Academic Literature

Vocational Education – The vocational wage premium

Comparing cohorts born between 1951 and 1994, we document and interpret changes in the wage differential among graduates from secondary education with a vocational and a general curriculum. The wage gap initially increased and then decreased. We find that these changes cannot be attributed to simple compositional shifts in the economy, but instead relate to important changes in worker allocation to firms that are heterogeneous in wage policies: the demise of assortative matching between workers and firms that worked out favourably for vocational graduates.

In particular, low ability vocational graduates were more successful in finding employment at higher wage firms than low ability general graduates. Or, framed conversely, low ability general graduates lost their advantage over low ability vocational graduates in high wage firms. We could not trace these developments to easily identifiable patterns across or within decompositions such as industry, firm size, region or occupation. The change in the vocational wage penalty cannot be attributed to a simple shift in the industrial or occupational composition of the economy. These shifts affected vocational and general graduates in much the same way, and the vocational wage premium declined within each occupation.

The results indicate that vocational education, at the secondary level, initially lost ground relative to general education, but later more than made up for that loss. There may be a relationship with two changes in the educational system that have made general and vocational education more similar. First, in the traditional system, the differentiation between general and vocational education covered 5 school years, in the modern system it covered only 3 years. Second, the curriculum of vocational education has changed. In the traditional system the share of the general component (Portuguese, Math, Physics and Foreign Language) ranges between 35 and 45 per cent of total curriculum. 23 Compared to the traditional system, the modern system of vocational education has moved towards more weight for the general component. Currently, in the vocational program, practical training in a real work environment occupies around 15- 20 per cent of the total duration of courses 24. Whereas in the traditional system, vocational education was mainly catering to blue-collar jobs, in the modern system vocational education caters to both blue and white collar jobs.
In Duarte (2014) there is a clear reference to the significant difference between the technical and the general system in terms of curriculum and subjects. In particular, the book emphasizes the low weight given by the technical curriculum to cognitive skills.25
The shift towards a larger component of general education can be interpreted as an increased emphasis on developing cognitive skills rather than manual and other skills. An increase in the relative return to cognitive skill has been established for several labour markets, due to changes in technology (Murnane and Levy (1995); Fouarge et al. (2017)). As the Portuguese labour market may well be subject to the same changes in technology and wage structure, our results would fit in with this interpretation: increased weight for a skill that has increased in relative price. It would be an interesting topic for further research to look beyond the matching in terms of fixed effects and uncover the link between changes in the curricula and in allocation to firms by characteristics like innovations in technology, output and distribution.

Chosen excerpts by Job Market Monitor. Read the whole story at Vocational High School Graduate Wage Gap: The Role of Cognitive Skills and Firms | IZA – Institute of Labor Economics

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