Analysis of private returns to vocational education and training

In 2008 as part of a national push to increase Australia’s skill levels, the Council of Australian Governments agreed on targets that would see, by 2020, a doubling of diploma and advanced diploma completions and a halving of the proportion of 20 to 64-year-old Australians without at least a certificate III. Such targets assume there is a financial return as a result of undertaking vocational education and training (VET). Using data from the Australian Bureau of Statistics’ (ABS) Surveys of Education and Training (1993–2005), this study investigated this assumption by looking at the employment and earnings for individuals who had completed a VET course and how these may have changed over time.

This work examines the effect of field of education on the returns from VET for individuals, as well as the returns from VET for mature-age students (defined here as persons between 30 and 64 years). It also compares these with higher educational qualifications. This study differs from previous research on returns from VET in that it does not determine the individual rate of return from investing in a VET course. Rather, the authors determine the effects of educational qualification on employment and earnings outcomes, and how these have changed over time.

Key messages

• Compared with those who have completed Year 12, employment and earnings benefits are only gained by completing a VET course at the diploma level. This result differs from some previous studies (for example, Long & Shah 2008). However, by comparison with individuals who do not complete Year 12, both employment and earnings benefits can be gained from completion of a VET qualification at any level, an outcome which accords with previous research.

• Undertaking courses in the area of business, engineering, architecture, building and automotive provides the greatest benefits relative to those who did not complete Year 12.

• For mature-age students, those who have not completed Year 12 and undertake a VET course at the certificate III level or higher gain the greatest employment and earnings benefits. However, there is a lag of several years before these benefits materialise.

• The study covers the period 1993 to 2005 to assess whether VET qualifications have continued to attract similar returns relative to Year 12 and non-school completers. The earning benefits from completing a diploma were shown to be relatively stable during this period. At the sub-diploma level there were more fluctuations but, relative to non-school completers, returns from these qualifications were positive. This was not the case when comparisons were made to Year 12 completers.

The difference in findings between this and previous studies highlights the complexity of measuring private returns from education. Decisions made about the comparison groups, the degree of disaggregation of educational levels, data sets and the statistical techniques used all impact on the results. So too does the influence of variables such as prior educational achievement, ability, opportunity or motivation—variables which are not present in the Survey of Education and Training. Nevertheless, this study makes it clear that we cannot assume VET has a financial return to the individual; it all depends on educational background and the level and field of the qualification being undertaken.

Tom Karmel
Managing Director, NCVER

This report provides estimates of the effects of completing a vocational education and training (VET) qualification on employment and earnings outcomes. Having explicit estimates of the returns from VET is important because such information allows individuals to weigh the potential benefits of acquiring these qualifications. The methodology we use is one based on matched comparisons of persons at each level of VET qualification with Year 12 completers and those who did not complete Year 12.

The data we use for the analysis come from four waves of the Survey of Education and Training (SET)—1993, 1997, 2001 and 2005—conducted by the Australian Bureau of Statistics (ABS). These are national household surveys which collect detailed information on socio-demographic characteristics, employment characteristics and educational qualifications obtained.

Part of the analysis of the effects of VET qualifications over the period 1993 to 2005 is complicated by the fact that in the late 1990s, the Australian Qualifications Framework (AQF) was introduced and this completely changed the types of educational qualifications that were awarded. With the introduction of AQF, basic vocational, skilled vocational, and associate diplomas were superseded by certificates I–IV, diplomas and advanced diplomas. In this report, we make our best attempt to provide concordance between the pre-AQF credentials and AQF credentials using the Survey of Education and Training data.

This report builds on the existing Australian literature by providing a comprehensive analysis of the effects of VET qualifications relative to Year 12 completers and those who did not complete Year 12. The analysis of returns from VET is of high policy relevance because it is precisely people who completed Year 12 or less who would be most interested in the potential benefits from obtaining VET qualifications. In addition, and an important extension to the previous research in this area, results by field of education are provided, as well as empirical estimates of the effects of VET qualifications for mature-age students. This study builds on the existing literature on returns from VET qualifications by expanding the scope of coverage to the period 1993–2005 (the period where Survey of Education and Training data from ABS are available), and by using a statistical procedure known as matching, where emphasis is placed on creating the most appropriate comparison groups for VET participants.

In this study, to take into consideration the returns from VET within a broad education framework, VET qualifications are split into a four-level qualification classification: bachelor degree and above; associate diploma (advanced diploma/diploma); skilled vocational qualifications (certificates III– IV); and basic vocational qualifications (certificates I–II), where the qualifications in parentheses are the post-AQF equivalents. In addition, three broad fields of education are considered: business (including management and commerce); engineering and related technologies; architecture, building and construction; and other.

The following are the main findings of our analysis:

• Relative to Year 12 completers, there are no benefits from obtaining basic/skilled vocational (pre-AQF) or certificate I–IV (post-AQF) qualifications. However, there are positive employment and earnings outcomes associated with advanced diploma/diploma qualifications.For example, in 2005, males with advanced diplomas/diplomas were 4.7 percentage points more likely to be employed than males with a Year 12 qualification. They were also earning on average 6.9% more per week.

• Relative to persons who did not complete Year 12, there are benefits to be obtained from obtaining any kind of VET qualification, including the lower-level certificate I–II qualifications. In all the years examined, people with VET qualifications had relatively higher average weekly earnings and a higher likelihood of being in permanent employment.

• The finding that, relative to Year 12 completers, there are no employment or earnings benefits from completing a certificate III–IV qualification differs from the findings in some previous research but are consistent with the findings in several others. Perhaps an important issue to consider in assessing the value of certificate III–IV qualifications is whether school completers or non-completers are more appropriate as a comparison group.

• Estimation of the effects of VET mentioned so far are not conditional on school completion status. In other words, they do not account for the fact that there are individuals with VET qualifications who might or might not have completed Year 12. Alternatively, it would be possible to only compare Year 12 completers with VET completers who have also completed Year 12, and similarly to only compare persons with less than Year 12 with VET completers who have also less than Year 12. Estimates of the returns from VET using this alternative approach find that in general, for comparisons relative to Year 12 completers, removing noncompleters from the VET group increases the estimated size of the returns; for comparisons relative to people with less than Year 12, removing Year 12 completers from the VET group reduces the estimated size of the impact.

• Relative to persons who did not complete Year 12, the fields of education that provide the largest effects on earnings and employment outcomes appear to be business, engineering, architecture, building, and automotive.

• For mature-age students contemplating whether or not to undertake education to obtain a VET qualification, it appears that it is only worthwhile to do so if individuals have fewer than 12 years of schooling, and are intending to enrol in VET courses at the certificate III level or higher. Furthermore, in such instances, it might take a year or two before any positive effects of the investment in education materialise.

• There have been no dramatic changes over time in the returns from VET qualifications. Between 1993 and 1997, the earnings premium of associate diploma holders relative to both Year 12 completers and non-school completers was positive and of a similar magnitude. Similarly, between 2001 and 2005, the earnings premium of advanced diploma/diploma holders relative to both Year 12 completers and non-school completers was somewhat constant. It is harder to compare changes that took place pre- and post 1997 because of the introduction of AQF and the subsequent re-labelling of credentials. There were more fluctuations over time in the earnings premium to the sub-diploma VET qualifications. But relative to non-school completers, it is clear that over the entire period, 1993 to 2005, there were statistically significant returns from having such VET qualifications.