Friday, 7 September 2018

Do older apprentices get the same earnings boost as younger ones?

Steven McIntosh and Damon Morris

There has been a huge increase in the number of people over the age of 25 who are undertaking apprenticeships. Prior to 2007, there were essentially no apprentices in this age group in England; in 2016/17, nearly half of all apprenticeship starts were for such ‘older’ apprentices. A new CVER study  is the latest to show an earnings return to starting an apprenticeship for young people. In related research, we ask whether undertaking an apprenticeship at a later point in one’s career is associated with a similar earnings boost.

To answer this question, we analyse administrative data recording all apprenticeship starts in England between 2004 and 2013. These data are matched to tax records containing information on annual earnings, from which a measure of daily earnings can be derived.

We use such earnings information from the period up to three years before the start of each observed apprenticeship, and in the period up to three years after its completion. This allows us to look at the change in earnings following the completion of an apprenticeship, relative to earnings received by the same individual before their training.

We compare this to the before-after change in earnings of a control group of similar people who also started an apprenticeship, but for some reason did not complete. The change in the earnings of this latter group can be taken as an indication of the change in earnings that the treated group of completers would have received had they not undertaken their apprenticeship.

We divide the observed apprentices into two age groups; those aged 19-24 and those aged 25 and over (apprentices below the age of 19 typically do not have prior earnings information with which to perform the analysis and so are excluded). Figure 1 shows the average earnings in each year for those who undertook an Intermediate (Level 2) Apprenticeship, separately by age group. ‘Year 0’ in these charts represents when the apprenticeship was actually undertaken.

The left-hand diagram shows that for both male and female apprentices in the 19-24 age group, earnings are significantly higher after an apprenticeship than before. But this is true whether the individual completes their apprenticeship (solid lines) or does not complete (dashed lines). The additional value of completing the apprenticeship is measured by the extra change in earnings of the completers, compared with the change in earnings of those who fail to complete. This can be seen as the widening gap between the solid and dashed lines, around the time of the apprenticeship.

For the older age group of apprentices, the right-hand diagram shows much flatter earnings profiles over time, as we would expect since earnings profiles typically become flatter with age. It is still possible to see a widening gap between the solid and dashed lines, showing that, as for the younger apprentices, completing an apprenticeship leads to a larger change in earnings over time than not completing.

Figure 1: Log Daily Earnings of Intermediate Apprentices

Figure 2 shows similar earnings profiles to Figure 1, but this time for Advanced (Level 3) Apprenticeships. We observe very similar patterns. For both age groups and for both genders, we can see a widening of the earnings gap between completers and non-completers after the apprenticeship, demonstrating the value of these apprenticeships in the labour market.

Figure 2: Log Daily Earnings of Advanced Apprentices

Using regression analysis, we can quantify by how much more earnings increase for the treated apprenticeship completers than for the control group of non-completers, while holding constant other factors that could influence earnings, such as age on completion of the apprenticeship, ethnicity and duration of apprenticeship. The results are consistent with the impression given in Figures 1 and 2. For both men and women and at both apprenticeship levels, there is a positive boost to earnings, with the effect of completing an apprenticeship on earnings being two to three times larger for the 19-24 age group than for the older group.

Having established that older apprentices benefit from lower earnings differentials than younger apprentices, the key question is why. We ask whether it is due to older apprentices earning a lower differential than younger apprentices for the same type of apprenticeship, or whether it is due to older apprentices choosing to do apprenticeships in the ‘wrong’ areas where the differentials are lower.
The first point to note is that individuals in different age groups choose to do apprenticeships in different areas. Figure 3 shows the proportion of younger and older apprentices within each apprenticeship framework.

There is a clear difference in these proportions across frameworks. Those to the left-hand side of the diagram (Automotive, Construction, Electro-technical, Plumbing, Hair and Beauty, and Engineering) are dominated by younger apprentices. At the other end are frameworks where the majority of apprentices are aged 25 and older, such as Business Administration, and Health and Social Care.

Figure 3: Age Group Percent by Framework (Ranked in ascending order of age 25+ proportion)

Next, looking within sectors, we find that for men at Level 2, and for women at both levels, there are a number of sectors where apprentices in the younger age group receive a higher earnings differential than older apprentices in the same sector. This seems to be particularly the case in non-manual business service sectors such as Business Administration, Accountancy, and IT.

For these groups, our results show that these lower differentials for older apprentices are the main cause of the lower overall differential for this older age group. Why they receive such lower differentials within these sectors is an important question. Surveys of apprentices at this time[1] point to the possibility of lower quality apprenticeships for older apprentices, since they are more likely to be existing employees before their apprenticeship (and so more likely to be engaging in ‘top-up’ training) and to have shorter apprenticeships on average. They are also less likely to receive formal training with a training provider and to see their apprenticeship as essential to their job.

For men at Level 3, the results are different: the main cause of lower differentials for older apprentices here is that they tend to undertake apprenticeships in sectors where the earnings differentials available are much smaller, such as in Business Administration, whereas the largest earnings differentials available are in Construction, Electro-technical, and Manufacturing.

While older apprentices may not want to move into such sectors at this stage of their careers, for the skill needs of the economy it is important that overall there are sufficient opportunities available in such higher value sectors, and that the apprenticeship scheme does not become dominated by older apprentices in the lower value frameworks.  

[1] BIS (2013). ‘Apprenticeship Evaluation: Learners.’ Department for Business, Innovation and Skills Research Paper 124.

No comments:

Post a Comment