Do BTEC qualifications pay?

London Economics' Pietro Patrignani with a closer look at BTEC qualifications

BTEC qualifications are career-based qualifications and can be taken at different levels of the Regulated Qualification Framework (RQF) between Level 1 to Level 5 and above. BTECs at Levels 1 to 3 are normally taken at Further Education Colleges or schools, while BTEC qualifications at higher levels are available at FE colleges and Higher Education Institutions. While BTECs are specialist work-related qualifications, they are college based and not work-based learning qualifications (such as NVQs and Apprenticeships). BTECs account for a significant share of those with Level 3 vocational qualifications: for example, they account for 47% of young men and 30% of young women who have Level 3 vocational qualifications as their highest qualification (excluding Apprenticeships). 

Our recent research published in the CVER Discussion Paper 007 used the Longitudinal Education Outcomes (LEO) data to estimate the earnings differentials associated with a range of technical and vocational qualifications for young people. This showed the earnings differential associated with qualifications when they are the highest level attained by a young person. A positive earnings differential can reflect both higher wages and higher hours of work. Our analysis showed that, while for NVQs and Apprenticeships there were positive and strong earnings differentials for men and women, for BTECs this was only true for women. For men, there was no significant effect from having BTECs as the highest qualification. This is in contrast with typical evidence from the Labour Force Survey: findings using historical data have usually shown positive wage differentials for BTECs for both males and females at all levels of the Regulated Qualification Framework (RQF). While the LFS uses survey data referring to a sample of working age individuals (16-64), analysis using LEO is based on information from matched administrative data sources for a group of young learners who recently went through the English educational system, with labour market outcomes measured at the age of 26. As a result, part of the difference in the estimates is driven by age, as shown in CVER Discussion Paper 009.

We have followed on from this work by investigating BTECs in far more detail. This is the subject of our most recent briefing note.

Personal characteristics and labour market outcomes

We first investigate the characteristics and labour market outcomes for the group of learners in possession of BTECs and other vocational qualifications, with a particular focus on Level 2 and 3 qualifications. 

In terms of personal characteristics and further education attainment the key findings show that, compared to NVQs and other vocational qualifications:

• The average level of prior attainment (measured at the ages of 11 and 16) is substantially higher for both men and women undertaking BTECs compared to other vocational routes. 

• A higher proportion of learners holding BTECs are from BAME backgrounds (non-white British), and this is true for both males and females across all levels.

When looking at further study and attainment at higher levels, BTEC qualifications at Level 3 and Level 2 often act as a stepping stone for further study and education for both males and females:

• Between 40% and 45% of learners with BTECs at Level 3 attain degree-level qualifications or above, compared with between 5% and 8% for Level 3 NVQs and 20% and 25% for other vocational qualifications at Level 3. 
• At Level 2, the percentage of BTEC holders achieving at Level 3 qualification or above is in excess of 50%, with 15% attaining at least degree-level qualifications or equivalent. The corresponding proportions for NVQs at Level 2 are considerably lower, and slightly lower for ‘other’ vocational qualifications.

Earnings differentials

We then estimated earnings differentials for BTECs and other vocational qualifications using a variety of counterfactual groups (including results from the Labour Force Survey restricted to younger people). The main findings indicate that: 

• For males in possession of Level 3 BTECs as their highest qualification, we failed to observe positive earnings differentials compared with individuals achieving at the qualification level immediately below. However, the earnings differentials turn positive if we restrict our attention to individuals holding Level 2 BTECs or individuals enrolling in Level 3 BTECs but failing to achieve. 
• For Level 2 BTECs there is little evidence of positive earnings differentials, while the estimates for other Level 2 vocational qualifications are more often positive.
• For females, earnings differentials for both Level 3 and Level 2 BTECs are positive and strong, and more consistent across the different specifications. They typically range between 10% and 15%, and are slightly larger than the estimated earnings differentials for other vocational qualifications at the same level.

Although the analysis using the administrative data did not show positive earnings differentials for males compared to individuals at the level immediately below of the RQF, it would not be reasonable to interpret this as evidence that the qualification does not add any skills or proficiencies that are valued in the labour market. This is because BTECs often enable learners to progress and attain at higher levels. Indeed they are the main vocational route to higher education and equivalent qualifications.

Furthermore, earnings differentials are positive in some specifications and it might be the case that earnings differentials become higher in later years (as reflected in the LFS estimates), as we are considering estimates for young people within a relatively short time of leaving the education system.
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"Further analysis of the earnings differentials associated with BTECs", Pietro Patrignani, Sophie Hedges and Gavan Conlon, CVER Briefing Note 006 (February 2018) is available at http://cver.lse.ac.uk/publications/default.asp

Which skill signals matter truly in getting a job?

Lisa Simon from the ifo Center for the Economics of Education on the impact of skill signals on hiring decisions

Individuals make costly investments (in terms of time, effort or money) to signal skills to potential employers, such as getting good grades in school or college or learning a foreign language. However, there is little understanding on which skill investments will pay off in finding employment upon entering the labour market. Labour market entrants use skill signals to convey productivity to future employers as these cannot directly observe applicants’ skills in the first stage of the hiring process (i.e. written applications including CVs). While there is a well-known relationship between cognitive or non-cognitive skills and individual labour market outcomes, the role of skill signals themselves is less well established. Analysing and isolating the effect of how skill signals such as grade-point-averages (GPA) affect labour market outcomes is difficult for at least two reasons: First, different types of skills are usually correlated, i.e. a smart person with a high GPA usually also has other good skills. Second, we do not know from observational data, to which extend a potential employer really observes skill signals.

In a new paper with Marc Piopiunik, Guido Schwerdt and Ludger Woessmann, we conduct an experiment with a representative sample of nearly 600 human resource managers to analyse the effects on employment of skill signals within three domains: cognitive skills, social skills and maturity. In an online survey, our participants are asked to choose between two CVs, which appear side-by-side on the screen: “Which applicant would you rather invite for a job interview at your firm?” The (fictitious) CVs have randomly assigned skill signals, which allow estimating the causal effect of each skill on being invited for an interview. The choice experiment mimics the first stage of an application process, in which human resource managers review written applications and decide who to invite for an interview. We look at two distinct groups of labour market entrants for whom relevant skills, requirements and expectations vary: secondary-school graduates applying for an apprenticeship and university graduates with a BA in Business. Cognitive skills are signalled through the (school or university) GPA, IT and foreign language skills. Social skills are signalled through social volunteering and playing team sports. Maturity is signalled through age, long internships and the high-school GPA in case of university graduates. The experiment was followed by a short survey on HR manager characteristics and hiring preferences.



Our results

We find that skill signals in all three domains – cognitive skills, social skills, and maturity – affect the probability of being invited for a job interview. The figure below shows point estimates and confidence intervals for all signals for both labour market entrant groups. GPAs prove important for all, with a stronger effect for university graduates than for secondary-school graduates. IT and language skills are particularly relevant for females. Social skills are highly relevant for both genders and particularly important for secondary-school graduates entering the labour market at a young age. Maturity is particularly relevant for males, especially for secondary-school graduates. These heterogeneities by labour market entry age and gender are consistent with varying relevance, expectedness, and credibility of the different skill signals in different contexts. 

We also find heterogeneities with respect to HR managers’ personal characteristics. For secondary-school graduates applying for an apprentice position, managing directors and older HR managers put less weight on school GPAs, but instead more weight on IT skills, social volunteering, and experience through internships. Among college graduates, HR managers in large firms value college GPAs more, possibly due to a more standardized procedure of applicant selection. Furthermore, we find that the self-reported hiring priorities of HR managers are consistent with their decisions in the choice experiments, confirming the intended information value of the skill signals.

Our study reveals important aspects about how signals of skills are processed and utilized in the labour market. Gender differences in the effects of language skills, IT skills, and maturity are generally in line with gender stereotyping. Social skills are most effectively signalled by social volunteering among secondary-school graduates but by engaging in team sports among college graduates, possibly reflecting limited credibility of volunteering activities of older individuals who may behave strategically.

Our results also suggest that skill signals with straightforward verifiability in real hiring situations, such as GPAs, internships, and age, tend to have higher returns than skills that are more costly to verify, such as language or team sports, in particular at large firms. In terms of policy implications, our paper stands in contrast to a vast literature that deals with discrimination on the labour market due to innate characteristics such as race or gender. Our study shows which skill signals that can be changed and acquired through investments of effort, time or money, impact hiring decisions.

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"Skills, Signals, and Employability: An Experimental Investigation" by Marc Piopiunik, Guido Schwerdt, Lisa Simon, and Ludger Woessmann, CVER Research Paper 012 (February 2018) is available at http://cver.lse.ac.uk/publications/default.asp