Understanding the costs and benefits of vocational education and training provides a basis for decision making regarding the investment in training. This is an important consideration for many stakeholders in the VET system, including individuals, businesses and government. This paper summarises recent research investigating the costs and benefits of training, considering it from each of these three perspectives. The review also highlights the difficulties in undertaking such analyses and provides a practical guide to factors that should be considered when undertaking, or interpreting, such an exercise.
About the research
Understanding the costs and benefits of vocational education and training (VET) provides a basis for making decisions about investing in training. Having this understanding is important for many stakeholders in the VET system including individuals, businesses and government. This review paper aims to summarise the recent research investigating the costs and benefits of VET, considering the topic from each of the three perspectives.
This review paints a complicated picture; there are numerous ways to measure the costs and benefits of training, resulting in varied estimates of the return on investment. However, some overarching conclusions can be made at each of these levels based on recurrent findings in the research.
- At the economic level, research on the return on investment in VET falls into two broad categories:
- determining the return on the investment for spending that has occurred
- investigating the potential return should spending/funding be altered.
Both of these approaches have demonstrated the value of VET to the economy through increases in employability and, to a lesser degree, increases in productivity. Education and training have also been shown to bring other, non-financial, benefits to society such as improved health and reduced national crime and drug use.
- For individual businesses, analyses of the return on investment in training result in highly variable estimates. This may be because the methods used appear to be more suited to industries where increases in productivity are easier to define and measure (such as in manufacturing, where some very high returns were reported, compared with service-based industries). It is particularly difficult to untangle the financial and non-financial benefits of training to business, as many improvements, such as reduced staff turnover, absenteeism, and positive changes to workplace culture, may also result in economic pay-offs for the business.
- For the individual student, higher-level VET qualifications, such as advanced diplomas and diplomas, are consistently demonstrated to provide a good return on investment. We can also be reasonably confident that students will experience a return on their investment at the certificate III and IV levels, as demonstrated in a majority of the studies reviewed. The individual returns from VET are mostly generated through increased participation in the workforce. Lower-level qualifications (certificates I and II) consistently resulted in low financial returns, although these qualifications may result in other benefits, such as further study or improved self-esteem and wellbeing.
This review has identified the complexities associated with assessing the costs and benefits accruing from investment in VET. This paper consequently concludes with some practical guidelines on how to plan (or interpret) an analysis of the costs and benefits of training. Readers may also be interested in the support document to this piece of work. Prepared as part of a broader program of work being undertaken cooperatively with UNESCO, the support document outlines an evaluative framework focused on the methods and processes of measuring the return on investment in training. Also of potential interest is the report Data on total investment in VET: what needs to be collected by Gerald Burke released by NCVER.
Dr Craig Fowler
Managing Director, NCVER
The aim of this paper is to summarise and provide analyses of the considerable body of research that investigates the costs and benefits of vocational education and training (VET). It does so from three different perspectives:
- the government (at the economy level)
- business (or industry at a broader level)
- the individual (or groups of individuals).
This paper considers a broad array of costs and benefits accruing to each of these perspectives, broadly dividing them into two categories: financial (market) or non-financial (non-market). It also describes some of the challenges encountered in investigating the costs and benefits and estimating the return on the investment in VET.
Understanding the costs and benefits associated with VET enables decisions about investing in education and training. For government, analyses of the return on investment provide feedback on the performance of the system and programs and enable justification of, or changes to, existing funding levels. For business enterprises, understanding the costs and benefits of training allows for informed decisions about how to best utilise their training expenditure. Understanding the costs and benefits of training helps individuals make informed decisions about studying.
This paper will be of use to those who are looking to gain an overall understanding of the current state of research in this area, but also to those who wish to better understand the complexities of measuring and analysing the costs and benefits of VET.
This review of the literature shows that there is no single or definitive answer. There is no magic formula explaining the return on investment for the economy, business or the individual. Nor is it possible to generalise non-financial benefits to all situations. The many different factors involved, and how they influence the findings of analyses conducted, limit our ability to generalise the outcomes. However, with these caveats in mind, we can make the following broad conclusions.
Most of the Australian research investigating the return on investment in VET can be categorised according to the two main aims of the research: determining the return on investment for spending that has occurred; or predicting the potential changes to returns should funding levels be altered through policy and funding reforms. While there is only a small body of recent work tackling these questions, these do provide some evidence suggesting that VET does deliver a substantial return on investment. This is attributed to VET generating an increase in employability (and, to some degree, increasing the productivity of workers). It should be noted, though, that it is difficult to distinguish the returns due to government investment from those made by business or individuals.
In addition to the financial benefits seen in the economy, an international body of research has demonstrated that education (in general) brings a number of other benefits to society, such as improved health, increased democratisation and human rights, improved environment, and reduced national crime and drug use. Vocational education, in particular, has long been used to improve social equity, as is reflected in Australian research, much of which has focused on the benefits of VET for disadvantaged groups.
Analyses based on individual businesses or industries appear to be highly context-specific, resulting in extremely variable estimates of the return on investment. The methodologies used to measure increases in productivity seem to be more effective in some industries than in others, leading to uncertainty about the reliability of findings. Some examples of very high returns on investment were uncovered in the literature, especially in businesses focused on manufacturing where training is often highly specific.
It is not easy to untangle the financial (market) and non-financial (non-market) benefits of training at the business level, as improvements in measures such as staff turnover, absenteeism and even positive changes in workplace culture can all have economic pay-offs for the organisation. Nonetheless, the research has likened businesses to small societies or communities in which the social benefits from VET are experienced.
There is a substantial body of Australian research examining the return from VET to individuals, more so than for the economy as a whole or at the business level. This review highlights that the different data and methodologies used in these studies have led to much variability in the findings, making it problematic to be confident about any of the specific returns on investment reported. The returns experienced by individuals are influenced by a number of personal characteristics and contextual factors, also adding to the difficulty of generalising. However, we can make some broad conclusions.
Higher-level VET qualifications, such as advanced diplomas and diplomas, are consistently shown to provide individuals with a good return on their investment. This is likely to be due to a combination of an increase in participation (employment) and productivity (higher wages), an important distinction as productivity increases are not always seen with lower-level qualifications.
As demonstrated in a majority of the studies reviewed, we can be reasonably confident that students will experience a return on investment at the certificate III and IV levels. The research also showed that the financial returns at all levels are higher for students studying part-time compared with full-time, due to the lower opportunity costs associated with part-time study.
Lower-level qualifications (certificates I and II) consistently resulted in low financial returns, but the research suggests that these qualifications may result in other, non-financial, benefits to students, such as leading to further study or improved self-esteem, self-confidence and wellbeing. These non-financial benefits are not exclusive to lower-level qualifications though, and can be experienced by VET students at all levels.
The challenges in measuring and analysing costs and benefits
This review highlights the difficulties in measuring and analysing the costs and benefits of education and training at each of the levels investigated in this study. While analyses at each of these levels have their own challenges, there are some difficulties that span all three. One very fundamental challenge is how to define what is meant by ‘training’. Most studies consider qualification level as a measure of training, but many scenarios would benefit from a consideration of training more broadly, including informal and/or non-accredited training. Another common challenge is how to take the less tangible costs and/or benefits into account. These are not straightforward to measure or quantify but, as the research has demonstrated, they can be important in determining the financial return on investment, or they may be resultant benefits in their own right. Other challenges include determining the variables and methodologies to use, and how to interpret the subsequent findings.
Based on the problematic issues observed, this paper concludes with some practical suggestions on how to plan an analysis of the costs and benefits of training. These suggestions are also relevant when attempting to interpret or transfer findings from an existing analysis to a different context. The considerations to be taken into account include:
- defining the purpose of the analysis and the perspective that will be taken (is the analysis looking at individuals, groups of individuals, business, an industry, the economy, or several countries?)
- deciding the elements or variables to be included and the methodology to be used. This will include investigating whether the data are available or if elements of interest are measurable
- thinking about how the findings will be interpreted. This will be based on the limitations and context of the analysis and any assumptions made.
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|Support document - evaluation framework measuring ROI in TVET||825.7 KB||Download|
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