General Education, Vocational Education, and Labor-Market

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General Education, Vocational Education, and Labor-Market

Transcript Of General Education, Vocational Education, and Labor-Market

DISCUSSION PAPER SERIES

IZA DP No. 6083
General Education, Vocational Education, and Labor-Market Outcomes over the Life-Cycle
Eric A. Hanushek Ludger Woessmann Lei Zhang October 2011
Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor

General Education, Vocational Education, and Labor-Market Outcomes over the Life-Cycle
Eric A. Hanushek
Stanford University, NBER and CESifo
Ludger Woessmann
University of Munich, Ifo Institute, CESifo and IZA
Lei Zhang
Tsinghua University
Discussion Paper No. 6083 October 2011
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IZA Discussion Paper No. 6083 October 2011

ABSTRACT
General Education, Vocational Education, and Labor-Market Outcomes over the Life-Cycle*
Policy debates about the balance of vocational and general education programs focus on the school-to-work transition. But with rapid technological change, gains in youth employment from vocational education may be offset by less adaptability and thus diminished employment later in life. To test our main hypothesis that any relative labor-market advantage of vocational education decreases with age, we employ a difference-in-differences approach that compares employment rates across different ages for people with general and vocational education. Using micro data for 18 countries from the International Adult Literacy Survey, we find strong support for the existence of such a trade-off, which is most pronounced in countries emphasizing apprenticeship programs. Results are robust to accounting for ability patterns and to propensity-score matching.

JEL Classification: J24, J64, J31, I20

Keywords:

vocational education, apprenticeship, employment, wages, life-cycle, adult education, International Adult Literacy Survey (IALS)

Corresponding author:
Ludger Woessmann ifo Institute for Economic Research at the University of Munich Poschingerstr. 5 81679 Munich Germany E-mail: [email protected]

* We thank participants at the CESifo area meeting in the Economics of Education in Munich, in particular Stefan Wolter, Sue Dynarski, Lance Lochner, and Holger Sieg, for valuable discussion and comments. Hanushek was supported by the Packard Humanity Institute. Woessmann gratefully acknowledges support from the Pact for Research and Innovation of the Leibniz Association.

1. Introduction Most advanced economies are concerned about the ease with which young workers can
make the transition from school to work. The unemployment rate for youth invariably exceeds that for the economy as a whole, contributing to a variety of social problems. In addition, many young workers struggle to find their place in the labor force, changing not only employers but also occupations multiple times before they settle down to stable jobs. One appealing way to deal with this transition problem is to link students more closely to jobs through vocational education programs and through apprenticeships with firms (see Ryan (2001)). Moreover, the potential for improving youth labor markets in this manner has considerable political support around the world. This study takes a broader perspective on vocational education programs. In contrast to previous research that has focused almost entirely on the school-to-work transition of youth, this paper studies the difference in life-cycle work experience – employment, wages, and career-related training – between individuals receiving vocational and general education.
Countries have actually adopted very different schooling structures that differ fundamentally in their focus on the job transition. Some stress vocational education that develops specific job-related skills in order to prepare students to work in specific occupations, while others emphasize general education that provides students with broad knowledge and basic skills in mathematics and communication and serves as the foundation for further learning and on-the-job training. The United States, for example, has largely eliminated vocational education as a separate track in secondary schools on the argument that specific skills become obsolete too quickly and that it is necessary to give people the ability to adapt to new technologies. On the other hand, many European and developing countries, led by Germany’s “dual system,” provide extensive vocational education and training at the secondary level – sometimes with direct involvement of industry through apprenticeships. The underlying rationale is that by
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concentrating on specific vocational skills, it is possible to improve the entry of workers into the economy and to make them productive at an earlier point.
These differing perspectives suggest a possible trade-off between short-term and longterm costs and benefits for both individuals and the entire society: The skills generated by vocational education may facilitate the transition into the labor market but may later on become obsolete at a faster rate. Our main hypothesis is thus that any initial labor-market advantage of vocational relative to general education decreases with age. This argument is related to the macroeconomic perspective of Krueger and Kumar (2004a, 2004b) who have argued that the propensity to use vocational rather than general education may be an underlying cause of growth-rate differentials between the U.S. and Europe. The argument is simply that vocational (“skill-based”) as opposed to general (“concept-based”) education leads to slower adoption of new technologies. While similar notions underlie our work here, we are really interested in the other side of the relationship: If there is rapid technological and structural change, what does this mean for hiring workers with vocational and general education?
The existing empirical analysis of the impact of educational type on individuals is fairly limited and provides mixed information about either the existence or magnitude of our hypothesized trade-off. The general-vocational education debate has centered on whether vocational education is effective in facilitating youth school-to-work transition.1 However, even at job entry, existing studies have not found a universal advantage of vocational over academic education for youth’s labor-market outcomes, although the analysis has been problematic.2 As
1 Another larger literature focuses on the firm side of the market and their incentives to invest in general or specific education; see the initial work by Becker (1964) and more recent analysis by Acemoglu and Pischke (1998, 1999). 2 For examples, see Arum and Shavit (1995); Malamud and Pop-Eleches (2010); and the reviews in Ryan (2001) and Wolter and Ryan (2011). Oosterbeek and Webbink (2007) and Fersterer, Pischke, and Winter-Ebmer (2008) are recent examples studying the labor-market outcomes of vocational education.
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Paul Ryan (2001) states: “The merits of vocational curricula and work-based preparation are particularly difficult to evaluate statistically, given the potential importance of selection around unobservables, the near-absence of experimental evidence, and the paucity of prior labor market experience to use in econometric modeling” (p. 73).
Studying the life-cycle implications of vocational education thus presents a number of challenges. First, as noted in the job-entry studies, people entering various kinds of vocational education may differ systematically from those entering general education. Second, investigating life-cycle outcomes requires comparing individuals of different ages, but ensuring that the workers of one age cohort are otherwise similar to those of another cohort is difficult. At the very least, sufficiently detailed information on individuals is required to check the validity of any melding of information across age groups. A third issue that we must face revolves around varying definitions of programs and of institutions (see, for example, the discussion in Mansuy et al. (2001)). The definition of vocational education is not consistent across countries, so what one country calls vocational education may be very different from that of another even when the underlying institutional structure appears similar. As such, many of the existing analyses actually compare very different kinds of programs including various kinds of school-based training, firm-based training, and apprenticeships. Thus, understanding the importance of different kinds of programs suggests a necessity of comparison of effects across different types of countries.
This paper employs an international sample of labor-market outcomes for workers across the age spectrum, using micro data from the International Adult Literacy Survey (IALS). The database is unique because it provides detailed information about the education and skills of workers across the life-cycle in countries with varying structures of vocational schooling and
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training. To address the concern of selection into different types of education, we propose a difference-in-differences framework, comparing labor-market outcomes across different ages for people with general and vocational education. We further address the remaining concern that selectivity into education types might have changed over time by accounting for individual-level measures of ability and of family background, as well as country-specific changes in the size and ability composition of the different education types over cohorts. We also employ propensityscore matching to reduce concerns of selectivity further.
Starting with a sample pooling individuals from 18 countries, we find that individuals with general education initially face worse employment outcomes but experience improved employment probability as they become older relative to individuals with vocational education. When we conduct the estimation for each country separately, the estimates, however, vary noticeably across countries. In the U.S. and other countries without a noteworthy vocational education system, the employment probability of individuals with different types of education does not vary with age at all, whereas in most of the European countries in the sample, the ageemployment pattern differs and sometimes quite significantly between individuals with general and vocational education. The pattern is most pronounced in the well-known apprenticeship countries of Denmark, Germany, and Switzerland. In these countries, the easier entry into the labor market is balanced by noticeably greater withdrawal at older ages.
One reason underlying the estimated employment pattern for the “apprenticeship countries” seems to be adult training. With increasing age, individuals with general education are more likely to take any career-related training and receive more hours of career-related training relative to those with vocational education, giving them the opportunity to continue updating their skills to be employed in a changing economy.
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Policy judgments about the efficacy of vocational education and apprenticeships depend of course on the balance between early-career and late-career costs and benefits. The life-cycle wage patterns by education type are remarkably similar in most countries, suggesting that the primary determinant of differences in lifetime earnings is the life-cycle employment pattern. Preliminary results about lifetime earnings are mixed for the apprenticeship countries, with apprenticeships having a positive return in Switzerland but not in Denmark and Germany. Interestingly, this pattern matches the growth pattern of these economies over past decades.
In the following, Section 2 introduces the database and Section 3 the empirical model. Section 4 presents the main results on employment impacts of education types, and Section 5 analyzes heterogeneity across countries. Section 6 presents results on impacts of education types on adult education and wages. Section 7 weighs early against late labor-market experience in a calculation of individual lifetime earnings, and Section 8 concludes.
2. Data To investigate our primary hypothesis, we require data about education type and about
employment patterns over the life-cycle. But, more than that, we need sufficient detail about the labor-market skills of individuals so that we can identify the impact of education type on employment rates in the face of individual selection into schooling programs.
2.1 The International Adult Literacy Survey (IALS) Our primary data source, the International Adult Literacy Survey (IALS),3 provides a
unique opportunity to investigate the impact of education type.4 Conducted in the participating
3 The IALS survey was developed by the Organisation for Economic Co-operation and Development (OECD). A follow-on – the Programme for the International Assessment of Adult Competencies (PIAAC) – is currently in process.
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countries between 1994 and 1998, IALS provides us with data for 18 countries, including 15 European countries plus the U.S., New Zealand, and Chile.5 The IALS contains information about respondents’ years of schooling and whether they completed a vocational program or general program in secondary and post-secondary education for a representative sample of adults between 16 and 65 years of age in each country. Obviously, average educational attainment varies across countries and over time (see Appendix Table A1), which is the topic of an extensive literature already, but what we are most interested in here is the distinction between general and vocational programs.
While other datasets may also record employment patterns for different age cohorts, a key element of the IALS is its extensive data on other individual employment-related characteristics including age, gender, years of schooling, employment status, earnings, adult training, parents’ educational attainment, and, for a subset of countries, father’s occupation. Additionally, each individual was given a series of assessments of cognitive skills (called “literacies”) that are comparable within and across countries. The literacy tests in prose, document, and quantitative domains are designed to measure basic skills needed to participate fully in modern society. As discussed in Hanushek and Zhang (2009), the test scores appear to be a reasonable index of general levels of skills. These detailed individual measures are important in investigating any changes across time in the selectivity of general and vocational programs.
For the empirical analysis, we restrict our sample to individuals who completed at least secondary education and who are currently not students. This is the sample on which general
4 For an overview of economic studies using the IALS data, see section 5 in Hanushek and Woessmann (2011). 5 Another country with IALS data is Canada, but it could not be included in the analysis because it only provided bracketed age information.
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and vocational education types can be defined for individuals’ final schooling level. We also restrict our analysis to males, because of their stable aggregate labor-force participation patterns in prime-age groups across most countries in our sample. This circumvents concerns about cohort-specific selection into work by females.
For individuals who finished secondary education, a general education is defined if their education program is academic or college preparatory; a vocational education is defined if their education program is business, trade, or vocational. Some individuals report their education type as secondary-level equivalency or simply as “other”; since it is not clear what exactly these programs entail, we classify this as a separate category.6 For individuals who finished the first stage of tertiary education, a general program is one that leads to a university degree (BA/BS), and a vocational program is one that does not lead to a university degree.7
2.2 Descriptive Patterns
Tables 1 and 2 show the overall distribution of education types by country and by age group. On average, 35 percent of males in our sample completed a general education and 47 percent completed a vocational education (the remainder being in the residual “other” category). Of the 73 percent of individuals in our sample whose final education is at the secondary level, about one quarter completed a general education and one half a vocational education. More than half of those completing a tertiary education finished with a bachelor’s degree.
6 According to the Organisation for Economic Co-operation and Development (2010), at the secondary level, general programs are programs that are not designed explicitly to prepare participants for a specific class of occupations or trades or for entry into further vocational or technical education programs, while vocational education prepares participants for direct entry, without further training, into specific occupations. 7 We essentially define the tertiary type-A programs as general education and tertiary type-B programs as vocational. The former are largely theory-based and are designed to provide sufficient qualifications for entry to advanced research programs and professions with high skill requirements, such as medicine, dentistry, or architecture. The latter are typically shorter and focus on practical, technical, or occupational skills for direct entry into the labor market (Organisation for Economic Co-operation and Development (2010)).
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EducationIndividualsCountriesSkillsPrograms