Fluctuations in the wage gap between vocational and general secondary education

What type of education gives the best preparation for the labour market? Vocational education, where you learn the skills for specific occupations? Or a more general education, advancing intellectual and cultural development? It’s an old question in the economics of education literature. The common presumption is that vocational education gives an initial advantage, as the graduate has been trained for specific jobs, and can perform required tasks right-away, but that the general graduate is better prepared for future changes in the labour market, as broader intellectual skills facilitate learning new tasks. In summary: the vocational graduate is ready to perform, the general graduate is prepared for new challenges. Vocational graduates may start with higher wages, but general graduates may make up and earn more towards the end of working life.

The paper compares five age cohorts of workers born between 1951 and 1994 and measures the wage differential among graduates from secondary education with a vocational and a general curriculum for Portugal. For four cohorts, vocational wages are always below general wages. Only for the youngest cohort, observed until age 33, vocational wages are higher than general wages.

The researchers follow the institutional history of secondary education in Portugal, from the traditional system before the Carnation Revolution of 1974, the fuzzy situation during that Revolution, to the modern system and find wage gaps of 4%, 10%, and 5%, for the respective period. Importantly, if workers of different educational tracks were randomly distributed across firms the gap would disappear. This means that firms take the opportunity to pay less to vocational workers although there does not seem to be any objective reason for that given that the average productivity is indistinguishable between the two groups.

Careful statistical and econometric analyses confirms this inverted U-shape pattern in the wage disadvantage for vocational secondary education over time: it first increases and then decreases, almost to extinction for the youngest cohort. The paper relates the change to worker-firm matching that in the end is more favourable for vocational graduates than for general graduates. In particular, in the later cohorts 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.

The paper offers the interpretation that the traditional vocational education lost relevance for the labour market when the economy was restructured after the 1980s, and that the reorganization of vocational education, increasing the weight of building cognitive skills and preparing for new jobs in the service sector of the economy improved the relative position of vocational graduates in the high wage firms. That would appear to make the overhaul of vocational education at the secondary level a successful policy intervention.

Click here to go to the paper by Joop Hartog, Pedro Raposo, and Hugo Reis.