How Does Vocational Education Impact Income Gaps?

Education plays an important role in countering inequality, and education policy can be an efficient tool for policymakers to reduce income disparities. According to the Economic Policy Institute, on average, a family in the top one percent of the U.S. income distribution earned 26.3 times as much as a family in the bottom 99 percent. The possibility of using education to alleviate economic inequality has been hotly debated by politicians. For example, both Hillary Clinton and Bernie Sanders have expressed support for “free college,” while Education Secretary Betsy DeVos has called for a major shift in educational investment from four-year college programs to programs like apprenticeships. The unresolved question behind this debate is this: What types of educational programs (tertiary academic education or vocational education) are associated with the largest gains in income?

In a recent study, researchers Joshua Aizenman, Yothin Jinjarak, Nam Ngo and Ilan Noy conducted a global examination of the association between income inequality, dependence on the manufacturing sector, and the availability of vocational education. In particular, they focused on major high-income countries such as the United States, Germany, and the United Kingdom. The authors used data from the World Wealth and Income Database for measurements of income inequality, the World Development Indicators to measure manufacturing output as a share of the economy, and OECD data to measure access to vocational education. The authors found that as vocational education becomes more widely accessible to students, income inequality decreases – particularly in places where the manufacturing sector makes up a large share of the economy. The authors therefore suggest that policies that increase the availability of vocational education can reduce economic inequality.

After comparing manufacturing performance to the educational level of the labor force between the U.S. and Germany, the researchers suggest that Germany’s well-developed vocational education system may contribute to its better performance in modern manufacturing. Manufacturing’s share of total employment declined from 1970 to 2012 in both Germany and the U.S.; however, Germany’s share of manufacturing employment has remained above that of the U.S. during the past two decades, and the U.S. experienced a five percent drop in the manufacturing value added, while Germany remained stable at about 23 percent in the manufacturing value added.

This relative success of modern manufacturing could be related to Germany’s more developed vocational training program. For example, Germany identifies students who are struggling academically earlier than the U.S. does and provides more mechanisms to help these students succeed in vocational employment training programs. Given the better performance in manufacturing and the greater emphasis on vocational education in Germany relative to the U.S., it is plausible that modern manufacturing requires more vocational trained labor, rather than more workers who have tertiary academic education. Consequently, as compared to nearly-free college education, vocational education may be more effective in helping working-class people increase their income.

Moreover, the researchers mention that vocational training may improve workers’ skills in new jobs. More and more work in traditional industries, including the manufacturing sector, has been replaced by machines. To tackle this so-called “technological unemployment,” it is important to equip displaced workers with the necessary skills for the new jobs created by technological innovations, such as information technology and artificial intelligence. As such, vocational education is even more vital to help match workers to new jobs and alleviate income inequality.

The results of the study may support DeVos’ proposal for the development of vocational training or apprenticeship programs. It remains uncertain to what degree vocational education could minimize income inequality in the U.S., and to what extent the government should invest in vocational education, since higher education provides higher wages, better health and other benefits. Nevertheless, these results suggest the U.S. government may wish to consider subsidizing vocational education and providing comprehensive vocational courses or programs, especially for the working poor.

Article source:  Aizenman, J., Jinjarak, Y., Ngo, N., & Noy, I. “Vocational Education, Manufacturing, and Income Distribution: International Evidence and Case Studies.” NBER Working Paper No. 23950 (2017).

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