The Returns to Academic and Vocational Qualifications Steven McIntosh Department of Economics University of Sheffield

Introduction Work done for the Department for Education and Skills, who wanted: estimates of returns to qualifications to detailed qualifications estimates of how returns vary by prior qualifications estimates of age earnings profiles Published in Oxford Bulletin of Economics and Statistics, 2006.

Returns to Education OLS estimation of log-linear earnings function. Data – pooled QLFS producing annual data sets for 1996, 1998, 2000 and 2002.

Econometric Issues Coefficient on education can be biased due to: Omitted ability measures Omitted family background measures Measurement error on education variable Sample composition bias. Results suggest biases cancel out, leaving OLS a good estimate of true returns

Specification Issues Include all qualifications that individuals hold, not just highest qualification: Estimates based on all people who obtain the qualification Lack of common support with the no qualifications group No need to decide which is the highest qualification

Qualification higher degree (0.025)**(0.015)**(0.016)**(0.015)** first degree (0.014)**(0.010)**(0.011)**(0.010)** other HE (0.042)*(0.025)**(0.024)**(0.029)* HE diploma (0.025)**(0.019)**(0.020)** 2+ A levels (0.013)**(0.010)** The Returns to Academic Qualifications – All Full-Time Male Employees

Qualification A level (0.024)**(0.014)** (0.015)** A/S levels (0.087)(0.044)(0.035)(0.034) 5+ GCSEs A*-C (0.011)**(0.008)** 1-4 GCSEs A*-C (0.010)**(0.007)**(0.008)** GCSEs D-F (0.015)**(0.010)** (0.011)** The Returns to Academic Qualifications – All Full-Time Male Employees

Qualification professional quals (0.022)**(0.017)** (0.019)** teaching qualifications (0.024)*(0.016)**(0.017)**(0.016)** nursing qualifications (0.036)*(0.024)**(0.026)** HNC/HND (0.014)**(0.009)** (0.010)** RSA higher (0.170)(0.069)(0.068)(0.040) ONC/OND (0.013)**(0.010)** City & Guilds Ad. Craft (0.014)**(0.009)** NVQ (0.027)(0.014)**(0.011)* The Returns to Vocational Qualifications – All Full-Time Male Employees

Qualification City & Guilds Craft (0.016)(0.014)**(0.017)**(0.016)** BTEC diploma (0.027)**(0.022)(0.023)* NVQ (0.023)**(0.014)**(0.013)**(0.012)** City & Guilds other (0.014)**(0.012)**(0.015)**(0.014)** NVQ (0.041)**(0.025)**(0.019)**(0.020)** RSA lower (0.030)*(0.019)**(0.022)**(0.020)** other (0.007)**(0.005)** The Returns to Vocational Qualifications – All Full-Time Male Employees

The Returns to Academic Qualifications – All Full-Time Male Employees, by Highest School Qualification, QualificationNo school quals GCSEs D-F 1-4 GCSEs A*-C 5+ GCSEs A*-C 1 A level2+ A levels higher degree (0.040)**(0.110)*(0.045)**(0.036)**(0.055)**(0.009)** first degree (0.026)**(0.054)*(0.020)**(0.013)**(0.023)**(0.007)** other HE (0.038)**(0.082)**(0.032)**(0.028)**(0.065)(0.021) HE diploma (0.034)**(0.054)**(0.030)*(0.023)**(0.035)(0.014)

QualificationNo school quals GCSEs D-F1-4 GCSEs A*-C 5+ GCSEs A*-C 1 A level2+ A levels professional quals (0.036)**(0.059)**(0.032)**(0.020)**(0.032)**(0.012)** teaching quals (0.044)**(0.088)(0.039)(0.025)*(0.029)**(0.010) nursing quals (0.030)**(0.084)(0.030)**(0.026)(0.046)(0.025) HNC/HND (0.015)**(0.031)**(0.010)**(0.008)**(0.017)**(0.010) RSA higher (0.082)(0.150)(0.066)(0.092)(0.061)(0.069)* ONC/OND (0.016)**(0.026)**(0.009)**(0.008)**(0.021)(0.016)** C&G Ad.Craft (0.010)**(0.016)(0.008)**(0.010)**(0.038)(0.027)** NVQ (0.015)**(0.023)*(0.011)**(0.013)**(0.028)(0.020)** The Returns to Vocational Qualifications – All Full-Time Male Employees, by Highest School Qualification,

QualificationNo school quals GCSEs D-F 1-4 GCSEs A*-C 5+ GCSEs A*-C 1 A level2+ A levels City & Guilds Craft (0.012)**(0.020)**(0.014)*(0.019)(0.054)(0.038) BTEC diploma (0.031)(0.037)(0.017)**(0.022)(0.050)(0.047) NVQ (0.013)**(0.017)(0.012)**(0.015)**(0.040)**(0.028)** City & Guilds other (0.011)**(0.018)(0.012)(0.016)**(0.039)**(0.025)** NVQ (0.019)**(0.026)**(0.021)**(0.029)**(0.109)(0.042)** RSA lower (0.023)(0.033)(0.018)**(0.022)**(0.048)*(0.026)** other (0.005)**(0.009)(0.006)**(0.007)**(0.015)(0.006)** The Returns to Vocational Qualifications – All Full-Time Male Employees, by Highest School Qualification,

Estimating Age Earnings Profiles 1. Assume the wage differential is constant at all ages. 2. With a single cross-section, interact age with qualifications, to determine how differential varies - but cohort effects with age effects. 3. Use cohort data set to isolate pure age effect - but will be based on education received 50 years ago 4. Create pseudo cohorts in repeated cross section data, to follow one cohort for a number of years, while still looking at recent attainment for young people.

Estimating Age Earning Profiles – Pseudo Cohorts

TABLE 4 Age and cohort effects in estimated returns Male degreeFemale degreeMale GCSEMale vocational level 3 age0.133 (0.041)*0.042 (0.011)*0.002 (0.007)0.008 (0.030) age 2 / (0.105)* (0.014)* (0.009) (0.077) age 3 / (0.001)* (0.001) cohort (0.026)0.005 (0.025)0.065 (0.019)*0.004 (0.019) cohort (0.036)0.019 (0.036)0.077 (0.028)*0.017 (0.026) cohort (0.046)0.003 (0.045)0.132 (0.035)*0.046 (0.034) cohort (0.057)0.012 (0.052)0.144 (0.041)*0.084 (0.042) cohort (0.065)0.038 (0.062)0.181 (0.047)*0.130 (0.048)* cohort (0.072)0.170 (0.054)*0.180 (0.052)* Constant (0.516)* (0.194)*0.168(0.135)-0.033(0.378) Obs R-squared

Conclusion A lot of information in the LFS with which to estimate returns to a detailed list of qualifications. Pseudo cohort approach can be useful in estimating lifetime returns, but only for qualifications that are held by large numbers of people.