Friday 7 September 2018

Does starting an apprenticeship boost young people’s earnings?

Chiara Cavaglia, Sandra McNally, Guglielmo Ventura

Apprenticeships feature in the vocational education systems of many countries, although their popularity varies widely. They are especially prevalent in countries like Austria, Germany and Switzerland and virtually absent in countries like Italy, Sweden and the United States, which rely more on classroom-based learning and put less emphasis on vocational education.

England is somewhere in between, with a high profile policy commitment to increase the number of apprentices in recent years. Much of the growth in apprenticeship provision has been taken up by older people (those aged over 25). A CVER study published today investigates whether and why the earnings benefits to completing an apprenticeship differ between younger and older people.

In related research , we investigate whether there is a return to starting an apprenticeship for young people. It relates to our previous work on this topic (see CVER Research Paper 009). In the new study, we only compare young people whose highest level of education is vocational (at Levels 2 or 3) – some of whom start an apprenticeship and some of whom do not.

We are interested in whether there is a payoff to starting an apprenticeship over and above leaving education with at most classroom-based vocational qualifications at the same level. This question is especially policy-relevant in the light of plans in England to increase the number of apprenticeships and to re-design post-16 vocational education with more of an explicit focus on apprenticeships.

We look at a range of employment outcomes for young people close to when they enter the labour market (at age 23) and after they have more labour market experience (at age 28). Compared with our previous work, we focus more on the causality question – that is, can apprenticeships be said to cause an increase in earnings? – and more explicitly on the gender gap in earnings between apprentices and non-apprentices.

We use linked education and labour market data from administrative data sources (Longitudinal Educational Outcomes) to undertake this analysis for the cohorts who finished their compulsory education between 2002/03 and 2007/08. For most of the analysis, we focus on the 2002/03 cohort, whom we can observe up to the age of 28 (in 2015).  We also make use of data from the Labour Force Survey to explore more fully the gender gap in earnings.

Using administrative data, we can control directly for many important observable characteristics that may influence both selection into apprenticeships and labour market outcomes. These include test scores at primary and secondary school, demographics and the secondary school attended. Although our set of controls is extensive and likely to absorb much of the pre-existing difference among those who start an apprenticeship and those who do not, we make use of other techniques (such as bounding and instrumental variables) to probe the question of causality.

Our results suggest a positive earnings differential from starting an apprenticeship in many contexts – and that this has a causal interpretation. But there is a huge range of estimates. For men, the differential is very high on average, especially for Advanced Apprenticeships. For women, the differential is roughly half the size and is especially modest for Advanced Apprenticeships by the age of 28.

For men, there is very high concentration in sectors where the return to an apprenticeship is high (such as Engineering) whereas women specialise in areas where the returns to having an apprenticeship are much lower (such as Child Development).

When we compare the earnings of men and women who did an apprenticeship, there is a large gap and much of this is attributable to the sector of vocational specialisation. But this is not the only reason. For example, among those who did an Advanced Apprenticeship, the gender earnings gap is still 13% (at age 23) even after including detailed controls for the apprenticeship sector, industry of work, etc.

Analysis of the Labour Force Survey suggests that this can partly be attributed to lower hours of work by women – but this is unlikely to be enough to explain the gap on its own. It is also interesting to note that the gender earnings gap between male and female non-apprentices (at vocational Level 3) is non-existent after including controls.

The results of our study should give cause for optimism that apprenticeships really do generate a positive return in the labour market for young people. Increasing opportunities for young people to access apprenticeships does seem to be a worthwhile policy, especially since these returns are experienced by individuals who leave school with low to medium qualifications.

But our research also illustrates huge variability in the returns to apprenticeships. A practical implication is that careers information to students should pay careful attention to the type of apprenticeships available rather than to encourage students to take any type of apprenticeship at all.

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