Companies say they are saving up to pound;1 million a year by training apprentices rather than trying to recruit skilled workers.
Defence firm BAE Systems told researchers from Warwick university that it made the savings because apprenticeships cost 25 per cent less than other forms of training.
Recruitment costs less, retention is better and apprentices fit into the culture of the company quicker, BAE said.
British Telecom said that it saved pound;1,300 per apprentice compared to other forms of recruitment because the students were more productive and produced better work.
Other companies, such as Honda, said apprentices made good employees in comparison to workers from other car manufacturers who require two years retraining.
The research was commissioned by the apprenticeships taskforce to put the business case for employers investing in work-based learning. It comes as the Learning and Skills Council said it expected to meet its target for 175,000 apprentices under the age of 22 to start by this month.
The taskforce called for the Government to fund apprenticeships for 35 per cent of young people by 2010.
But Sir Roy Gardner, chairman of the taskforce, said: "There are still challenges that need to be addressed before we can say we have established apprenticeships as a high-quality vocational route for young people."
High drop-out rates are chief among these. Currently, less than a third of apprentices finish their course. The task force suggested that a target of 65 per cent completion should be achievable in England.
Apprentices should be given a clear career path through the company along with better advice and guidance about their initial choice of occupation.
EDS, a technology company, has reduced the proportion of its drop-outs to just 15 per cent in this way, the task force said.
Several employers running successful apprenticeships, including BAE and catering firm Compass Group, said that former apprentices had risen to become senior executives.
But schools are not equipped to advise pupils about pursuing apprenticeships and have a "perverse incentive" in the form of league tables to advise bright students against work-based learning.
Ofsted should be encouraged to increase the weighting given to careers guidance in school inspections, and schools should publish the numbers of students entering work-based learning, as they do for further and higher education.
A report later this month is due to examine the reasons why apprentices fail to finish their courses.