Research

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Research

Private returns to vocational education and training qualifications by Michael Long and Chandra Shah

Much attention has been given to thinking about how to respond to the current skills shortage in
Australia. One response has been to encourage people to enrol in vocational education and training (VET). But why enrol in a VET course? An essential part of the story is the financial benefit from doing a course.This study provides estimates of the rates of return to students enrolling in VET courses.

An estimate of the rate of return from enrolling in a VET course considers the study as an investment by the student in his or her future income. It treats the costs of study as an investment and expresses future increases in income resulting from undertaking the course as a rate of return on that investment—akin to an interest rate. In other words, the higher the interest rate, the better the investment for the student.

The rate of return framework provides a very useful way of looking at the private benefits of various qualifications. However, it is important to understand how it is constructed because the structure plays an important role in determining the answers. Distinctive features of the model used in this paper include the following:

The cost of education includes foregone income.This means that the rate of return is lower for fulltime students than for part-time students because their foregone earnings are included as a cost.This values leisure as having no value, and doesn’t include any personal satisfaction that might come from the ‘full-time student experience’.

Income is used rather than, as is more common, earnings.The advantage of this is that the calculations include the effects of qualifications in securing employment.

Finally, the model excludes those with university qualifications, and so it cannot be used to compare the value of VET and university qualifications.

Key messages

VET is a good investment for males undertaking diplomas or certificates III or IV and females undertaking diplomas, with rates generally exceeding 20% for those studying full-time

For males, the rates of return are similar for full-time students doing diplomas and those completing higher-level certificates. While incomes are higher for those undertaking diplomas, the period of study is longer.

Rates of return increase greatly for part-time students because foregone earnings are lower.

An increase in tuition fees would reduce rates of return, but they remain healthy even under high-fee scenarios.

This study provides valuable insights into the private returns from undertaking VET. However, many interesting questions remain, including whether these rates have changed in recent years, how they compare to the return from university level study and the exact nature of the interrelationship between the year left school and the level of VET qualifications.

Tom Karmel
Managing Director, NCVER