Do apprenticeships pay?

Do apprenticeships pay?

Chiara Cavaglia, Sandra McNally, Guglielmo Ventura discuss the potential payoffs of starting an apprenticeship.
Guest blogger on November 30, 2017

Chiara Cavaglia, Sandra McNally, Guglielmo Ventura discuss the potential payoffs of starting an apprenticeship.

The government aims to massively increase the number of apprenticeships and to make this a more important part of the post-16 educational landscape. In our research – published today by the Sutton Trust – we investigate whether there is an earnings differential to starting an apprenticeship over and above full-time school or college based education.

We consider those who finished their GCSE exams in 2003 and who were 28 years in 2015.  We use administrative data to follow them from that point, through their education and into the labour market.

We look at the 17% of this cohort who had started an apprenticeship up to 2015. In fact, they had all started by the age of 22, although many did not complete the whole apprenticeship.

Our analysis focuses primarily on the earnings differential that arises from starting an apprenticeship because the potential benefit is not only in certification but also through on-the-job training and the achievement of some (if not all) of the aims and potential connections made through the apprenticeship programme.

We compare those who start an apprenticeship with those of a similar educational level. In practice, this means comparing such individuals either with those who achieved ‘level 2’ educational qualifications (i.e. GCSE or vocational equivalent) or ‘level 3’ educational qualifications (i.e. A-levels or vocational equivalent). For this cohort, higher apprenticeships did not exist and very few individuals with an apprenticeship subsequently went to university. Of course, things are slowly changing.

Our approach involves ‘netting out’ other things that make those who started an apprenticeship different from those who did not. For example, men who start an advanced apprenticeship are only half as likely to have been eligible for free school meals when at school (compared to the average in the cohort).

There are a range of characteristics we can control for: prior attainment at primary and secondary school; demographics such as ethnicity and economic disadvantage; the secondary school attended, and post-education experience in the labour market. This means we can compare the earnings of individuals with and without an apprenticeship after taking account of all these different factors. There are still some things we can’t control for.  Important qualities that matter to employers like motivation, social skills, and perseverance, for example. So we shouldn’t interpret the earnings differential as being attributable to the apprenticeship alone.

Our research finds that by  the age of 28, if we consider those educated up to level 2, the baseline earnings for men and women is £19,709 and £13,621 respectively. This is the average earnings of those whose highest education was GCSEs (with at least one GCSE of A*-C) at age 28 in 2015. After taking account of factors we can observe – men who start an apprenticeship earn 23% more than those who left school with only GCSEs and roughly 16% more than those who left education with a level 2 vocational qualification. For women, those who start an apprenticeship earn 15% more than those who left school with only GCSEs and about 4% more than those who left education with a level 2 vocational qualification.

For those educated up to level 3, the baseline earnings for apprentices aged 28 are £22,464 and £18,500 for men and women respectively. This is the average earnings of those whose highest education was A-levels in 2015, when they were aged 28. After taking account of factors we can observe, men who start an apprenticeship earn about 37% more than those who left education with A-levels (and did not progress any further). They earn about 35% more than those who left education with a level 3 vocational qualification. Women who start an apprenticeship earn about 9% more than those who completed their education with A-levels by the time they are age 28. They earn roughly 15% more that those who left education with a level 3 vocational qualification (without progressing any further).

Even if these earnings differentials partly capture individual characteristics we can’t control for (e.g. better ‘soft skills’ of those accepted on to an apprenticeship programme), they suggest high potential returns to an apprenticeship. But some apprenticeships lead to better prospects than others. The gender difference is particularly striking, particularly for those educated to level 3, where the earnings differential is over three times larger for men than for women. Much of this is attributable to the sector of learning. Most men with advanced apprenticeships are classified within Engineering and Manufacturing Technologies (53%) or Construction, Planning and the Built Environment (26%). For women, the most important sectors for advanced apprenticeships are Health, Public Services and Care (35%), Retail and Commercial Enterprise (23%) and Business, Administration and Law (28%).

Interestingly, men who complete an advanced apprenticeship in engineering earn more on average than men with a degree in engineering at age 28 (although this differential disappears after taking account of all observable characteristics and post-education labour market experience). At the other extreme, there are apprenticeship sectors that have a negligible or lower premium than alternatives for people educated to the same level. This includes having an apprenticeship in service enterprises (such as hairdressing) for women educated to level 2 or level 3 and childcare at level 3 (also affecting women). Thus, much like university degrees, potential ‘returns’ to an apprenticeship vary across subject specialisms.

What does all this mean for policy?

First, there is indeed a strong case for incentivising apprenticeship provision for young people. It is unfortunate that they have not been the major beneficiary of the policy drive to increase numbers in recent years. Most new apprenticeship are for adults and this might not be as beneficial for those who have already been in the labour market for some time (especially if the training is not for a new role).

Second, there needs to be better appreciation of different potential earnings across sectors. Apprenticeships should not be thought of as equal to each other with regard to potential returns. There needs to be a greater effort to attract women to sectors such as Engineering where they are unrepresented, despite high potential returns.

Third, there appears to be inequality of opportunity in who can get on to an apprenticeship. For example, those from economically disadvantaged backgrounds and from ethnic minority groups are much less likely to start an advanced apprenticeship. The barriers to access need to be understood and addressed.

You can read the full findings from ‘Better Apprenticeships’ here.

Guest blogger | | Category: Employability and apprenticeships