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Article

The Economic Effect of Vocational Education on Student Outcomes  

Shaun M. Dougherty and Walter G. Ecton

As long as formal education has existed, there has been a clear connection between education and preparation for employment. In much of the world, formal educational systems have come to include vocational education and training (VET) as part of secondary education. In these spaces, individuals can receive continued training in general skills related to reading, writing, and mathematics while also pursuing specific skills in prescribed vocational or technical programs (e.g., skilled trades, culinary arts, information technology, health services). Across all countries and associated educational systems, a tension exists between whether to invest educational dollars in general versus specific skill development. On the one hand, general skills allow for transferability and likely support adaptability across workplace settings and in response to changes in employment conditions. On the other hand, secondary school completion is not universal, even in rich countries, and there are often large penalties or social costs to not completing secondary education. Furthermore, across countries of varying GDP levels, the question about how to best prepare individuals for entry into and success in the workforce is a persistent one. Evidence suggests that the payoff to investments in VET vary considerably, and that context and the characteristics of participants likely inform the expected returns to such investments. For instance, there is strong evidence across contexts that male participants in VET are likely to benefit in the short- to medium-term with respect to employment and earnings, and possibly also engage in less crime. Unresolved, however, is whether these payoffs persist in the longer term. In contrast, for women the estimated returns appear to be more context dependent. Some research shows reduced fertility and greater financial independence of women participating in VET programs in less-developed countries, but evidence is mixed in other settings. All evidence underscores that the payoff to VET is likely tied to the extent to which it adapts to contemporary economic needs, including extending the amount of total formal education that participants might otherwise receive.

Article

Human Capital Inequality: Empirical Evidence  

Brant Abbott and Giovanni Gallipoli

This article focuses on the distribution of human capital and its implications for the accrual of economic resources to individuals and households. Human capital inequality can be thought of as measuring disparity in the ownership of labor factors of production, which are usually compensated in the form of wage income. Earnings inequality is tightly related to human capital inequality. However, it only measures disparity in payments to labor rather than dispersion in the market value of the underlying stocks of human capital. Hence, measures of earnings dispersion provide a partial and incomplete view of the underlying distribution of productive skills and of the income generated by way of them. Despite its shortcomings, a fairly common way to gauge the distributional implications of human capital inequality is to examine the distribution of labor income. While it is not always obvious what accounts for returns to human capital, an established approach in the empirical literature is to decompose measured earnings into permanent and transitory components. A second approach focuses on the lifetime present value of earnings. Lifetime earnings are, by definition, an ex post measure only observable at the end of an individual’s working lifetime. One limitation of this approach is that it assigns a value based on one of the many possible realizations of human capital returns. Arguably, this ignores the option value associated with alternative, but unobserved, potential earning paths that may be valuable ex ante. Hence, ex post lifetime earnings reflect both the genuine value of human capital and the impact of the particular realization of unpredictable shocks (luck). A different but related measure focuses on the ex ante value of expected lifetime earnings, which differs from ex post (realized) lifetime earnings insofar as they account for the value of yet-to-be-realized payoffs along different potential earning paths. Ex ante expectations reflect how much an individual reasonably anticipates earning over the rest of their life based on their current stock of human capital, averaging over possible realizations of luck and other income shifters that may arise. The discounted value of different potential paths of future earnings can be computed using risk-less or state-dependent discount factors.

Article

Racial Inequality Across Income Volatility and Employment  

Michael Carr and Bradley L. Hardy

Volatility is an under-explored facet of economic insecurity, and it further helps to characterize otherwise omitted nuance in the economic situation facing many socioeconomically disadvantaged groups. Defined as a measure of short-run intragenerational mobility, standard measures of volatility leverage panel data in order to estimate higher moments of the growth rate of earnings or income, most often as variance transformations. Broadly, volatility can arise from one of two sources: instability in earnings among the continuously employed due to variable hours, hourly earnings, or salary changes; and/or instability in employment. The current literature shows that while both sources play an important role in the level of volatility for both men and women, trends are similar whether or not employment instability is accounted for, with overall declines in volatility for women and a largely flat trend for men over the last 40 years. The overall flat trend in volatility for men does seem at odds with other evidence that shows falling labor force participation for working-age men, and for Black men in particular. The link between these two processes—earnings changes over short periods of time and weekly or monthly snapshots of employment and labor force participation—remains largely absent from the literature because the most commonly used panel data sets are unable to capture within-year fluctuations in employment instability. Whether declining labor force participation for men increases or decreases volatility depends on whether there is a bifurcation in employment where some men are consistently employed over longer time horizons and some are not employed at all, or if declines in labor force participation at a point in time reflect increasing instability in employment over time. If the latter is true, then volatility could increase and could result in notably different trends in volatility over time by both race and gender.