In this paper we attempt to investigate the effect of easy-to-observe characteristics and hard-to-observe ability on the success of applicants on the transition from compulsory schooling into apprenticeship training, asking whether and to what extend firms use hard-to-get information about the productive potential in their hiring decision.

Firm-based vocational training is the most common post-compulsory-schooling in Switzerland, with more than two thirds of each cohort opting for this educational pathway. As an apprentice needs to be hired by a firm for the training period and thus entails early integration into the labour market (age 16), employer’s screening devices play an important role in the sorting process of youngsters into vocational education. In the public discussion, stereotyping is claimed to play a (too) dominant role in this process. There are not only claims that firms generally show insufficient willingness to offer apprenticeship places and thus force a considerable part of compulsory-school graduates every year into non-certifying scholastic interim solutions, but also are there signs that the process of allocation of young applicants into vocational tracks might discriminate those with unfavourable attributes, as for example those with low parental socio-economic status, migration background or low-level compulsory school track attendance, presumably irrespective of their true ability.

There are at least two good reasons why subsequent training firms effectively may base their hiring decisions on easily observable factors. First, many of individual background characteristics are indeed correlated with true school performance and thus with labour productivity. Second, firms are reluctant to rely solely on educational signals such as school marks and the level of school track at compulsory school, because in the absence of uniform school standards and external exams in Switzerland, grades between schools and classes are not perfectly comparable and therefore potentially poor predictors of the true ability of an applicant. It is therefore only natural to assume that firms build expectations based on other easy-to-observe ability proxies and decide accordingly.

However, although employment decisions solely based on easy-to-observe factors are cheap, they may also be costly. Economic rationale therefore suggests a potentially high interest of firms in seeking hard-to-get ability information before choosing apprenticeship applicants: In contrast to ordinary work contracts, apprenticeship contracts cannot be terminated easily and wages are fixed over a defined period of several years. Furthermore, as compulsory school leavers at age 16 all are newcomers in the world of work, there is no advance information provided by the labour market on the applicant’s productive potential.

In order to test whether hard-to-observe students’ ability is revealed and accounted for within the transition from schooling to market-based upper-secondary education, or whether, alternatively, allocation into vocational tracks is solely based on easy-to-observe factors, we make use of the unique longitudinal data set TREE that comprises PISA-2000 test scores of pupils at age 15 along with individual background characteristics and detailed information on their further educational and working pathways ever since.

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