Friday, October 21, 2011

The Lifetime Value Of Education: The Argument Against Vocational Education

As much as I try to be objective in what I write and in what I cover, that’s obviously impossible – we’re all human, and we all have our own particular philosophical and ideological blinders. But the effort is worth making consciously, if only to measure your own opinions against other potentially valid perspectives.

In this vein, here’s a solid piece of work that provides evidence that vocational education actually reduces individual lifetime incomes (from the introduction; emphasis added):

General Education, Vocational Education, And Labor-Market Outcomes Over The Life-Cycle
Eric A. Hanushek Ludger Woessmann Lei Zhang

...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.

These differing perspectives suggest a possible trade-off between short-term and long- term 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...If there is rapid technological and structural change, what does this mean for hiring workers with vocational and general education?

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 age- employment 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.

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.

So while vocational/technical education at secondary level may (or may not) help kids get a job, they may suffer from lower lifetime earnings by having skills and knowledge that is less transferrable across firms and industries. They’re also less likely to engage in lifelong learning, which obviously entrenches this tendency. This reduces the return on investing in vocational education for both the individual and society, a not insignificant result.

I’m not about to change my mind on supporting a considerable expansion of vocational education in Malaysia just yet though – the counterfactual is not to my mind the difference between a general secondary education with a vocational education, but  vocational education against no secondary education at all. That’s a narrower role than I had originally envisaged it to be, but then I never saw vocational education in Malaysia taking on the scale of Germany’s for instance.

And there’s solid reasons for thinking this way – net secondary school enrolment is below 70% in Malaysia, compared to over 95% at the primary level (source: World Bank). That’s an awful lot of kids dropping out of the school system.

Technical Notes:

Hanushek, Eric A. and Ludger Woessmann & Lei Zhang, "General Education, Vocational Education, and Labor-Market Outcomes over the Life-Cycle", NBER Working Paper No. 17504, October 2011


  1. If I'm reading the way the number is calculated correctly, it is possible that the large difference between primary & secondary is not entirely due to drop outs.

    There could be a significant component that comprises of those continuing their education outside Malaysia or outside the formal school system.

  2. The 25% difference translates roughly to 90,000 children every year. I don't think it's plausible that we have that many of our children going overseas and/or going to private/religious schools.