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Are Level 4 and 5 qualifications a good investment?

  • 14 June 2021
  • By Héctor Espinoza, Stefan Speckesser, Imran Tahir, Jack Britton, Sandra McNally & Anna Vignoles

This morning on the blog we are delighted to host a coalition of authors including: Héctor Espinoza, Stefan Speckesser, Imran Tahir, Jack Britton, Sandra McNally & Anna Vignoles. You can find the authors on Twitter @StefanSpeckesse, @jack_britton, @Sandra_McNally and @AnnaVignoles. The authors share various affiliations at the following institutions:

  • Centre for Vocational Education Research (CVER);
  • Centre for Economic Performance, London School of Economics;
  • National Institute of Economic and Social Research;
  • University of Brighton;
  • Institute for Fiscal Studies;
  • University of Surrey; and
  • The Leverhulme Trust

Relatively few people do qualifications at Level 4 and 5 (such as Higher National Certificates or Higher National Diplomas). Yet by their late twenties, those who do these qualifications often earn considerably more than those who complete their education at Level 3 (typically A-levels or BTECs). They also often earn more than people who completed undergraduate degrees (Level 6). These differences suggest that there is demand for these skills in the labour market and, as we discuss below, appears to largely reflect the subject specialism of Level 4 and 5 qualifications. Importantly, the earnings premiums for these qualifications are evident even when we allow for the fact that the people taking different education routes have somewhat different backgrounds and personal characteristics.

Progression pathways

The number of people with lower secondary qualifications (Level 2 or below), upper secondary qualifications (Level 3), or higher education qualifications (Levels 4-6) are roughly evenly split by age 22 (which you can see in Figure 1.3 of the Augar Review). However, in the latter group the vast majority of students are doing undergraduate degrees (Level 6). Only a tiny number of people do Level 4 or 5 qualifications at this stage, with numbers increasing a little as people get older, and as some of them come back to these courses after gaining some work experience.

The small numbers taking the Level 4 and 5 route has meant that previous evidence on the labour market outcomes for these students has been limited. We make use of newly available administrative data that enables us to provide new evidence on the outcomes of people taking these routes. Nevertheless, it remains difficult to capture all the things that make students take these rare education pathways. Therefore, comparisons between these groups should be treated with a healthy dose of caution.

Making comparisons

We follow school-leavers (between 2001/02 and 2005/06) through their further and higher education choices and into the labour market. We restrict our analysis to those with good GCSE results and a Level 3 qualification by age 19. We compare groups with different types of tertiary qualifications by age 25 compared to those who leave education with, at most, a Level 3 qualification. Then we compare the employment and earnings of these different groups at age 26 and age 30 after taking account of many of their other characterises to enable better comparisons to be made between students (such as prior achievement and socio-economic background).

We find that these groups differ quite considerably. First, they differ in their underlying characteristics: degree-holders tend to have much higher levels of prior attainment. In fact, young people who do Level 4 and 5 qualifications, rather than degrees, have GCSE results that look far more similar to those who stop at Level 3. Second, it is common for FE learners to combine multiple qualifications and study qualifications in comparatively few subject areas.

Those pursuing Level 4 and 5 qualifications do so in a narrower range of subjects than those who pursue Level 6 (i.e. degree) qualifications. Popular Level 4 and 5 qualifications are also very different for men and women. Men are much more likely to be doing engineering and technology; architecture, building & construction (e.g. planning); or computing, while women are more likely to be doing business and administration, or nursing.

We find that on average there are earnings benefits from all levels of tertiary education (Level 4, 5, 6 or some combination), relative to leaving education with Level 3 as the highest qualification. Some tertiary qualifications, such as Level 4 qualifications for men and Level 5 qualifications for women, lead to higher early-labour-market earnings on average than completing a degree once we adjust for some basic characteristics of those taking the different routes. It seems likely that this is driven to a large extent by the fact that these Level 4 or 5 qualifications are disproportionately in specific high-value subject areas.

It is also likely that relative earnings differentials will change as people age with graduates tending to have an earnings advantage later in their careers. This has been shown for countries even with more highly developed vocational education systems than the UK. This arises partly because those who have stayed in the education system for longer (taking a degree) need to catch up with work experience. It may also be that those with more years of general education have more transferable skills and therefore have more opportunities as their careers progress.

What are the policy implications?

First, too many people leave English education with at most an upper secondary qualification (Level 3). This is despite the fact that higher levels of education are consistently associated with higher earnings in different countries. On average, there is employer demand for workers with the knowledge and skills that tertiary education provides. The few young people currently pursuing Level 4 and 5 qualifications have similar GCSE results to school leavers with Level 3 qualifications who proceed no further in the education system. There is a good economic case for expanding the menu of tertiary education options for these young people (i.e. by providing opportunities to study at Levels 4 and 5 as well as Level 6).

Secondly, the evidence base relates to those subjects currently taught at Levels 4 and 5. This helps support the case for expanding provision in these same areas. It does not say anything at all about expanding provision in subject areas that are not commonly provided. It is also very important that young people understand the potential earnings implications of their choices (alongside other considerations) before they need to make them. There is much scope to improve information about progression pathways throughout further and higher education.

Thirdly, different levels of provision should not necessarily be seen as being in competition with each other. A significant minority of students progress within tertiary education to study at different levels (for example, from Levels 4 or 5 to Level 6). Even if they do not, the option to progress between levels of study is valuable and may influence decisions. In countries like Switzerland which place a lot of emphasis on vocational education at the tertiary level, permeability between levels is seen as an essential part of the infrastructure. Overall, there is a good economic case for expanding provision at Level 4 and 5 in the main subject areas in which they are undertaken. To be more effective, provision at this level needs to be better integrated to the system as a whole and better understood by all.

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