THE EFFECTS OF COMPANY TRAINING, FURTHER EDUCATION AND THE YOUTH TRAINING SCHEME ON THE EARNINGS OF YOUNG EMPLOYEES*
| Date | 01 August 1996 |
| DOI | http://doi.org/10.1111/j.1468-0084.1996.mp58003003.x |
| Author | Martin Hoskins,Scott Montgomery,Francis Green |
| Published date | 01 August 1996 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 58,3(1996)
0305-9049
THE EFFECTS OF COMPANY TRAINING,
FURTHER EDUCATION AND THE YOUTH
TRAINING SCHEME ON THE EARNINGS OF
YOUNG EMPLOYEES*
Francis Green, Martin Hoskins and Scott Montgome,y
I. INTRODUCTION
There have been considerable changes in the UK labour market for
young people in recent years. Expansion of Further and Higher Educa-
tion, changes in government provision of youth training places, high
unemployment and structural changes in employment opportunities have
all affected the routes followed by young people into the labour market.
Our knowledge about the effects of these changes on employment and
earnings is decidedly patchy, and more generally the economic benefits of
different school-to-work routes to both the individuals affected and
society in general remain unclear. There are important policy issues
facing the future direction of the system. These include, for example,
whether the UK should expand continuing full-time education of various
kinds rather than vocational training, and whether the emphasis currently
being placed on training leading to certified qualifications as opposed to
informal on-the-job training is justified. Such issues need to be informed
by empirical analysis. This paper aims to provide some evidence on the
impact of training and of post-compulsory education on the earnings of
young employees and some evidence on the medium-term earnings
impact of the Youth Training Scheme (YTS) in the late 1980's.
It is worth noting at the outset that, despite the general presumption
that training and education are beneficial, not all forms of it are neces-
sarily predicted to raise individual's earnings. Human capital and screen-
ing theory both predict that employees with more or better education and
training will be observed to have higher earnings. But it is possible that
certain forms of training are linked with processes that change people's
*Data collection for this paper was funded in connection with several projects by: the
Leverhulme Trust, the Adult Literacy and Basic Skills Unit, the Paul Hamlyn foundation, the
International Centre for Child Studies and the Mercers Foundation. The authors would like
to thank Peter Dolton, Fabrizia Mealli, Steven Pudney and an anonymous referee for helpful
comments on an earlier draft, but the usual disclaimers apply.
469
© Blackwell Publishers 1996. Published by Blackwell Publishers, 108 Cowley Road, Oxford 0X4 UF,
UK & 238 Main Street, Cambridge, MA 02142, USA.
470 BULLETIN
wage expectations. It has been well argued that in Japan, for example,
training in technical matters is complementary with training in employee
relations (Hashimoto, 1994). At the same time, in the UK it has been
proposed that one of the functions of the YTS has been to change the
wage expectations of young people. This was alluded to in Chancellor
Lawson's budget speech in 1985, where he claimed that the YTS had 'also
helped to make young people's pay expectations more realistic'. If so, the
graduates of YTS may continue to expect relatively lower pay, whether or
not they remain with the firm that provided the training. Set against this,
however, is the other stated obective of YTS, namely that it provide
genuine training, which should if successful make YTS graduates more in
demand and able therefore to command higher pay than those otherwise
similar youths who had not received any YTS training)
The earnings impact of such training is, thus, largely an empirical
question. However, there are only a few recent studies in the UK which
provide reliable estimates of the likely impact on earnings of various
forms of education and training. With regard to job-related training,
Booth (1991) has provided evidence for a positive impact on earnings
from the training of adult employees in 1987, and this is consistent with
earlier evidence from 1975 (Greenhalgh & Stewart, 1987) and from 1974
to 1981 (Blanchflower and Lynch, 1994) though the latter found negative
effects for uncertified training of women. More recently, Blundell,
Dearden and Meghir (1994) find that employer-provided training signifi-
cantly increases earnings, especially when it has been provided by the
current employer. Payne (1991) demonstrates the positive impact of
training provided by the government under the Job Training Scheme,
eventually scrapped in 1987. The impact on earnings of staying on at
school after 16 has received no direct attention, but recent evidence
derived from successive Family Expenditure surveys indicates a substan-
tial return to an extra year's schooling in Britain (Harmon and Walker,
1994). Moreover, it is known from any number of earnings equations that
there is a premium to the achievement of A-levels and of Higher Educa-
tion qualifications. Bennett, Glennerster and Nevison (1992) report that
there are substantial returns to obtaining these qualifications, but that the
benefit from obtaining vocational qualifications are low or possibly zero.
The impact of the Youth Training Scheme and its successor Youth
Training has been formally estimated in a number of studies. Here we
concentrate on its effect on wages. Main and Shelly (1990) found either
a negative impact of YTS on wages or no significant effect, in the one-
year Scottish YTS. Other studies show that YTS has reduced wages. In
their study of firms' youth wages policies, Hutchinson and Church (1989)
showed how the one-year YTS scheme acted like the Young Workers
Another objective, not stated by government advocates but ascribed to YTS by critics,
may have been to bring down youth unemployment figures. We do not explore this function
here.
© Blackwell Publishers 1996.
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