Labour Market Outcomes of Older Versus Younger Apprentices

48 Pages·2017·2.44 MB·English

by  Chiara Cavaglia

RESEARCH PAPER CVER Discussion Paper Series - ISSN 2398-7553
Do Apprenticeships Pay? Evidence for England
Chiara Cavaglia, Sandra McNally, Guglielmo Ventura
Research Discussion Paper 015
September 2018
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© C. Cavaglia, S. McNally and G. Ventura, September 2018.
Do Apprenticeships Pay? Evidence for England

Chiara Cavaglia, Sandra McNally* and Guglielmo Ventura

September 2018

Abstract
The importance of apprenticeships for early labour market transitions varies across countries and over
time. In recent times, there has been a policy drive to increase the number of people undertaking
apprenticeships in England and there are plans to dramatically change the post-16 system, which
would include making apprenticeships a more important part of it. This raises the question as to how
beneficial apprenticeships are to young people currently – especially in the context of a country
without an existing broad-base of apprenticeship provision. In this paper, we use administrative data
to track students through their schooling and into the labour market. We analyse the payoff to
apprenticeships for young people in the short term (when they are around 23 years old) and after a
few years in the labour market (when they around 28 years old). We ask whether there is a payoff for
young men and women in terms of employment and earnings. Our results suggest a positive earnings
differential on average which has a causal interpretation. However, there is huge variability in the
estimated earnings differential between sectors and this has important implications for the gender
earnings gap because of the different choices made by men and women.

JEL Classification: I20; I28; J24

Keywords: apprenticeship; vocational education.

Acknowledgements
This work has been funded under the CVER programme of research (which is an independent research
centre funded by the Department for Education) and the Centre for Economic Performance’s
“Informing the Industrial Strategy” project (ESRC ES/S000097/1). This work also draws on work done
for the Sutton Trust on the payoff to apprenticeships. We thank participants at seminars and
conferences in the following locations: Institute for Social and Economic Research, University of Essex;
SFIVET VET Congress in Berne 2017. We thank Stefan Wolter for helpful comments.

Affiliations:
Centre for Vocational Education Research, LSE, Centre for Economic Performance, LSE,
*University of Surrey
1. Introduction

Apprenticeships feature in the vocational education systems of many countries,
although their popularity varies widely, being especially prevalent in countries like Germany,
Austria and Switzerland and virtually absent in countries like the US, Sweden and Italy which
rely more on classroom-based learning or put less emphasis on vocational education.1 England
is somewhere in between, although there is now a strong policy interest in increasing the
number of apprenticeships.
In theory, apprenticeships should offer an excellent environment to acquire generic
employability skills (such as team-working, communication skill etc) as well as specific
occupational skills acquired ‘on the job’. Furthermore, they may ease the school-to-work
transition by establishing a better match of workers’ skills to firm needs (Ryan, 2001). On the
other hand, if firm-level training is hard to monitor, firms may provide less training than is
socially efficient or provide training which is too firm-specific and yields lower social returns.
Furthermore, even in countries with a good reputation for apprenticeships and vocational
training, the initial advantage they confer may not last a lifetime. For example, Hanushek et al.
(2017) find evidence of a trade-off between early and later labour market prospects of those
who pursue an apprenticeship. Whether or not apprenticeships have a payoff (and for how long)
is ultimately an empirical question.
This has become very policy relevant in England with a high profile government policy
(from 2015) to increase the number of apprenticeships by 3 million over 5 years and more
recently additional incentives for large firms to take on apprentices. There are also wide-
ranging reforms taking place affecting post-16 vocational education, in which apprenticeships
are expected to play an important part. Plans are for a post-16 technical option that will offer
both college-based and employment-based (apprenticeship) education and training and
government reports purport that both are ‘equally valid’ preparation for skilled employment.2
This begs the question as to whether the ‘college-based’ and apprenticeship alternatives really
are equally good. Furthermore, the apprenticeship model in England is very different than in

1 Figure 1.1 in Kuczera and Field (2018) show comparable data across countries for current apprentices in
programmes leading to upper secondary or shorter post-secondary qualifications as a share of all students. There
some issues of data reliability but this shows England at around 4%, in contrast to countries like Norway (11%),
Australia (15%), the Netherlands (16%), Denmark (19%), Austria (32%) and Germany (34%).
2 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/536043/Post-16_Skills_Plan.pdf

1
other European countries. Steedman (2010) documents differences which include much fewer
hours of off-the-firm training, shorter duration and many at a lower level of skill.3 It is far from
self-evident that there is an earnings differential attributable to apprenticeships in England, even
if there is one in countries where apprenticeships for young people have a higher profile (and
where input indicators suggest higher quality provision). In fact, international evidence on
whether there is an earnings return to an apprenticeship is mixed. For example, positive returns
have been found for Austria (Festerer et al. 2008) and France (Bonnal et al. 2002) but not for
Germany (Parey, 2016) or The Netherlands (Plug and Groot, 1998). The existing literature in
the UK is positive about the returns to apprenticeships for the workforce as a whole (e.g.
McIntosh and Morris, 2016). We contribute to this literature with a more detailed analysis of
the returns to apprenticeships for young people than has been previously possible in the UK
and indeed not typically possible in other counties. This is because we have access to detailed
administrative data for cohorts of young people as they move through the education system and
into the labour market (up to when they are aged about 28). The data on attainment at school,
together with details of their post-16 choices, enables us to construct suitable treatment and
control groups and to control for many of the variables influencing selection of educational
pathway as well as future labour market outcomes.
A related question concerns the gender earnings gap between men and women with a
similar level of education and whether the apprenticeship system helps or hinders equal
opportunities. Studies in Germany find that occupational segregation explains a large fraction
of the gender gap of young workers with an apprenticeship (Kunze 2003, 2005). Fitzenberger
and Kunze (2005) find a large wage gap at the bottom of the income distribution and that
occupational mobility is lower for women than for men. This is the first study (to our
knowledge) that investigates the gender gap amongst those who have previously undertaken an
apprenticeship in England.
In this paper, we attempt to address these questions by investigating whether there is a
payoff to undertaking an apprenticeship over and above leaving education with at most low-
level vocational education (‘Level 2’) or intermediate-level vocational education (‘Level 3’).4
We also examine the gender earnings gap conditional on educational pathway. While one might

3 For example, Steedman (2010) documents an average duration of 1 year in England and 3 years in Austria,
Germany and Switzerland; a minimum of 100 hours of off-the-job training compared to a minimum of 900 hours
in these other countries.
4 In the English system, most young people with an apprenticeship have either low-level (Level 2) or intermediate-
level (Level 3) vocational qualifications. Very few have qualifications at a higher level than this. Level 3
qualifications are classified as ‘upper secondary’. A-levels would be the academic equivalent in England.
2
anticipate that an apprenticeship would ease transition to the labour market, it could be that
benefits are only short-term and that others catch up after a few years. We use linked education
and labour market data from administrative data sources (Longitudinal Educational Outcomes)
to undertake this analysis for the cohorts who finished their compulsory education between
2002/2003 and 2007/2008. For most of the analysis, we focus on the 2002/03 cohort, which we
can observe up to the age of 28 (in 2015). We also make use of data from the Labour Force
Survey to complement our analysis on gender differences in earnings.
The administrative data contain the population of publicly-funded apprentices, covering
all young apprentices in England. The size and detail of this data enables us to compare
individuals within narrowly defined groups – for example, those with the same highest level of
education within the same vocational sector. We can also control directly for many important
observable characteristics that may influence both selection into apprenticeships and labour
market outcomes. These include test scores at primary and secondary school, demographics and
the secondary school attended. Although our set of controls is extensive and likely to absorb
much of the pre-existing difference amongst those who start an apprenticeship and those who
do not, we also make use of bounding techniques which use the amount of ‘selection on
observables’ as a guide to the possible amount of ‘selection on unobservables’ (Altonji et al.,
2005; Oster 2017). We also implement an Instrumental Variable approach which makes use of
cohort-to-cohort variation in how many peers within a given school access apprenticeships
within a short time of leaving (between age 16 and 18). Conditional on labour market
conditions, we argue that this is a good proxy for access to information about apprenticeships.
Our results suggest a positive earnings differential from starting an apprenticeship in
many contexts. Both the IV and the bounding analysis suggests that this differential is not
primarily driven by unobservable variables. However, there is a huge range of estimates. For
men, the differential is very high on average especially for advanced apprenticeships. For
women, the differential is roughly half the size and is especially modest for advanced
apprenticeships by the age of 28. Much of the gender difference in earnings is attributable to
the sector of vocational specialisation. For men, there is very high concentration in sectors
where the return to an apprenticeship is high (such as Engineering) whereas women specialise
in areas where the returns to having an apprenticeship are much lower such as Child
Development. This paper illustrates that although apprenticeships show encouraging labour
market outcomes for young people (at least in early life), they give rise to very different earnings
trajectories depending on the sector chosen. Thus, the extent to which having an apprenticeship
3
matters for future earnings, is largely dependent on the sector of vocational education which is
actually chosen. While it would appear that the gender earnings gap is influenced by hours of
work (in addition to vocational sector), this is unlikely to be the full story behind the gender
earnings gap of those with an advanced apprenticeship. It also stands in contrast to the gender
gap amongst those with an equivalent level of vocational (non-appenticeship) education –
where the gap is very quickly explained away.
The remainder of this paper is structured as follows. Firstly, we briefly discuss existing
literature on whether apprenticeships have added value in the labour market (Section 2). We
then give brief details of the English education system and how apprenticeships fit in (Section
3). We discuss the data and methodology (Section 4) before discussing results (Section 5). We
then discuss our conclusions (Section 6).

2. A brief literature review
Apprenticeships may offer opportunities for acquiring job-related skills that are not present to
the same extent in a classroom-based education (Wolter and Ryan, 2011). For instance, they
afford an opportunity for students to put their skills to use immediately in practical situations,
thus helping with motivation to learn (especially for less academically-inclined students). They
increase familiarity with the work environment and expose students to ‘work ethic’ present in
the workplace. In addition, firms may be better informed about the skills required in a specific
job and are more aware of how these requirements change over time due to innovation in the
production technology. If it is true that apprenticeships are more suited to providing specific
skills than full-time school-based vocational education, students who complete an
apprenticeship should be expected to have higher productivity. Accordingly, we should observe
relatively higher wages in the longer-term. Another prominent argument in support of
apprenticeships is that they ease the school-to-work transition by facilitating a better match
between workers’ skills and firms’ needs and by acting as a substitute for job-search.
Cross-country evidence suggests that smoother transitions and lower youth
unemployment characterize countries with a more developed apprenticeships system (Quintini
and Manfredi 2009; Quintini et al. 2007). But it can be difficult to fully control for other
differences between countries (apart from the apprenticeship system).
A common concern of this literature is that students who pursue an apprenticeship track
are likely to differ from the comparison group for reasons that are not fully observable to the
4
researcher but that are valued in the labour market. This is why the choice of the comparison
group and of the methodology used to deal with selection are very important.
There are studies comparing individuals with the same level of academic and vocational
education. For example, Hanushek et al. (2017) compare employment rates across different
ages with a difference-in-differences approach. Their findings suggest that gains in youth
employment arising from vocational programmes may be offset by diminished employment
later in life, especially in countries that have large apprenticeship programmes. However, an
analysis based on cohort studies for Britain by Brunello and Rocco (2015) suggests that such a
tradeoff between academic and vocational education is only evident for a particular sub-group.
Other studies, more closely related to our paper, compare individuals in the same
country who either undertake apprenticeships or school-based vocational education. They then
compare the later labour market outcomes of apprentices and school-based vocational students.
One of the most convincing studies is for Austria by Fersterer et al. 2008 who make use of firm
failures to provide exogenous variation in the length of the apprenticeship completed by
individuals. They find that a year of apprenticeship training generates an increase in pay of
slightly more than 5 per cent. Parey (2016) studies the effect of following the apprenticeship
track on labour market outcomes at age 23 and 26 in Germany. He attempts to circumvent the
issue of selection by exploiting exogenous variation in the availability of apprenticeship places.
He finds no effect of apprenticeships on wages but finds that apprentices are less likely to
experience unemployment than their school-based counterparts (with this advantage fading
away over time). In France, Bonnal et al. (2002) study wage differentials between apprentices
and vocational school’s graduates in their first job after their study. Results show that
apprentices, notably males, benefit from higher wages regardless of whether they are employed
by the training firm, suggesting that skills acquired on the apprenticeship are transferable.
Finally, Plug and Groot (1998) find that in the Netherlands there is no long-run advantage of
apprenticeships compared to school-based vocational education in terms of earnings and
employment.
Overall, these studies highlight that while apprenticeships seem to ease the transition
from school to work they do not necessarily increase workers’ productivity in the medium term.
They also indicate that evidence on whether apprenticeships lead to wage returns seems to be
mixed and dependant on the country.
5
In England, there is a literature estimating the returns to vocational qualifications, which
generally suggests positive returns for apprenticeships. This includes Dearden et al. (2002),
Robinson (1996), Bibby et al. (2014), and McIntosh and Morris (2016). They estimate value
added models which attempt to deal with selection by including controls for many observable
characteristics. We contribute to this literature by a more detailed study of apprenticeships for
young people in England than has previously been possible.5 This is because we have linked
administrative data for entire cohorts of students who go through the school system and into the
labour market. We attempt to tackle the issue of causality by estimating bounds around our
OLS estimates (when this is done within sector) and using an Instrumental Variable approach
(described below). We also explicitly consider the gender gap in earnings and explore possible
explanations as to why this may arise.

3. The English education system and the role of apprenticeships

The compulsory phase of English education ends at age 16, when students sit exams for
the General Certificate of Secondary Education (GCSEs), typically in 8 to 10 subjects. What is
regarded as ‘good’ (and published in performance tables) has involved passing GCSE in at least
five subjects at Grade A*-C. Up to 2013, students could choose to leave education altogether
after this time, though very few did. More typically students who have done well at GCSE,
progress to academic or vocational education from age 16-18 and pursue Level 3 qualifications.
At this stage students can choose between A-levels (academic qualifications) and many
different types of vocational qualifications. About forty percent of students opt for A-levels
which is the traditional pathway to higher education and most often undertaken in schools or
Sixth Form Colleges. Other students typically enrol in colleges of further education and
undertake vocational qualifications (although they may be combined with A-levels). Students
who do not qualify for progression to Level 3 study vocational qualifications at Level 2 or at
lower level.6 Finally a minority of students undertake an apprenticeship which is either
intermediate (equivalent to Level 2) or advanced (equivalent to Level 3). Although

5 We draw on a related but more descriptive project funded by the Sutton Trust and published within their report.
This is also a CVER discussion paper (Cavaglia et al. 2017). Our colleagues in CVER (McIntosh and Morris,
2018) are also publishing new research on apprenticeships using this data, where the focus is comparing returns
between younger and older workers (conditional on starting an apprenticeship over the age of 19) and comparing
completers and non-completers of apprenticeships in the older and younger age groups.
6 ‘Level 2’ is considered equivalent to GCSEs (i.e. the exam students undertake at age 16).
6
apprenticeships may commence directly upon completion of GCSEs, it is more usual for
students to spend time in full-time college-based education before starting an apprenticeship.
Further details on the different qualifications students undertake and where they lead to are
discussed in Hupkau et al. (2017).
In England an apprenticeship is defined as follows: ‘…a job that requires substantial
and sustained training, leading to the achievement of an Apprenticeship standard and the
development of transferable skills’ (BIS, 2013). As in the other systems, the firm commits to
train the apprentice and to pay an apprentice wage. The apprentice in turn commits to ‘off the
job’ training, most often provided by a college or an independent training provider.
Apprenticeships are expected to provide students with a mix of sector-specific and more general
skills like numeracy, literacy, IT and personal skills which are all taught in the classroom. The
content of each apprenticeship occupation is defined with the contribution of employers’
associations (in England there is no role for other social partners) and upon completion an
apprenticeship leads to a recognised associated certificate.7 However, a common criticism has
been that the English apprenticeship system lacks a rigorous assessment framework like in
Germany. While English apprenticeships share many common traits with the systems in place
in German-speaking countries, whether they are effective depends on whether they provide
quality training in skills that are recognised and thus transferable to other firms. This is an
empirical question, which our analysis helps to address.
Amongst those who finished their compulsory education in our cohort of interest (i.e.
age 16 in 2003), about 17% started an apprenticeship at some stage between the age of 16 and
22 (i.e. no new starts between age 23 and 28).8 Almost all apprenticeships are either
intermediate, corresponding to a Level 2 qualification, or advanced, a Level 3 qualification, for
this age group (with higher apprenticeships a new phenomenon).9 About 60 per cent of
apprenticeship starts were classified as intermediate, although many people do more than one
apprenticeship.

7 The apprenticeship system is currently in the midst of substantive reforms, with new ‘standards’ being phased in
to replace ‘frameworks’. These new standards are formulated by groups of employers and are reputedly tougher
than the ‘frameworks’ they are replacing. However, these reforms are too recent to affect the cohort considered
here.
8 Figure 1 plots the share of each cohort starting an apprenticeship up to those who finished their compulsory
schooling in 2011. The share has increased over time. The increase has been greater for intermediate
apprenticeships up to about the 2010 cohort. This may be related to recent reforms on the duration of intermediate
apprenticeships around this time (see Nafilyan and Speckesser, 2017).
9 From the 2003 cohort, we could find only 13 men and 5 females who started an apprenticeship at level 4 by the
age of 28.
7