~0 mo.mm0 mm.mmv mh.m~0 mmcflaumm cam: III III III III om.hm m0 III III com III III III III cm.~0 m m~.0 0 oomIaoq III III v¢.s m om.h~ 00 mm.0 0 oosI0om III III mm.m~ m0 oo.m0 m m~.oa m oomIHom mm.mm Ho m~.~o mm om.s m hm.vv mm oomIooa 00.m m «0.0 m III III 0m.~s mm ooH w oz w oz w oz m . oz A20 £u0meUM0m mnwmmmMIous¢ ummnomusu0cusm mc0H000ma mmGHGHmm 0 muumsosH paw mms0cumm an muoum0umoum mo cowusn0uum00 e.m m0nma 83 auto-repairs earned anything above N400. Among the black- smiths returns are very low, with nearly 97 percent of the proprietors earning between N100 and N200. Across indus- tries returns to proprietors were highest in the furniture industry, followed by auto-repairs and lowest in black- smithing. In order to facilitate comparison with earnings in other sections of the economy, Table 5.5 was adapted from a study on income distribution by the Central Bank of Nigeria (Ndioma and Eronini, 1975). Table 5.6 contains estimated monthly returns to proprietors in the four industries and locations. Com- pared with the distribution of personal incomes in Table 5.54 prOprietors in the furniture industry in both Oyo and Ijebu-Ode, on the average, ranked high in the distribution of income in the country. Returns to prOpri- etors in tailoring and blacksmithing compare favorably with the average income of farmers but lower than the averge income of unskilled workers. Returns to prOprietors in auto-repairs in both Oyo and Ijebu-Ode, while higher than the incomes of farmers, nevertheless, are lower than earnings of craftsmen and production workers. For the three location returns to prOprietOrs are lower in auto- repairs, tailoring and blacksmithing than the average income of craftsmen and production workers in the country as a whole. 84 Table 5.5 Average Personal Monthly Income Distribution (Gross) by Occupations-~All States (Nigeria) 1971/72 Monthly Average Occupation Income (N) A. Professional and Technical Workers 218.75 B. Administrative, Executive and Managerial Workers 431.67 C. Clerical Workers 37.50 D. Sales Workers 33.33 E. Farmers, Fishermen, Hunters, Loggers, and Related Workers 21.67 F. Miners, Quarrymen and Related Workers 61.83 G. Transportation and Communication 37.50 H. Craftsmen and Production Workers 44.17 I. Trade Apprentices 17.50 J. General Unskilled Workers (including foremen and laborers) 26.67 K. Services, Sports and Recreation Workers 33.33 L. Others not specified 51.67 ALL OCCUPATIONS 65.42 source: A. M. Ndiomu and F. N. Eronini: Distribution in Nigeria (1969/70-1971/72). Economic and Financial Review, Vol. 13, No. 2 Dec., 1975. Central Bank of Nigeria, Lagos, Nigeria. Personal Income 85 Table 5.6 Mean Monthly Earnings (N) of Proprietors by Industry and Locality Industry Oyo Ijebu-Ode Aiyepe Auto-Repairs 28.97 34.24 --- Tailoring 20.15 22.10 20.62 Furniturecraft 74.64 76.58 --— Blacksmith 20.59 22.72 --- source: computed from survey data In a recent study of small-scale industries in Sierra Leone, Liedholm and Chuta (1976) derived estimates of returns to prOprietors using the same analytical approach. The figures in Table 5.7 which are derived from the Sierra Leone study showed that returns to prOprietors in small-scale industries were higher in Sierra Leone in both carpentry (furniture) and blacksmithery. For the two industries returns to the prOprietors in Western Nigeria constituted 66 and 52 percent respectively of earnings in Sierra Leone. Returns in tailoring, however, appear to be the same in the two areas. It seems pertinent at this juncture to summarize the salient points of our findings. First, the output elasticity with respect to capital services was not signi- ficantly different from zero; second, output elasticities of the prOprietor's labor ranged from 0.15 in tailoring to 1.14 in furniturecraft, Third, the marginal 86 Table 5.7 Comparison of Returns to Proprietors in Sierra Leone and Western Nigeria Returns to PrOprietors (in U.S. $) Industry 1 Sierra Leone Western Nigeria Carpentry (Furniturecraft) 2266.00 1497.08 Blacksmith 819.50 428.77 Auto Repairs N.A. 625.78 1Derived from Liedholm and Chuta, The Economics of Rural and Urban Small-Scale Industries in Sierra Leone, AREP No. 14, 1976, p. 94. N.A.: not available productivity of the proprietors was highest in furniture industry and lowest in tailoring and blacksmithing. In auto-repairs and furniturecraft the MP of proprietors was 10 and 15 times greater than the MP of the apprentices. Fourth, returns to prOprietors were lowest in black- smithing and highest in furniturecraft. Fifth, compared with average incomes in other sectors, the proprietors' earnings compared favorably with earnings in agriculture but except among furniture industry workers the earnings are lower than the national average. CHAPTER VI COSTS AND RETURNS TO APPRENTICESHIP TRAINING Having concluded the previous chapter with an examination of the returns (earnings) to proprietors in the small-scale industries, we begin this chapter by an analysis of the effects of socio-economic variables on earnings of the proprietors. To do this a number of hypo- theses are advanced and tested. This will be followed by analysis of earnings of apprentices in wage employment. Third, we will present a model by which some components of the cost of training are estimated and a description of the structure of training costs in each industry and trade schools. Fourthly, adjustment of earnings for socio-economic effects as well as estimation of earnings differential due to training will be made. Lastly, we present the internal rates of return based on each indus- try, location and type of employment. Effect of Education and Experience on Earnings of’Proprietors in SmaII-ScaIe Industries Relations between human capital variables (such as education, experience ability, etc.) and earnings have 87 88 been investigated in many countries (Blaug, 1967). Many of such studies have used mainly macro data and have dealt with wage earners in the industrial sector of the economy. Recent attempts at looking at performance in small indus- tries have been limited to few studies in India (Thakur, 1975; Shortlidge, 1976). In Africa studies on human capital effect on performance in small industries are relatively new (Liedholm and Chuta, 1976; Sonaike, P.O., 1975). Liedholm and Chuta found a negative relationship between rate of returns in small industries and education of prOprietors. Experience on the job was found to be positively correlated with performance. In Nigeria Sonaike observed that different levels of education have differential but positive effects on performance. This is in contrast to the results reported by Kilby for the Nigerian bread industry (Kilby, 1965). Among the self-employed proprietors the effect of education (formal) manifests itself in the ability of the proprietors to collate or marshall necessary information that will be useful in running their business. Ability to read and write would therefore reduce the cost of obtaining information about the product and input markets and hence the cost of running a business. Moreover, the ability to read and make accurate measurements could lead to a considerable reduction of waste of raw materials used by the firm. Thus, a high level of education among the 89 prOprietors is hypothesized to have a positive effect on earnings. The effect of on-the-job experience (as measured by the number of years a proprietor has been in business) on returns is likely to vary from one industry to another. In industries characterized by rapidly changing technology, experience in Operating a plant or equipment may be subject to rapid obsolescence; on the other hand, where technology is stable, experience gained over a given period may have positive effect on earnings. Experience in producing a particular product may be rendered obsolete or advanta-. geous depending on whether tastes or demand for the product of the firm remains stable or not. A change in taste that leads to a considerable shift in the demand for the pro- duct of the trade will render experience gained in manu- facturing the product obsolete. In other words, experience on the job will have a zero or positive effect on earnings depending on the nature of technology in the industry and the demand for its product. For a given industry with stable technology and demand, prOprietors with greater experience are likely to have higher earnings than new entrants into the industry. Older proprietors, having been on the job longer, will have a more stable production and organization, a pool of patrons and lower costs of erroneous decisions. It is not unlikely however that a degree of substi- tution exists between formal education and experience on 90 the job. Formal education can reduce costs of errors as experience can. Moreover, an inexperienced proprietor but with better education is likely to have less difficulty in establishing himself in a new area, attract younger patrons in the locality and has access to information about new techniques. In specifying the relationship between earnings and factors on which it is dependent, one is confronted with whether the relationship is linear, quadratic or in other forms. While many studies specify a linear relation- ship (Liedholm and Chuta, 1976), others postulate a quadratic function (Shortlidge, 1976). Other evidences (Husen, 1968; Blaug, 1969) have also shown that the relationship between earnings and many of the explanatory variables are not linear. On the other hand, earnings often increase at first as education increases, reaches a peak (the peak period being different from one country to another (Blaug, 1972)) and then decline. Thus, a quadratic rather than a linear function is likely to depict the relationship and approximate more to reality. In summary, our hypotheses can be formalized as: 2 .. 2 ' Y — a0 + dlEDU + aZEDU + c3EXP + a4EXP u, where Y is the returns to proprietors, EDU = years of + 05(EDU)(EXP) + formal education, EXP = years of experience, and u is random error term. To test the hypothesis, ordinary regression analysis was used. The dependent variable, the returns to 91 prOprietors, was obtained from the production function estimates as described in Chapter V. The results in Table 6.1 show the estimated coefficients for each industry and location. Among the highlights of the results include: (a) for nearly all the industries none of our explanatory variables appeared to be significant; (b) for a given year of experience an increase in formal education is indicated to have a positive effect on earnings in the three indus- tries; (c) the impact of experience on earnings, we argued earlier, will vary depending on the industry in question. For a given year of education, our estimates indicate that the marginal contribution of experience is positive for all the three industries. In auto-repairs and furni- ture, experience is characterized by "decreasing returns." In Nigeria, the same pattern of dresses have been worn one generation after the other and where modifications are made, they have often been slight, such that any experi- enced tailor would have no difficulty in adjusting to his customer's demand. Thus, for an industry like tailoring where tastes are stable, experience becomes an advantage. In the furniture industry, there is evident a shift from the demand from simple household tools to more comfortable and better designed products. Experience gained in making simple wooden chairs cannot be readily transformed into manufacturing sofas unless a retraining is involved. Old auto-repairs workers in Nigeria learned their trade either in the army or in the railway yards n V :— :ERH 92 .uouum oumvcmum ou umwwu mummnucmumm :0 mmusm0m 0m>w0 unwouwm 0 on 0000 Bonn unmo0u0co0n uoz« 00000.000 00000.00 00000.00 00000.00 00000.000 00000.000 00.0 0000.000 «0000.0 «0000.0I «0000.0 «0000.0 «0000.00 m:00u0000 00¢ 00000.0000 00000.00 00000.00 00000.00 00000.000 00000.000 00.0 0000.000 «0000.0 «0000.0I «0000.0 «0000.0 «0000.00I mcoIsn000 00000.0000 00000.00 00000.00 .0000.00 00000.000 00000.000 00.0 0000.000 «0000.0I «0000.0 «0000.00I «0000.00I 0000.000 000 ammuomusu0cusm 00000.000 00000.00 00000.00 00000.00 00000.00 00000.00 00.0 0000.000 «0000.0 «0000.0 0000.0 «0000.0I 10000.00I ch0umooq 00¢ 00000.000 00000.00 00000.00 00000.00 00000.00 .00000.000 0000 0000.000 «0000.0 «0000.0 0000.0 «0000.0I «0000.00I 00000¢ 00000.00. 00000.00 00000.00 00000.00 00000.00 00000.000 00.0 0000.00 «0000.0 0000.0 «0000.0 «0000.0 «0000.0I 000I5n000 00000.000 00000.00 00000.00 00000.00 00000.000 00000.000 00.0. 0000.000 «0000.0 «0000.0I 0000.0 «0000.0I «0000.00I 000 ms0u000ma 00000.000 00000.00 00000.00 00000.00 00000.00 00000.00 00.0. 0000.000 «0000.0 «0000.0I «0000.0 «0000.0 «0000.0I 0000umooq 00¢ 00000.000 00000.00 00000.00 00000.00 .0000.000 . 00.0 0000.00 0000.0 «0000.0I «0000.0 «0000.00 «0000.00 mooIsn000 00000.00 00000.00 00000.00 00000.00 00000.00 00.0 0000.000 «0000.0I «0000.0I «0000.0I «0000.0 «0000.0 000 mu0ommmIous¢ Ium usounsoo. 0.mxmva.oscmv mocw0ummxm :00umosvm “.mumv mosm0uomxm 0.0000 :00uuosom moco0ummxm 0cm :00umoavm .00005000QEHI0000 :00 mmswsumu coo3uom m0nns00u000m 0.0 00009 93 (Roll, 1969). Between the present and World War II, the automobile industry has undergone a revolutionary techno- logical change. Constant change in body and engine design leads to obsolescence of experience within a short period, or renders experience gathered over a time period subject to rapidly diminishing returns. These observations and our estimated coefficients conform with the human capital postulate that each increment of human capital through experience on the job is valued less than theprevious unit. Prospects of and Earnings in Wage Employment for Apprentices In a survey of educational and training content of occupations carried out by the Nigerian National Manpower Board in 1966 the following conclusion was, among others, reached: . . . employers' preference is clear that skills should be imparted to trainees under working conditions through apprenticeship and on-the-job. Trade Schools run by public corporations and training programs in large industries and street corner workshOps, more or less, meet these requirements. So much cannot be said for Govern- ment Trade Centers . . . removed as they are from actual working conditions (Manpower Studies No.7, 1968). A preference for apprentice trained workers by employers in industries should therefore be observable in the pro- portion of semi-skilled workers trained through apprentice system as well as in wage offers relative to trainees from Trade Schools. 94 According to conventional theory, wages or earnings reflect the marginal productivity of the labor force. However, in many countries government wage policies often lead to distortions in the labor market such that different wages are paid to the same category of workers in different sectors of the economy. Wage policy in Nigeria, however, is characterized by periodic increases in wages and salaries especially in the public sector. Moreover, wage differentials between different categories of workers (in the abSence of measures of productivity in the public sector) are based on levels of education rather than productivity. In many cases wages in the private sector are not decreed. None- theless, once wages are raised in the public sector, workers in the private sector, through union pressures often secure similar increases. And since negotiations are based on the structure of wages in the public sector, the consequence is that the differentials are carried over, irrespective of worker productivity.5 For example, an apprentice trained worker earns in both public and private sector half what a trade school trainee performing similar duties would earn. It may be asked that given the differential between the institutionally determined wages of apprentice and trade school trained worker, why employers should hire trade school trainees at all. First, there exists in the country an acute shortage of intermediate skilled workers 95 to the extent that the private sector often makes wage offers that are over and above the government decreed wage rate.6 Second, as shown in Table 6.2A and 6.2B employers take advantage of the lower wages of apprentice trained workers by hiring more of them and filling their extra vacancies with trade school trainees or by providing training on their own. In this section, in addition to examining the extent to which employer's preferences are translated into wages, we will also examine such human capital variables as education, experience on the job, previous experience on earnings of semi-skilled workers in large industries in Nigeria. Information on the wages of the workers trained through apprenticeship system and government trade schools was obtained by interviewing 307 intermediate skilled workers in twelve establishments in Ibadan area. Questions asked include type of training, salaries in current employment, salaries in previous employment, and years of formal education. The data thus collected enabled us to test the hypothesis that an individual worker's earnings (Y) will be functionally related to years of formal education (X1), years of experience (X2), previous salary or earnings (X3) and the type of'training he received (x4). For skill related jobs among intermediate skilled workers years of education is likely to have little or no effect on earnings. On the other hand, earnings can be 96 Table 6.2A Distribution of Intermediate Skilled Workers by Sources of Training--Automobile Firms Firm Apprenticeship On The . Code Trained Trade School Job Training (Number) .No % No % No % IBAl 31 68.69 5 11.11 9 20.00 IBA2 26 86.67 4 13.33 -- 0.00 IBA3 18 72.00 5 20.00 2 8.00 IBA4 24 58.54 2 4.87 15 36.59 IBAS 11 73.34 2 13.33 2 13.33 IBA6 15 83.33 3 16.67 -- 0.00 IBA7 55 88.71 4 6.45 3 4.84 180 76.27 25 31 13.14 10.59 Table 6.2B Distribution of Intermediate Skilled Workers by Sources of Training--Furniture Firms Firm Apprenticeship On The Code Training Trade School Job Training (Nun'ber) No % No % No % IBFl 12 66.67 -- --- 6 33.33 IBF2 17 58.62 1 3.45 11 37.93 IBF3 20 60.61 5 15.15 8 24.24 IBF4 8 36.36 1 4.55 13 59.09 IBFS 35 64.81 3 5.56 16 29.63 92 58.97 10 6.41 54 34.62 97 hypothesized to be positively related to post training experience and previous earnings in skill related jobs. Lastly, given the preference of employers for apprentice workers, it is hypothesized that the effect of training type on earnings would be such that apprenticeship trained workers would receive higher earnings than workers from trade schools. The distribution of semi-skilled workers in the twelve industries presented in Tables 6.2A and B shows that in auto-repair firms over 70 percent of the workers were trained under the apprenticeship system. In the furniture industry, of 156 workers, nearly 60 percent received their training through the apprenticeship system prior to the current employment. Firms offer on the job training for newly recruited unskilled workers. The number of workers trained however constitute less than 15 percent in auto- repairs firms but nearly 35 percent in the furniture firms in Ibadan. Workers from the Trade Schools constituted nearly 11 percent in auto-repairs and less than 7 percent in the furniture industries. In some of the firms personnel managers whom we interviewed complained that trade school training is antiquated and not in line with current technological developments. Thus, many firms had to retrain trainees of trade schools for a number of months after they are employed. In order to test our hypotheses on the effect of education,experience, previous salary or earnings in 98 previous job and type of training program on initial salaries of an individual worker the following relationship was posted: _ 2 2 (1) Y — do + alEDU + dzEDU + a3EXP + a4EXP + a5(EDU)(EXP) + + + aGPRE d7PRO u where Y is the initial annual salary of the worker, EDU = the years of formal education, EXP = years of post-training experience, PRE = earnings in previous employment, and PRO = type of training received--0 if apprenticeship, 1 if trade school. The results of the regression analysis are shown in Table 6.3. Among the highlights of the analysis are: In both industries--auto-repairs and furniture-- "years of experience” is not only significant but the marginal effect on earnings is positive. Second, there is a threshold minimum level of education above which educa- tion leads to increases in earnings, in auto-repairs the level is 4 years and in furniturecraft about 12 years. Below this level the estimated marginal effect of educa- tion is negative. Thus about eight years is the breaking point for the two industries. Third, previous salary does not affect earnings in current employment. This is not unusual; for a worker in transferring from one firm to the other may suffer a temporary decline in pay. In this case, however, a high prOportion of the workers had been previously employed as journeymen in the small-scale 99 Table 6.3 Relationship Between Training, Education, Experience and Earnings of Trainees--Estimated Coefficients Industries Variables Auto-Repairs Furniture Formal Education (Yrs.) -l.2263* -2.8648* (4.0505) (21.6250) Formal Education2 0.3541* 0.4799* (0.2994) (1.5011) Experience (Yrs.) 12.8734* 46.9799* (8.0447) (23.9065) Experiencez -o.3199* 0.2740* (0.2110) (0.4850) (Formal Education)(Experience) -1.6671* -8.1535* (0.9510) (4.0662) Previous Salary 0.1159* 0.4231 (0.1112) (0.1526) Type of Training Proqram 44.6669 30.3480 (6.4264) (10.7588) Constant 18.1907 31.6863 (15.1338) (76.2347) §2 0.62 0.54 n 205 102 *not significant at 5 percent level Figures in parentheses are standard errors. 100 industrial sub-sector with relatively lower wages and where earnings are often irregular. ‘Examination of the coeffi- cient of the type of training program variable and the constant term shows that the mean effect of training is significant. Moreover, there appears to be a significant difference between the earnings of workers trained in trade schools and those from apprenticeship systems for a given level of education and experience. The model also shows that experience rather than formal education deter- mines mean earnings; an additional year of experience would raise mean earnings more than an increase of a year of schooling. This finding calls into question the wisdom of legislating higher wages for Trade School trainees just on the basis of their level of formal education. Components of Costs and Benefits In rates-of—return analysis the two types of costs used are private costs and social costs. In this study we define private costs as the out-of-pocket costs incurred by the trainees. Under apprenticeship training private costs (Eb) include the value of equipment, tools and uniforms purchased by the apprentice (Ce), the difference between transfer payments, that is, the difference appren- tice fees (Cf) and allowances received during the training (Aa) plus foregone earnings during the training period (Fe), i.e., 101 (l) Epa = Ce + (Cf - Aa) + Fe A student trained in the trade schools like his counterpart under the apprentice training incurs costs which are iden- tified as student costs, that is, expenditure on books, uniforms and tools (Ce), foregone earnings (Fe) and fees (Cf). Unlike apprentices no allowances are paid to trainees in the trade schools although some income often acrue to the trainees during the“vacation employment: Specifically, the private cost (Ep) of training in the trade schools can be written as: (2) Ept = Ce + Fe + Cf The social cost of training (50a) that is the real cost of training under apprenticeship system is defined as the sum of the value of tools and equipment purchased by the apprentice (Ce), the Opportunity cost of the prOprietor's labor (Vp) plus the opportunity cost of the firm's capital equipment (Ep) less the value of output produced by the apprentice (Qa), plus the earnings foregone by trainees (Fe), that is (3) Esa = Ce + Vp + Ep + Fe - Qa The social cost of trade school training, Est, is the sum of teaching and administrative costs (St), opera- ting costs (OCt), capital costs (Kt) and earnings foregone by the trainees: 102 (4) Est = St + OCt + Kt + Fe In order to measure some of the components Of the costs and benefits, a number of approaches were adopted. ' The first involves estimates of the value of marginal product Of prOprietor's labor, apprentice's labor and capital. To estimate the Opportunity cost of the prOpri- etor's labor and capital, the VMP was multiplied by the average number Of hours worked by the proprietor in the year; the VMP of capital services was multiplied by the annual estimate of capital utilization in each industry and location. The value of output produced by the appren- tice was obtained in the same way by multiplying the MVP of apprentice labor by the average annual number of hours worked by the apprentice. The estimated Opportunity costs and output Of apprentices are presented in Table 6.4. The opportunity cost of the proprietor's time is highest in the furniture industry, being over $1,000 per annum; and lowest in tailoring. The Observed differences reflect both labor productivity and earnings in each industry. The value of output produced by the apprentice is lowest in the tailoring and highest in furniture making. The value of capital services used up in training is negligible in all the industries. To estimate the foregone earnings Of apprentices we used the average earnings Of unskilled workers in the labor force where level Of education was similar to the average level of education of the 103 musu0cusm 00.00 00.00 00.0 00.00 00.000 00.0 00.00 00.0000 00.0 0:00000me III III III III III III III III III 000mmmmlous¢ mmwN0d 00.0 00.00 00.0 00.000 00.0000 00.0 00.0000 00.0000 00.0 mu:u0:u:m 00.0 00.00 00.0 00.00 00.000 00.0 00.00 00.0000 00.0 0:00000me 00.00 00.00 00.0 00.00 00.0000 00.0 00.000 00.000 00.0 mu0mmmmIous< mnoI90000 00.0 00.00 00.0 00.000 00.0000 00.0 00.0000 00.0000 00.0 00:00:u:m 00.0 00.00 00.0 00.0 00.000 00.0 00.000 00.000 00.0 0:0u000ma 00.0 00.00 00.0 00.00 00.000 00.0 00.000 00.000 00.0 mu0mmmmIOus¢ 000 umoo In :00 Ax :00 umoo Amumv In :00 umoo Amumv 22 :00 .000 090:0 02> .000 020:0 02> .mmo 090:0 02> 0 Hums©20 0000000 H0900 00300 020 200umoon mmO0>Hmm 0000000 mmO0ucmumm¢ muoum0nmoum 0:020mna,000uamumm¢ :0 meD musmc0 mo umoo 00025000000 can 02> 0.0 00308 104 apprentices. In Table 6.5A, B, C, we present the costs of training in the tailoring, furniturecraft and auto-repairs industries. In tailoring foregone earnings constituted about 80 percent of the social cost of training. Both social and private costs are highest in furniturecraft, followed by auto-repairs and lowest in tailoring. In nearly all the industries and locations apprentice fees are paid mostly at the end of the training period and constitute about 6 percent of private costs in tailoring, 4.5 percent in furniturecraft and auto-repairs. Another component of the training cost is the amount spent on equipment by the apprentice. In tailoring such equipment includes a tape, scissors and sometimes a cata10gue. In auto-repairs and furniturecraft the tools purchased by the apprentices are limited to a few hand tools. In general, apprentices more often depend on the masters for the supply of tools and raw materials for training. Other cost components of apprentice training, about which our table is silent, include costs of freedom ceremonies, gifts from proprietors to apprentices and the value of services rendered by the apprentice in the pro- prietor's household (see Table 6.5A, B, C). 99st of Training in Trade Centers Unlike apprenticeship in small industries the com- ponents of training costs in the trade schools are direct and easily measurable, although data sources dealing with 105 oo.com IIII IIII 00.000 oo.owm 00.000 oo.omm oo.oom oo.oom oo.oom oo.oom oo.oom 00202000 0:000000 .0 00.0 IIII IIII 00.0 00.0 0m.vm 0o.w 00.0 00.00 00.00 00.0 00.0m 0000>0mm 0000000 00 ms0m> .0 00.00 IIII IIII 00.00 00.00 00.00 00.00 00.00 vm.mm 00.00 00.0w 0m.mm 0609 0.0000000000 00 0500> .m 0o.m IIII IIII 0o.w 00.00 m0.m0 00.0 00.00 m0.m0 0o.m 00.00 00.00 0000000000 >0 00050000 030050 .0 00.00 IIII IIII cm.O0 00.00 oo.o0 00.0 oo.m 00.0 oo.0 IIII 00.0 00>00000 mwoc03000< .0 IIII IIII IIII 00.0 IIII 00.0 IIII IIII 00.0 00.0 IIII 00.0 .000 00 000000 .000 .020800500 .m 00.00 IIII IIII IIII 00.00 00.00 IIII IIII IIII IIII IIII IIII 0000 0000:00000 .4 O>O 000 000>0¢ o>o 000 000000 O>O 000 000%04 0>O 000 000>0< IsnwnH I30000 IsnmnH IsnmflH 055:20 000 x :00 0000000600 0000 0 000» m 000» N 000» 0 000» ,Illlll1lullllnl. flu- if . 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I 000000009II0020000500 0000 €m.0 00009 106 oo»oom oo.omm oo.omm, oo.omm oo.o0m oo.omm oo.o0m oo.o0m 00000000 mqommuom .0 00.0 00.00 00.0 00.00 00.0 00.00 00.0 00.00 0000>000 0000000 no 0:00> .0 00.v00 00.000 00.000 00.000 00.000 00.000 00.v00 00.000 0809 0.00000Hmoum mo 0500> .m 00.0w 00.00 00.00 00.00 00.00 00.00 00.00 00.00 000unwnmm< an 00050000 050050 .0 00.v 00.00 00.0 00.00 00.0 00.00 IIII 00.0 00>00000 000:030000 .0 IIII oo.m0 IIII 00.0 IIII 00.0 IIII oo.~ .000 an 000000 .000 .uc0em05vm .m 0v.00 00.00 IIII IIII IIII IIII IIII IIII 000m 0000:00000 .4 omo 000 000 000 000 woo 000 000 I53000 I50000 I50000 I5n000 085cc0 000 z :00 mucwnomeou 0000 v 0000, 0 0000 0 0000 0 0000 0000000 0054II0020GOQEOU 0000 00.0 00nma 107 III oo.oom oo.omm oo.oom oo.oom 00.0mm 00.0mm oo.oom mmqficumm mcommuom .u In: m>.¢ mm.m m>.v mm.m mn.v mm.m m>.v mmow>uom Hmflmmu mo and; .m III oa.mmma mm.mhva oa.mmma mm.mnva oa.mmma mm.mnva oa.mmma mafia m.uouwfiumoum mo msam> .m In: mm.mma Ho.maa mm.mmH Ho.maa mm.mma Hm.mHH mm.mma mowucmummé an omosvoum Humane .o nun oo.mm om.a oo.om om.a oo.om om.a Ill: ©m>flwomm mmonm3oHH¢ .0 u} 8.3 8.0 ooé u--- 84 Ii- I} dam 3 Egon .oum summemfiswm .m sun 00.0H oo.am III: III: III: Inn: oo.oa womb moaucmummd .a 26 m8 96 m8 98 mac 96 30 IsnmnH IsnmnH IsnmnH IsnwnH “852cm Hmm I say mucmcomfiou umoo v Hmww m Mom» m Hum» a Ham» ummuomusufiau:MIumvamgomsou umoo Um.m manna 108 the financing of the trade schools are scattered all over different ministries. Data on student costs were collected by use of questionnaires. A randomly selected sampling of currently enrolled students from the first to the third year of training were interviewed. In addition, addresses obtained from the centers were used to trace former trainees and to collect information on training costs and earnings. Questions asked dealt with fees, uniforms, books and equipment bought by the trainees. Data on personnel costs (teaching and administrative), operating and equipment costs were obtained from both the schools and the technical education divisions of Oyo and Ogun States' Ministries of Education. Estimates of the values of building and land were derived from data on the pro- posed new trade schools. To obtain the annual rental value of buildings and equipment a discount rate of 20 percent was used. Foregone (see Table 6.6) earnings were obtained in the same way as in the apprenticeship cost by using the earnings of members of the labor force with similar educa- tion as the trainees. Between the two Trade Centers (Oyo and Ijebu-Ode) personnel and operating costs per pupil were lower in Ijebu-Ode than in Oyo. Value of capital services was assumed to be the same in the two centers. Estimates of student costs show trainees in Ijebu-Ode spending more per year than those in Oyo trade schools. Compared with costs in apprentice training the private cost of training in the trade centers is over 109 oo.¢mm oo.¢mm oo.vmm oo.vmm oo.vom oo.vom macaqumm ocommuom .> mm.¢aa om.maa oo.o~H mv.mma mn.awa mm.mma A.oum .moomv mumou ucmcsum .>H mh.om mh.om oa.oom oa.oom >¢.HNHH nv.amaa Amm0H>ummv kuwmmu .HHH oo.oom oo.mva oo.omm oo.o¢a oo.amm oo.mma mcfiuwuomo .HH oo.omv oo.mom oo.omv oo.mom oo.oov oo.mmm m>aumuuchHEc¢ cam mcflnomms .H omo mcousnmflH oao moonsnmflH omo mcousnmflH lessen mom a cab m Hmmw m How» H Hmmw mucmcomaou pmou mnmucmo wnmuellmucwcomfiou “moo w.m manna 110 twice the annual private costs in apprentice training; student fees in the trade centers are about twice the highest apprentice fees, while foregone earnings of trade school trainees is about twice as high as that of appren- tices, a result of differences in levels of education and wages. Notwithstanding this, however, training in trade schools is heavily subsidized by the State governments with the government being responsible for the running and upkeep of the institutions. While the government is responsible for as high as 95 percent of the cost in the trade centers, no government subsidy is received by the proprietors or trainees, in small-scale industries. Rather, the prOprietors tend to subsidize the training of their apprentices. Estimates of Benefits The benefits (monetary) from training is the increase in trainee earnings occurring after the training and as a result of it. To estimate the benefits we assumed that all trainees would find employment either in small-scale industries as a self-employed worker or as a wage worker in the large industries or government establishments. For self-employed workers, the estimated returns to prOprietors obtained in the last chapter were converted to their annual equivalent since those estimates were for a period of six months. The computed returns are shown in Table 6.7. In all the industries returns to 1511 mcofium>uwmno mo muonsss mum mmmwnucwnmm cw mowsmam hv.mmm mv.vvm wo.mmm vv.h¢m mm.Hmm mm.mvm mm.mom mh.q¢m vm.mov vv.moh Ame Amy Ame Ame Ame Ame om.mna on.Hmv mo.~mm w~.mHm om.mbw vh.¢Hv on I ow Amy AHV Amy Amy Add AHV AHV Amy Adv Adv om.mmm mv.oom mv.NVNH mm.mhm mm.vma mv.mvm oo.wvma mo.mmm oo.m>v mm.~moa mm I am Amy Ame Amy Adv Ame Ame Ame Amy Am. Adv va.oom mq.wvm om.mama mo.boa oo.oma vo.amm om.mova om.vmv mn.nmv mm.mmv ON I ea As. Ave And Amy AHV Amy Am. Adv Adv Av. mv.ooH ma.mmm om.hmm mv.voa om.mnm mo.Hom mv.mmm mh.nom mm.mvm vo.omma ma I Ha Aomv Away .HHV Ame Amy Any Ave Any Amy An. om.mmm ¢N.Hmm mm.mam vm.mmm on.hmm mm.omm mn.vwm mo.mmm mm.mmm vo.hom OH I o Amvv Amav Aoav Amav Ahab Away Am. Amav Ame Amy om.onm om.mmm vm.hmb mm.mm~ vv.m¢~ ov.mmm oa.mmm 0m.mam mm.omm v¢.nom m I H mcw muwmmmm muduHQMSh mew mew muflmmmm ousuflcusm mca muwmmmm musuflcusm IHOHHMB Iousd IHoHfima Inoafime Iousd IuonmB Ious< oocmwuomxm I. no whom» mcofiumooq Ham mammwm oao opoIanonH mocmfluomxm mo whom» an mnouwflumoum ou mausumm mo coausnauumfio h.m wanna 112 prOprietor increases with experience over time and then declines. Estimates of earnings of those employed in large industries were obtained from 509 questionnaires made up of 200 mailed questionnaires, 35 direct interviews of trade school trained workers and 272 apprentice trained employees. Adjustment of Earnings for Socio-Economic Variables Before using the earnings streams in the rates-of- return calculations a number of adjustments were carried out. First, we adjusted for the influence of formal educa- tion on earnings. Then we used the years of experience variable to construct our earnings profile. This last step was necessary since it was impossible to obtain information on earnings of older workers and prOprietors in some of the industries. Many studies on human capital (e.g., Mincer, 1962) have used age of the labor force to construct income profiles. But in this case it seems more realistic to use years of experience since training in skills can be undertaken at any age unlike formal educational institutions where age limits are set. More- over, experience rather than age determines the dexterity of which a skilled related job is done. To make adjust- ,ments for the education variable the following procedure was used. Using the results of the regression equations presented in the early part of this chapter, we defined Y, the predicted value of earnings, as equal to: 113 A 2 _— = * + + (1) Y5 a0 + alEDU + a2EXP a3EDU + a4(EDU)(EXP) ——-2 aSEXP A _— 2 .— = a a a a a (2) Yw 0 + lEDU + 2EXP + 3EDU + 4(EDU)(EXP) + 3 XP2 + a P + 6 PRO 5 6 7 A A where Ys is the predicted earnings in self-employment; Yw is the predicted earnings in wage employment; EB? is the mean years of education; FEE is the average previous salary, BB5 is the type of training program and ii? is the years of experience. From equation (2) we obtained two different earnings streams for apprentice trained workers and those who went to trade schools, i.e.: .. ———— ——2 —— w — a0 + a7 + a EDU + aZEXP + azEDU + a4(EDU)(EXP) I..I 2 ___ aSEXP + a6P where Yg is the earnings of trade school trained workers, and w = a + alEDU + azEXP + a EDU2 + a4(EDU)(EXP) + “PRO-=0 0 3 2 * a asEXP + 6P where, Y; is the earnings of apprentice trained wage workers. 114 By varying the years of experience variable from 1 to 35 we were able to construct income profiles for each type of skill and employment type.7'8 To obtain the differential effect of additional training on earnings involves adjusting the earnings of the trainees by the earnings that they might have obtained as unskilled workers in the economy. To do this we sub- tracted from YS, §Q, the average earnings of unskilled workers with same educational level as the trainees. Estimates of Internal Rates of Return Our estimates of the internal rates presented in Tables 6.8 and 6.9 were based on the adjustments discussed in the early part of this chapter. In presenting the calculations an attempt is made to compare the two alter- native training programs with respect to training in furniturecraft and auto-repairs. For example, trade Schools do not offer training in tailoring. Attempt is also made to consider alternative employment types, self versus wage employment. Comparison between apprenticeship and trade school is, however, limited to wage employment. This is because very few of trade school trained workers are in self-employment. (Of the 500 questionnaires mailed to graduates of trade schools, not a single respondent was in self-employment.) 115 Table 6.8 Rates of Return in Wage Employment Apprentice Trade Center Training Trading Private Social Private Social IRR % IRR % IRR % IRR % Auto-Repairs 59.41 23.63 68.03 23.33 Furniturecraft 62.22 32.19 76.79 24.00 Rates in Wage Employment The earnings in wage employment in Nigeria unlike earnings in self-employment do not often reflect demand and supply factors. Private industries in response to govern- ment policies pay administered wages which are over what is necessary to induce a worker to forego self for wage employment. Equally important, however, is the fact that many large scale industries enjoy economies of scale and are able to declare high after tax profits despite the high wage rates. Translated into yields from training, these high wages show up as high internal rates of return for both types of training programs (see Table 6.8). Private rates of return were higher for trade center trainees in both auto-repairs and furniture industries by about 15 and 23 percent, respectively. The private rates were higher in furniturecraft for the two training pro- grams than in auto-repairs. For example, while the rate to apprenticeship training in auto-repairs (wage 116 mm.m mm.o m~.m «m.HH whammmm ousm H~.h HH.mH mm.ma «m.m~ ummuoousuflcusm mcowumooq III III vN.OI mm.m magnoasma Haa III III ~H.OI Ho.¢ magnoaflme mmmsfla mm.~ hm.m N~.v mm.m mnfimmmm ousd mm.m oo.~H mm.ma mm.w~ ummuomusuflcusm III III MH.OI mo.~ mcfiuoflflma oso o¢.m mm.m HH.¢H mm.¢H muflmmmm cuss mm.m ¢H.va mm.ma Ha.am ummnomnsuwcusm III III mo.OI oo.~ mafiuoaflma monsnmnH wmmH Hmwoom wmmH mum>flum mmmH HMHOOm wmmH mum>whm anam5©cH coflumooq mcwsflmne Hmucmu momma msacwmua moaucmummm coflumooq 0cm wuumnccH .mmha mcflcflmue an AucmfihoamEMImammv AmmHv annumm mo mmumm accumucH m.m manna 117 employment) was 59 percent, rates to furniturecraft was 62 percent--a difference of about 5 percent. Social rates ranged from 23 percent in auto-repairs to 32 percent in furniturecraft industry. Between the two training programs the social rates of return were higher for apprentice training. In the furniture industry the social rate to apprentice training was 32 percent compared with 24 percent to trade center training. In general, the calculated internal rates of return (both social and private) in wage employment reflect that apprentice training compares favorably with trade school programs, especially from the society's valuation, despite the lack of attention or support from government. Under the assumption that both apprentice and trade school trained workers received equal pay, we used the adjusted earnings of apprentice workers to estimate another set of internal rates of return for trade school training. The private rates to employment in auto-repairs and furniture indus- tries (for trade school trained workers) declined from 68 to 31 percent and from 76 to 49 percent, respectively. Social rates also declined, being 13 percent for auto- repairs and 16 percent for the furniture industry. Thus, under equal pay for similar skills, the rate of return (both private and social) to apprenticeship training would be nearly twice the rate to trade school training. The private (unadjusted) rate of return obtained by Thias and Carnoy (1972) for those who completed 12 to 118 13 years of formal education in Kenya was 23.8 percent. For trade School trainees with 9 years of formal education and 3 years of skill related training our adjusted private rate (in wage employment) averages about 72 percent. While earnings and cost may differ in the two countries, it seems, however, that skill related training is a more profitable investment than formal education up to a cer- tain level. Returns in Self-Employment If self-employment is the ultimate form of employ- ment for apprentice trained workers, then the rate of returns to self-employment must not only be high enough to attract new entrants but higher than alternative employment Opportunities. Alternative employment oppor- tunities are limited mostly to wage employment in the manufacturing industries and the public service. Between 1964 and 1972, Berger estimated an average rate of growth in Nigeria's manufacturing industries at 8.1 percent. Number of manufacturing establishments grew at a rate of 12.1 percent; employment also grew at an average of 12.6 percent while the number of workers employed per estab- lishment only increased between 1964 and 1972 by 0.4 percent (Berger, 1975). In other words, while earnings in wage employment might be sufficiently attractive to induce workers to seek wage employment vacancies as well as recruitment are limited. Administered wages and 119 technologies that are capital intensive both mitigate against employment Opportunities in wage employment. Compared with rates in wage employment the private rates of return to all the skills are very low. The average (all locations) private rates in (self-employment) furniture and auto-repairs industries are 48 and 20 per-’ cent, respectively, of the private rates in wage employ- ment, for apprentice trained workers. Among the self-employed workers returns also vary according to the skill and location of business. Tailoring in all the three locations of Ijebu-Ode, Oyo and Aiyepe is characterized by very low private rates of return and negative social rates. These findings, of course, reflect the generally lower earnings in tailoring (see Chapter V) and the proliferation of workers in the industry within the last decade (see Table 6.9). Auto-repairs and furniturecraft, two industries that have been found (Chapter V) to generate higher incomes, also showed higher rates in both Ijebu-Ode and Aiyepe compared with tailoring. For the two industries both private and social rates to apprentice were higher among workers in Ijebu-Ode than in Oyo. Private and social rates in the furniture industry in Ijebu-Ode was about 29 percent greater than for similar industry in Oyo, while the social and private rates in auto-repairs were respectively 200 and 55 percent greater in Ijebu-Ode. 120 Among the highlights of our study so far include: (1) the private rates Of return are higher in wage employ- ment relative to self-employment for the two training programs; (2) in wage employment apprenticeship training compares favorably with trade school training; (3) for all industries rates of return are higher in areas Of high income relative to areas Of low income or in urban areas relative to rural areas as shown for example between Ijebu-Ode and Aiyepe; (4) private rates were low in tailoring in all locations, with social rates being nega- tive. Sensitivity Analysis TO evaluate how sensitive our estimates are to changes in the parameters, the following procedures were adOpted. In the first instance it is not unlikely that our estimated valuation Of the proprietor's time could lead to an upward bias in the cost Of apprentice training. With the assumption that a prOprietor would spend his time equally in producing commodities and offering training, we reduced the value of the Opportunity cost Of the prOprie- tor's time by 50 percent.9 This produced nearly 45 percent downward adjustment to the cost Of training. Using this new cost stream produced changes in the rates Of return as shown in Table 6.10. Differences between the private rates presented in Table 6.9 earlier and the social rates in Table 6.10 were respectively on the average 30 percent, 121 Table 6.10 Internal Rates Of Return (IRR) by Industry (Social Costs Adjusted Downwards by 30 Percent) Apprentice Training Furniturecraft Location Industry (Social IRR%) Ijebu-Ode Tailoring 1.24 Furniturecraft 29.44 Auto Repairs 14.88 Oyo Tailoring 3.96 Furniturecraft 23.45 Auto Repairs 7.30 Aiyepe Tailoring 2.20 All Tailoring 4.25 Locations Furniturecraft 19.32 Auto Repairs 9.97 Wage Employment Auto Repairs 66.00 75.14 122 55 percent and 20 percent in tailoring, furniturecraft and auto-repairs. The elsewhile negative social rates in tailoring became positive values ranging from 1.24 percent for Ijebu-Ode to 3.96 percent in Oyo. In wage employment the adjusted costs also produced statistically significant improvements with both private and social rates increasing by about 45 and 150 percent, respectively. Attempts to adjust the costs in the trade schools for possible over and underestimation as done above did not produce any appreciable change in the estimated rates. Lastly, attempts were made to see whether changes would occur in the estimated rates by increasing the work— ing life and hence the "cut-Off" period from 35 to 40 years. NO changes were Observed for all the skills and training program beyond some very small percentage points. In general, the rates Of return to both training types were high, especially in wage employment. But given the shortage of intermediate skilled workers,earnings and hence the private rates could have been higher but for government wage policies which mitigate against the forces of supply and demand.10 While the estimates pro- vide a static picture of the economy at a given point it is not unlikely that with the general upswing in the economy returns to education will be in the upward trend in the future. CHAPTER VII SUMMARY AND POLICY RECOMMENDATIONS In previous chapters several empirical findings relating tO apprenticeship training as a sub-set of activities Of small-scale industries in Western Nigeria were presented. This chapter summarizes these findings and examines their policy implications. Among the primary Objectives Of the study was to evaluate factor productivity in the small-scale industries and the returns to alternative forms of training entrepre- neurs in Western Nigeria small industries. TO this end 273 establishments distributed among four major indus- tries (tailoring, furniture, auto-repairs and blacksmith- ing) in three locations (Aiyepe, Ijebu-Ode, and Oyo) were surveyed from April to November 1976. In addition information about costs of training in the trade schools was collected from Oyo and Ijebu-Ode Trade Centers. Three hundred and seven intermediate skilled workers distributed among twelve large-scale industries in Ibadan as well as their employers were interviewed tO provide information on employment prospects of apprentice trained workers in sectors other than the small-scale industries. 123 124 Unlike formal recruitment procedures in the large- scale industries, recruitment Of apprentices were Often undertaken through informal discussions between the pro- prietors in the small-scale industries and their neighbors, customers or relatives. Considerable differences were Observed among the socio-economic characteristics Of the proprietors and their apprentices. Blacksmiths, rather than recruiting outsiders as apprentices had their family members learning the skills. In other industries the majority Of the apprentices were not related to their masters. As could be expected, the prOprietor/masters were generally Older than their apprentices. The average age of the apprentices was seventeen years. On the other hand apprentices appeared to be better educated than their masters, with an average level Of formal education Of five years. While there was evidence Of inter-generational mobility in Occupations, with less than 10 percent of the apprentices having parents engaged in the small-scale industries, there is an indication that many of the appren- tices have parents in low paying occupations (see Table 4.6). By discussions with the apprentices it was gathered that many could have chosen to go into formal training in high schools or government institutions had their parents had the money. Low income and knowledge about scarcity of jobs for primary school leavers drove many youths tO seek apprenticeship training. Of the 247 apprentices 125 interviewed nearly 90 percent Of them never even bothered to look for wage employment but proceeded straight from elementary school into apprenticeship training. Those who sought wage employment spent an average Of fifteen months before they could get such jobs as domestic servant. Due to the relatively young age of the apprentices the decision to seek training in the small-scale industries was made by their parents or relatives. Contracting apprenticeship training generally involves the parents approaching a master craftsman. Terms Of contract involves determination Of the length Of training, appren- ticeship fees and whether the youth would be living with his master or coming from his home. Apprenticeship con- tract could be written or verbal. About 45 percent of the apprentices signed written agreements with their masters while 43 percent had verbal agreements and about 13 percent yet to enter into one from Of agreement or the other. Unlike the common practice in EurOpean apprentice- ship, written agreements in Western Nigeria small-scale industries generally are not notarized nor are they enforceable in a law court. The organization Of training can be described as informal. The training period, averaging three and a half years involves serving under a master at the master's place Of employment. NO theoretical training of any form is provided, training is done on-the-job; the amount of job done being dependent on the demand for the product Of 126 the firm and the master's reputation as a craftsman. Among the establishments whose services are in constant demand, the apprentices were Often exposed to many challenges and training Opportunities unlike those apprenticed to masters who receive relatively less order. Training in the trade centers--a substitute insti- tution for apprenticeship--is organized along the pattern Of formal education instititions with regular class schedules, regulations and examinations. Both practical and theoretical training are provided by qualified instruc- tors for a period of three years. Unlike apprenticeship, however, trainees in the trade schools are rarely exposed to the challenges of modern technology. This has made many employers Of skilled labor to complain that training in trade centers are outdated. The costs Of training apprentices are comprised Of direct trainee costs, prOprietors' costs and foregone earnings. While apprentices paid training fees ranging from N15 in the furniture industry to N28 in auto-repairs for the entire period Of training, they received allow- ances averaging N55 in furniturecraft, N42 in tailoring and about N54 in auto-repairs. Empirical evidence Of the ratio Of apprenticeship fees to allowances received indicated that prOprietors in the small-scale industries were subsidizing the training Of their apprentices, even when allowances were adjusted for the contribution Of apprentices to the firm's 127 earnings. The part Of the cost Of training borne by the prOprietors include the Opportunity cost of their time, the equipment used during the training and the subsidy. The estimated proprietor costs ranged from 5 percent per annum in tailoring to 89 percent in the furniture industry. On the other hand the proportion of the cost borne by the apprentice (that is, the ratio Of fees, equipment pur- chased by the apprentice, foregone earnings and the difference between the Output produced and allowances received) was estimated at about 95 percent in tailoring to less than 12 percent in the furniture industry. In localities, for example, Ijebu—Ode where there is scarcity Of apprenticeable youths, inducements in the form Of allowances were generally higher than in areas (e.g., Oyo) where there is considerable interest in the appren- ticeship training. In the trade schools, student costs, consisting of fees, uniforms, books and foregone earnings, constituted about 7 percent Of the estimated total cost of training--the rest being borne by the government. Obser- vations during the course of this study showed some evidence of capacity under-utilization in the trade schools--both in equipment and personnel. For example, it was Observed at Ijebu-Ode Trade Center that some equipment had been lying idle for years tO the extent that the storekeeper had no record as to when and for what purpose the equipment was purchased. The skills of the students, especially those in their final year of training, are not 128 utilized either in producing marketable output or services or in instructing their juniors as is generally done in apprenticeship training. Examination Of factor productivity in the small- scale industries showed that labor productivity, especially in tailoring and blacksmithing, was very low. Proprietors in tailoring and blacksmithing also worked fewer hours compared with proprietors in furniture and auto-repairs. The elasticity of output with respect to capital services was low in all the industries and locations, thus when related to the relatively modest amount Of capital employed in the sub-sector, presents an indication Of the level Of capital productivity. The average value-added/ capital services ratio ranged from as low as 2.83 in blacksmithing to as high as 21.70 in furniturecraft. With respect tO the different categories of labor employed in the sub-sector, evidence from the study shows that the marginal productivity Of the proprietors was twelve times the marginal productivity Of the apprentices. The value Of the marginal productivity Of journeymen (hired workers) ranged from N 0.05 per hour in the furniture industry to N 4.92 per hour in auto-repairs. Compared with the pro- prietors, the hired workers were less productive in the furniture industry but appeared tO produce more per hour than the prOprietors in auto-repairs. Differences in productivity among the locations were evident in some 129 industries. Proprietors in Oyo appeared to be more produc- tive when compared with those in Ijebu-Ode. Labor produc- tivity in tailoring in Aiyepe, a rural area, compared favorably with Ijebu-Ode, but lower than the productivity level of prOprietors in Oyo. These locational differences in productivity could be accounted for by both demand and supply factors. It was Observed that there were more small-scale industry establishments in Ijebu-Ode than in Oyo township. On the other hand, the pOpulation in Oyo (about 500,000) is about twice the population of Ijebu-Ode. In general, compared with workers in other sectors of the economy, the estimated returns tO the prOprietors in furniturecraft and auto-repairs industries were high. On the other hand, blacksmiths and tailors in the study earned less than the national average earnings of crafts- men. In estimating the internal rates Of return to training under apprenticeship and trade center programs, a number of assumptions which are crucial tO policy con- siderations were made. First, it was assumed that the returns generated in one year Of working in the labor market will be reinvested the next year. While it is conceivable that this could be possible in self-employment, its practicability in wage employment is doubtful. However, it is believed that other investment Opportuni- ties exist in which earnings or returns from training could be reinvested. Second, it was assumed that costs 130 and earnings would remain the same for similar programs either new or additions to existing ones. It is likely, however, that the average costs Of training in the trade schools will fall as more trainees are recruited or as existing facilities are utilized more intensively. More- over, earnings may increase or decrease, depending on the number of skilled craftsmen entering the labor force, the demand for their skills and the rate of mobility between localities. The estimated rates of returns showed that the private as well as social rates of return were high in wage employment for the two types Of training programs. However, private rates of return were higher for trade school trainees compared with apprentice trained workers-- a reflection of government wage policies and the subsidies to trade schools. The private, as well as social rate Of returns in self-employment varied with industry and location. Pri- vate and social rates were highest in the furniture industry in the two locations, and averaged about 30 percent (private) and 17 percent (social). The lowest rates were in tailoring, the private returns being 2 percent, 7 percent and 4 percent in Ijebu-Ode, Oyo and Aiyepe, respectively. For all the locations social rates of return in tailoring were negative. For all the industries the private rates were higher than the social 131 rates, an indication Of the extent of subsidy being pro- vided by the proprietors for their apprentices. Implications for Industries The findings Of this study show that returns to training vary among the industries and locations, being highest in furniture industry and lowest in tailoring. Low earnings are a result Of complex interacting factors important among which include the level Of income in the location and hence the demand for the services of the small-scale industries and the ability Of the prOprietors to use their resources more efficiently and search for markets for their products beyond their immediate environ- ment. One important component Of training that is essential for self-employment which is missing in the training which the proprietors themselves received is lack of management knowhow. Nearly all the establishments had no record Of sales, orders or purchases. Nor do they have regular schedules Of work. Moreover, in many cases, especially among the blacksmiths and furniture makers there is a considerable waste Of raw materials as a result Of the simple tools they are using. This appears to be one Of the reasons why capital productivity is low in nearly all the industries. Low labor productivity could also be a result of the necessity to work long hours because the simple hand tOOls have little multiplicative effect on labor input. 132 TO raise earnings in the industries require improvements in both the techniques of production and the skills of the workers. It is recommended that prOprietors be given training in the basics of firm management such as economics, record keeping and marketing. There is also a need for engineers in the country to design simple machines or equipment that will replace some Of the anti- quated tools such as the goatskin bellows used by the blacksmiths. A research and development body involving engineers, economists and sociologists must be constituted tO deal urgently with the problem of skills and production techniques in the industries. Implications for Apprentice Training While apprentice training can be regarded as a byproduct Of the activities in small-scale industries, it is the main venue by which entrepreneurs in small-scale industries are recruited. The findings in the study show that the system also provides other sectors Of the economy with scarce skilled workers. In as much as the system can perform these functions there is need for the incorpora- tion Of training under apprenticeship system in the man- pOwer policies Of the country. The type of training provided by the system is devoid Of any theoretical exercise; the training which an apprentice receives depends on the skills which the master himself possesses and the demand for these skills. Thus, strategies which 133 aim to upgrade the performance Of the prOprietors in the small-scale industries will also be beneficial to their apprentices. As an educational process such strategies as technical assistance and provision of extension services for small industries should not be pursued in isolation by the Ministry of Industries alone, but must involve the National Manpower Board. A joint approach by these two bodies will lead to more effective retraining Of prOprie- tors and hence their apprentices. Unfortunately, no study exists in Nigeria as to the most effective method Of retraining proprietors in small industries. It is most important, therefore, that the personnel from the National Manpower Board who are experienced in planning training programs and those from the Ministry of Industries who are directly concerned with the problems in the small-scale industries work together to provide an effective retraining program. At present proprietors in auto-repairs and furniturecraft recruit apprentices by Offering inducements in the form Of allowances and lower apprentice fees. In the trade schools, the government provides the subsidy. An important policy question therefore deals with whether such a subsidy as provided by the government is necessary to induce trainees and whether such subsidies should be extended to apprenticeship system. In the first instance every level of formal education, from elementary school to the university, is being subsidized by the government. 134 Informal training, such as in the apprenticeship system, has up to the moment been Operated without the benefit Of government subsidies either to the trainees or the firms which Offer training. But empirical evidence from this study has shown that apprenticeship training provides wOrkers both for small-scale and large-scale industries. Moreover, prOprietors who provide the training Of appren- tices rather than apprOpriating their total investment in Offering training Often provide subsidies and hence suffer a loss of earnings. Thus low as income in the small-scale industries is, the prOprietors appear to be transferring income to other sectors of the economy. A policy that aims at redistributing income either through grants or changes in fiscal policies that would favor the small-scale industries is advocated. Implications for Trade Centers According to the edict establishing the institu- tion Of trade centers in Western Nigeria, one Of the goals envisaged was that trainees from the trade centers, on completing their training, would establish their own business. Evidence from this study shows that a substan- tial majority Of trade center trainees rather than establishing own business are employed in the large-scale industries and public institutions as wage earners. This, Of course, appears to be a reflection Of the acute shortage of intermediate skilled workers in the economy 135 and government wage policies which make returns in wage employment higher than in self—employment and thus more attractive to the trainees than the uncertainties of self-employment. Equally important, however, is the evidence gathered in the course Of this study that the type and content Of training provided does not equip the trainees with the type of knowledge needed to succeed in self-employment. The current curriculum in the trade schools lack such essential courses as economics, accounting and marketing. Nor do the trainees have out-Of- school practical training. If the goal Of self-employment is to be realized, it will be necessary to reorganize the present pattern and form of training. It may also be necessary to provide loans to the graduating trainees without the stringent requirements Of collaterals or conditions which the students cannot meet or fulfill. This applies to apprenticeship trainees as well. Indeed, it is recommended that efforts must be directed to encourage self-employment Of trade-school trainees since by doing this they tOO could recruit apprentices and hence generate positive secondary effects by teaching others. Implications for Further Research This study is an attempt to evaluate the effective- ness of apprenticeship training in the small—scale industries. Admittedly the data on which the study was 136 based are modest, being limited by the resources available for the study. There is need for a similar study to be carried out in other states or areas of the country in order tO have a national perspective to the problem of apprenticeship training. But apprenticeship training in the small-scale industries is but one avenue by which entrepreneurs as well as skilled workers are produced. Other forms of training include craft schools, industrial development centers, and training in the large-scale industries. As alternative forms Of training, these schemes require detailed evaluation so that policy makers may be aided in their choice Of the most effective training program for small industries. Apart from the choice Of training form, there is a need for a detailed study Of alternative institutional patterns for reaching the thousands Of small-scale industrial entrepreneurs scattered all over the country. Among the important questions for which answers have to be sought include, should the proprietors in the small- scale industries be organized at the local levels or on a regional basis for retraining. An experimental study on a small scale is, therefore, recommended. Lastly, it is recommended that the techniques of production in the small-scale industries be studied by a team Of specialists and new equipment designed or Old 137 one modified to increase production efficiency and reduce waste. NOTES 1Methods and procedures used in computation Of various parameters will be discussed in the relevant chapters. 2It was Observed that while some prOprietors deny ' charging fees, their apprentices said in confidence that they had tO pay fees at the end of their training. More- over, disparities occurred in the amounts proprietors allege they pay as allowances and that the apprentices say they received. In these cases we used the information provided by the apprentices rather than the proprietors. 3A full discussion of the costs of training is presented in Chapter VI. 4In making this comparison, a word of caution is in order. The Central Bank Study carried out in 1975 used income figures Of 1971-72, a period when the rate Of infla- tion was higher than in 1976. Thus, a downward bias is expected in these figures, which bias affects the picture that emerges in the comparison.; 5For a detailed discussion on wage determination in Nigeria, see P. Kilby, Industrialization in an Open Economy: Nigeria 1945-1966, pp. 275-82. 6About September 1976 the Federal Government decreed a wage freeze in the private sector to curb what is considered excessive wage Offers in the private sector. . 7Studies Of life expectancy in Nigeria (Olusanya and Ayeni, 1974) show that for a four-year Old child the probability Of living up to 56 years to be about 0.70, and for a fifteen-year Old, a 60 percent change of living up to 50 years. Our data on the age and experience of the proprietor show that for the Oldest trade (blacksmithing) about 10 percent had been on the job 35 years. Thus, using these Observations as a guide to our estimates we 138 139 assumed that only a small prOportion of the apprentices would derive benefits from their training beyond 35 years. 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