On Track to Success? Returns to Vocational Education against different Alternatives

Abstract
Amidst growing earnings inequality, many countries consider expanding secondary vocational education (VET) to boost skills and labour market prospects of non-university-bound youth. VET is expected to benefit students who would otherwise drop out of education, but may have an ambiguous effect on students diverted from academic education. This paper studies alternative-specific labour market returns to VET in England, where students choose between the vocational track, the academic track and quitting education at age 16. To address student self-selection across these unordered choices, we apply a recently developed instrumental variables approach for identifying causal effects along multiple treatment margins. Identification comes from variation in distance to the nearest vocational provider conditional on distance to the nearest academic provider (and vice-versa), which we show to be exogenous conditional on the granular neighbourhood and school characteristics we observe in our linked administrative data set. We find that for students diverted from the academic track, who make up the vast majority of marginal students, VET substantially decreases earnings at age 30. This earnings penalty grows with age and is due to wages, not employment. However, consistent with comparative advantage, it decreases with students' preferences for the vocational track. For (fewer) students at the margin with quitting education, we find tentative evidence of increased employment and earnings from VET. Joint paper with Guglielmo Ventura.