Monday, 21 August 2017

Brexit and the skills challenge

Sandra McNally, CVER's Director, on skills in the UK in light of Brexit

The UK’s productivity suffered a shock in 2008 from which it has not recovered, and the ‘skills problem’ needs to be addressed. Within the context of a broader industrial strategy, improving skills is part of the solution – but Brexit may well harm these efforts if the feared negative economic effects put additional pressure on public finances.

Likewise, Brexit will not help if prolonged uncertainty discourages employer investment in skills; nor if employers substitute capital for labour as a response to migration barriers. However, Brexit does do is bring the skills problem into sharper focus.

There are too many people with poor basic skills and too few with high-level technical skills. The former problem is reflected in the OECD’s 2012 international survey of adult skills in 24 countries, where England was amongst the worst performing countries for basic literacy and numeracy.

Furthermore, the UK was one of the only countries where there had been no improvement across generations: adults aged 55-65 outperformed 16-24 year olds. With regard to high-level technical skills, few people progress beyond Level 3 (equivalent to A-levels). This represents about 5% of all school leavers, and is in contrast to the proportion going on to higher education – 35-40%.

The academic pathway of A-levels to university is easy to navigate and the reward of a university degree is well understood among young people. However, by the government’s own admission, the post-16 landscape for vocational education is characterised by ‘a bewildering complex array of qualifications, some of which are poor quality’. This is clearly documented in our research.

The Sainsbury report and the post-16 plan are the latest attempts to address the post-16 vocational education problem. ‘T-Levels’ will be developed for 15 new pathways for a range of sector areas, the idea being to simplify the current system, reduce the number of qualifications, and make progression possibilities much clearer.

If properly implemented, it will be a huge improvement on the current system. Alongside structural change with further education, it will be important to embed careers advice and information more fully within the education system (from primary school onwards). At age 16, young people are too young to vote but apparently not too young to make fundamental choices that will affect their whole lives. Research on careers information and advice suggests that successful programmes are personalised and are not simply generic.

Reforms to post-16 education should cause policy-makers to look again at apprenticeship ‘trailblazers’. The new standards preceded the post-16 plan and do not align to it in some important respects. For example, there are concerns about a large number of narrow and overlapping standards and it is not a requirement for all apprenticeships to lead to the attainment of specified vocational qualifications. If young people end up with skills that are too narrow to be transferable and that can’t even be properly signalled (through qualifications), they will lose out. In such cases, there can be no “parity of esteem” with academic qualifications.

Most new apprenticeships in England are not for young people. The main growth in new apprentices has been for those older than 24, currently accounting for over half of new apprentices. This is not the only way in which apprenticeships in England are very different from other countries: for example in other countries the minimum legal duration is at least two years, whereas in England it is only 12 months.

The number of apprenticeships looks set to increase with the recent implementation of the apprenticeship levy. This is a 0.5% tax on employers’ wage bills over £3 million per year, effecting about 2% of employers. In exchange for this tax, they get credits that they can use to cover the direct costs of training their own apprentices.

Whether or not they actually do this depends on the indirect costs too – which employers have to fund themselves. Also, we should expect substantial substitution between current training provision and the type of training funded under this system (i.e. apprenticeships). This is very common with this type of subsidy and can be so large as to generate no additional training as in the case of the Employer Training Pilots. Whether or not this happens is an empirical question that will need to be evaluated in the future with the use of firm-level data.

There are concerns about the other 98% of employers who are not levy-payers. Although the direct costs of apprenticeships will also be greatly subsidised, funding gets allocated to a separate budget which goes directly to training providers. There are concerns that providers will not be able to meet the needs of small and medium-sized enterprises because of very severe cuts to non-levy funding allocations. There are three ways to address this imbalance.

Firstly (and most obviously), a possibility is to fund providers properly for non-levy business. This could be done as the amount of money estimated to be raised by the levy far exceeds the projected spend on apprenticeships.

A second possibility is to stop linking the way funding is raised for apprenticeships and training (via the levy) to the way it is spent. It is notable that although the levy applies across the UK, it is only in England that large employers have digital accounts that will enable them to subsidise the direct costs of training apprenticeships. It is not clear that subsidising large employers to fund apprenticeships necessarily represents best value for money. For example, one could make a case for more targeted expenditure on skills for particular sectors as well as more flexibility on the type of training to be subsidised. A third possibility is to develop other forms of incentive for firms to invest in skills.

The LSE Growth Commission has plenty to say about giving firms incentives to invest in skills. The current tax system favours investment in physical capital, computers and machines but offers few incentives for investment in human capital. The Commission recommends a new system of tax breaks for skills investment which would place investment in staff training, courses and education on the same footing as investment in plant and machinery. This could take the form of a Skills and Training tax credit which is similar in spirit to the existing R&D tax credit.

In conclusion, we cannot assume that Brexit will lead to more employer and government investment in skills, even with constraints on migration. This will depend on how Brexit affects the economy and public finances as well as what deliberate action is taken to improve the skills infrastructure and incentives to invest in people.

This blog was originally published here

Wednesday, 17 May 2017

Britain's skills problem

CVER Director, Professor Sandra McNally,  on the shortage of technical level skills

It is well known and acknowledged in the government’s Industrial Strategy that Britain has a skills problem: ‘We have a shortage of technical-level skills and rank 16th out of 20 countries for the proportion of people with technical qualifications’. As the Green Paper also says, ‘a bewildering complex array of qualifications, some of which are poor quality, makes the system hard to use for students and employers’.

Monday, 24 April 2017

Is there a benefit to post-16 remedial policies?

Clémentine Van Effenterre, a researcher at the Paris School of Economics and CVER, reviews the impact of remedial interventions for post-16 students

Remedial interventions in tertiary education are under scrutiny in most OECD countries. They are particularly important in a context of increasing demand for skilled workers. However, they are often costly, and their efficiency in boosting student performance has been questioned. This debate has gained particular relevance in England given recent policy changes that require students who do not get at least a grade C in English or maths in GCSE to repeat exams in these subjects. The low pass rate amongst those who re-sit has raised questions about the sustainability of the policy. What can be done to improve mathematics and English attainment to help students achieving these new requirements? What types of remedial interventions are efficient to address the need of students older than 16? In this context, we have reviewed economic literature on the impact of remedial interventions in tertiary education.

Tuesday, 28 March 2017

The decision to undertake an apprenticeship

CVER's Steven McIntosh, from the University of Sheffield, discusses what influences the decision to do an apprenticeship

What is likely to influence the decision-making of young people who are thinking about undertaking an apprenticeship? In this blog I discuss some research we have undertaken in CVER, answering just this question. The data source is the responses to a questionnaire that we developed ourselves, given to a cohort of apprentices at the Advanced Manufacturing Research Centre (AMRC) at the University of Sheffield. These apprentices were surveyed in January-March 2016, having all begun their apprenticeship in September 2015. In total, 61 apprentices responded to our questionnaire (a response rate of around 50%).

Friday, 24 March 2017

The benefits of vocational education for low-achieving school leavers

Vahé Nafilyan, from the Institute for Employment Studies, writes on CVER's latest research paper which looks at a previously neglected group: school leavers starting low level vocational courses

Every year, about 65,000 school leavers start low level vocational courses. As underlined in a report by the House of Lords Select Committee on Social Mobility these young people have received much less attention than those who go on to A-Levels and university and, at the other end of the spectrum, the small minority dropping out of education, employment or training. Although this is a sizeable group (10% of a cohort), their participation in vocational education and labour market outcomes have so far been barely documented.

Friday, 13 January 2017

How important is providing careers-related information for students?

CVER Director Sandra McNally looks at career advice on offer to students, and what works

The type and quality of education matters for labour market prospects, as reflected in future employment and earnings. There is often dissatisfaction expressed with the careers information and advice provided to students at school and beyond. It’s a matter of common sense (rather than academic study) to say that students do need to have good quality careers information and advice. What isn’t clear is whether cheap information interventions are really going to make the difference for young people as they approach the time where they need to make important decisions. In recent years, there have been a number of economic studies that have used rigorous approaches to test whether simple information interventions actually work. I have reviewed this for a recent IZA World of Labor paper, which focuses on results from 10 evaluations implemented via Randomised Control Trials

Monday, 24 October 2016

Using survey data to estimate the value of vocational qualifications

CVER's Steven McIntosh and Damon Morris, from University of Sheffield, look at the value of vocational qualifications

An important part of the research programme at CVER is to investigate the ‘returns’ to vocational qualifications, that is, the wage premiums earned by individuals who hold such qualifications. The results of such research provide important information to policy-makers about the value the labour market places on qualifications, as well as to individuals making decisions about what courses to pursue. Our work will provide up-to-date evidence on this topic, using a comprehensive range of data sets and methodologies.