What it's worth: Establishing the value of vocational qualifications to employers

This research starts from the premise that the value of qualifications to employers is what they are prepared to pay for them in the labour market.

• There are clear differences in the way employers value the importance of qualifications for different categories of worker. Employers consider formal qualifications as important or essential for management, professional and trades/technical operations, less so in the clerical, sales and service, and plant and machine operator occupations, and virtually non-existent in labour and related occupations.

• While employers may use qualifications in the selection process as a signal of competence, direct industry experience and evidence of personal qualities are often rated higher and more valuable.

• Although qualifications are a less important element in the recruitment process than other factors, it is clear that those with higher-level qualifications have superior labour market outcomes.

• Those with non-school qualifications (those issued by registered training providers and higher education providers) are more likely to be employed on a full-time basis, although much is dependent on the level of qualification-indicated by individuals with degrees or higher having the best employment outcomes.

• In terms of earnings, there are considerable gains for degree and diploma holders, as well as those who have completed an Australian Qualifications Framework (AQF) certificate level III/IV qualification. High school Year 12 levels appear to matter more than lower-level (certificate I and II) vocational qualifications.

Thousands of qualifications are issued each year by universities, by technical and further education (TAFE) institutes, and by private providers. In 2002, 6.2 million people aged 15 to 64 years held some kind of non-school qualification [1] and 1.6 million were part way towards completing one. Individuals undertake further education for a whole host of reasons, undoubtedly one of which is that it enhances their prospects of attaining a job in a field of interest to them. In doing so, they evidently believe that employers place a value on the learning acquired in the course of completing the qualification, as shown by rising levels of participation and educational attainment over the course of the 1980s and 1990s (despite the introduction of student fees in the late 1980s).

This report relies on a simple premise: the value of qualifications to employers is what they are prepared to pay for them in the labour market. The intrinsic (or use) value of qualifications to employers is inherently subjective, although the economic or exchange value can be observed. It can be observed at three points-in recruitment, in (un)employment, and in earnings.

The interest in this report lies primarily in vocational qualifications, although in assessing value, this report is also interested in the relative value (or added value) of these qualifications when compared with years of schooling and higher education qualifications.

Who has qualifications?

The focus of this report is on people aged 15 to 64 years who have left secondary school. Almost half of these people (49%) had obtained qualifications since leaving school. It was most common for them to have a university degree or a higher degree (18%), followed by holders of certificates at Australian Qualifications Framework (AQF) level III/IV (15%), diplomas (7%), certificate level I/II (7%) and certificate holders of some indeterminate level (2%).

Men were more likely to have qualifications than women, a difference of six percentage points, which is wholly explained by men being much more likely to have a certificate level III/IV (23% compared with 9%). For all other levels of educational attainment, the proportion of women was higher than that for men.

Other than for the youngest group (15 to 24-year-olds), many of whom are only recent school leavers, educational attainment is inversely associated with age. Among 25 to 34-year-olds, 58% have non-school qualifications, a proportion which falls with each successive age group, to 41% for 55 to 64-year-olds.

Q: Do employers want people with qualifications when recruiting?
A: Yes, for some jobs, but experience is more valuable.

A survey was conducted of over 800 advertised job vacancies-posted on the internet-in three distinct labour markets (regional New South Wales, Brisbane, Northern Territory) to identify the importance of qualifications in the recruitment process. The survey identified that qualifications were specified in advertisements in one-third of cases. They were much less likely to be specified than experience, which was mentioned in 73% of cases, but qualifications were mentioned more often than specific skill sets (26%) and licences (6%).

Overall, 18% of advertisements specified that a degree was required, compared with 9% specifying a certificate level III/IV, 2% a diploma and 4% could not be classified. Among all of the advertisements perused for this exercise, there was not one which specified a certificate level I/II qualification. Where advertisements did specify that qualifications were sought, it was mostly deemed to be an essential rather than a desirable requirement.

By far the strongest association with whether qualifications were desired was the occupation of the job being filled. Where the vacancy was for managers or professionals, just over half of the advertisements specified that a qualification was sought-typically a degree-while for associate professionals and tradespersons, the proportion was just under half. For tradesperson vacancies, the qualification sought was, in nine out of ten cases, a certificate level III/IV. For vacancies in the intermediate clerical, sales and service occupations, qualifications were specified in around one in five cases. The remaining four occupational groups all had proportions below one in ten, and it was effectively zero for vacancies for elementary clerical, sales and service workers, and labourers and related workers.

When combining the qualifications results with other potential selection criteria, it becomes apparent that occupations can be broken up into three broad groups. The first constitutes managers, professionals, associate professionals and tradespersons. Qualifications are relatively important for securing jobs in these occupations, but rank well below experience. The second group constitutes advanced clerical and service workers, intermediate clerical, sales and service workers, and production and transport workers. In this group, experience is also the most important attribute and qualifications are relatively unimportant, but specific skills and/or licences which are narrowly defined according to occupation; for example, ability to use accounting software such as MYOB, or having a forklift licence, can be important. The third group is made up of elementary clerical, sales and service workers, and labourers and related workers for whom, by and large, only experience is relevant.

These findings were verified and given added nuance in interviews with three organisations involved in recruitment-a recruitment agency, a labour hire company and a job placement organisation (a member of the Job Network). Where qualifications are specified, they are used only as a threshold-screening device. Except for low-skilled jobs where the recruitment process is largely concerned with basic employability skills and the wage to be paid, recruiters have highly job-specific selection criteria. The most important of these is demonstrated competence to do the job. This is captured in people's work history and other, often intangible, factors which indicate a 'fit' between the employer's requirements and the applicant's characteristics.

Q: Are employers more likely to employ people with qualifications?
A: Yes, but much depends on the level of qualification (and age and sex).

Although qualifications are a less important element in the recruitment process than other factors, it is clear that those with qualifications have superior labour market outcomes. On average, those with qualifications are more likely to be 'sorted' into employment according to what qualification they completed, are less likely to find themselves unemployed, and are more likely, where they are working, to be in a full-time job. The analysis is based on unpublished data from the Australian Bureau of Statistics' May 2001 Survey of Education and Work.

People with no non-school qualifications had the lowest employment-to-population ratio; this finding holds for men and for women in each broad age group. Among qualification holders, a degree confers the largest advantage, with an overall employment rate (relative to the total) nine-percentage points higher for men and 17 percentage points for women. Taking account of sex and age, those with vocational qualifications also generally experience positive outcomes. Employment rates are higher for those with certificate level III/IV qualifications, but men and women with certificate level I/II qualifications do not have any higher rate than the all men and all women figures.

This pattern of relative advantage to qualification holders also generally prevailed when examining the unemployment rate. Those with degrees had very low unemployment rates, less than half the 'all persons' rate of 6.5%. Men and women with certificate level III/IV qualifications had relatively low unemployment rates, except among those aged 55 to 64 years, where it rose sharply to be the highest among all categories (which is partly explained by those without qualifications in this age group exiting altogether from the labour force). Those with certificate level I/II qualifications have a higher unemployment rate than the average and, in the case of women, higher than those without post-school qualifications.

Most men-at least nine out of ten of those in the prime-age groups-worked full-time irrespective of qualifications, but for women, the proportion working full-time was strongly associated with qualifications. Among those with degrees, 69% were working full-time compared with 55% for both certificate level III/IV and certificate level I/II holders.

Q: Do employers pay more for people with qualifications?
A: Yes, but again it depends on the qualification, and schooling matters more than low-level qualifications.

The unit record file of the Australian Bureau of Statistics' 2001 Survey of Education and Training Experience was used to analyse the determinants of earnings for almost 12  000 employees. Consistent with the many hundreds of studies that have been conducted on the association between education and earnings, a strong positive association is found.

People with a degree-level qualification or better earned over two-fifths more than an otherwise identical person who had not completed Year 12, and this was the case for both men and women.

Men with higher-level vocational qualifications earned, on average, between 11.2 and 29.8% more per week than otherwise comparable men with no non-school qualifications. For women with higher-level vocational qualifications, there was still a wage premium, although it was less substantial at between 4.1 and 22.6%.

For those leaving school before completing Year 12 and then going on to complete a lower-level vocational certificate, there was no discernible wage difference compared with an otherwise identical person who had not done the certificate. Those who did complete Year 12 were better off in terms of earnings, irrespective of whether they had also undertaken a certificate I/II qualification or not.

[1] Non-school qualifications are awards for educational attainment issued by registered training providers, and higher education providers. They range from certificates level 1 through to postgraduate degrees. In some instances, non-school qualifications may be attained concurrently with school qualifications (for example, VET in Schools).

.