Skills – Occupational credentials as an alternative path to marketable human capital

Occupational credentials provide an additional and at times alternative path to formal education for individuals to demonstrate to employers and consumers their ability and qualifications. These take the form of licenses and certifications. However, the literature on the returns to credentials is inadequate, with prior research having limited causal identification relying on OLS regressions which do not sufficiently control for selection.

Using new modules in the 2015 and 2016 Current Population Surveys, we construct an instrumental variable of peer groups using the within-state credential rate of individuals sharing the same sociodemographic characteristics. We employ a marginal treatment effects estimator based on a generalized Roy model, and estimate the effect of credentials on labor market outcomes. Given the large difference in what form these credentials take depending on the education level, we do all analysis separately for sub-baccalaureate and bachelor’s and more populations.

We find large, meaningful returns for entry into the labor force, employment conditional on being in the labor force, and earnings conditional on working. The effects tend to be larger for sub-baccalaureate, especially for the earnings. The large positive effects for sub-baccalaureate on earnings is notable, and not necessarily surprising, if the license are the objects of highest value to employers, with education serving more as a potentially correlated signal of quality.

The effect of having a credential on log wages is higher for those in the sub-baccalaureate labor market, suggesting the potential role of occupational credentials as an alternative path to marketable human capital and signal of skills in the absence of a bachelor’s degree.

Chosen excerpts by Job Market Monitor. Read the whole story @ Beyond Traditional Academic Degrees: The Labor Market Returns to Occupational Credentials | RAND