Vocational Education and its Long-Run Negative Effects on Employment in the Philippines

Castaneda, Jose Mikhail De Leoz, Ralvin Jose Gonzalez, Andrea Renee Uy, Donna Jans

ABSTRACT Due to the lack of skilled entry-level workers and lack of educational opportunities offered, many would turn to vocational education for an answer. Vocational education provides jobs for those seeking it; however they are at a disadvantage with technological and structural changes in the economy. This paper aims to examine the relationship between employment, type of education, and age. Data gathered will be subject to a multilevel regression. Employment rate across different ages will be subject to a difference-in-difference approach followed by series of robustness checks to validate our assumption. We hypothesize that vocational educational graduates will have labor-market advantage at entry level but later on diminishes as they grow older.

Key words: vocational education, college education, employment, underemployment, labor JEL classification: I25, O33

INTRODUCTION The Filipino people give high importance in attaining higher education since they see it as a key factor for economic growth; this is due to the colonization of the United States which ingrained in us such idea of progress. During the Spanish colonization before that, only the intellectuals and elites were given the exclusive access to university education, while others were degraded to vocational schools. (David, 2010). The Filipino people think that students should enroll in a college degree program in order to attain a satisfactory occupation. They should create a new outlook as to how they perceive education, and in this sense they should consider it to be more than a necessity to claim a diploma, but as a device to gain necessary skills that they will require throughout their lives. (Wong, 2011). Research has shown that in other countries unemployment risk for both vocational and collegiate education have resulted in vocational education gaining a greater advantage as compared to collegiate education in the entry level; however, we would like to show that in the Philippines this is true only for career entry and the advantage of those who have undertaken a vocational education will eventually diminish overtime. Research shows that there are a number of factors causing this decline in employment but we would like to find out the specific age that will show us when graduates from a vocational education lose their entry-level advantage. We define age as the moment in time where the entry-level advantage of vocational education will no longer be significant; hence, the decreasing employment rate of vocational education graduates. Following the Human Capital Theory, which states that humans are key factors in the productivity of a business, we would analyze if there really exists a relationship between the type of education and employment. Our dependent variable would be employment due to the reason that we would tests the employment status over the years. Our main treatment variables would be the type of education and age. We would approach this using the difference-indifference method and then use a probit regression to find the relationship between employment, type of education, and age. Vocational education and college education both have their own advantages, but there will come a point in time when these advantages will not be present. At one point, vocational education will have the upper hand compared to college education; and at another point in time, vice-versa. For this paper, we looked at the graduates' age, employment status, and chosen type of education. Comparing the two types of tertiary education, vocational education would be at an advantage in the short-run; however in the long-run, we hypothesize that college education would prove to be a more secure option because vocational education loses its career-entry level advantage as time passes. THEORY New Growth theory explains why people desire a better mean of living. It is with this desire for a better living why people continue to learn, and with learning comes education. The focus on education where wanting for what is better leaves one a choice to what they want so that they may be able to attain it. Though people do try to figure what it is they want, is it possible for them to say that what they are getting is what they need. Surely, New Growth Theory depicts that people want more out of their lives, but it does not necessarily explain what it is we need to do to attain that, and is with that notion where we would like to explain two other theories and how they will help in acquiring a better living.

In this paper we would like to look at two theories, the first being Human Capital Theory and the second would be the Signalling Model. Human Capital Theory states that having experience in a certain field is how individuals increase their human capital. With an increase in human capital people are more likely to get employed, and that is why we use the Human Capital Theory in this paper. It is with this theory that would best showcase on what people want from vocational education. Vocational education teaches and develops skills that are needed to join the work force, and it is these skills as to why they are preferred workers as compared to college graduates in the entry level. The Signalling Model explains why a college education could be advantageous. The advantage, such as taking subjects, which students believe to be useless, is somewhat necessary based from the model. Simply put the Signalling Model states that a college education gives an advantage when finding an occupation by giving a signal to employers stating that those individuals are qualified for work because they have certain educational credentials even if they have no experience at those certain fields. Now with these two theories one may understand as to why vocational education may have more of an advantage at an entry level since employers would most likely employ those who are more experienced in their working field as to those who just know what came out of the books; however, it is also with signalling as to how fresh college graduates are capable of finding work. Putting these two concepts together that would mean in the long run both vocational and college education graduates have a level of experience and along with the idea of signalling then that would imply that those who graduated from a college education would become more advantageous than vocational graduates. DATA To test the hypotheses, we would gather data of individuals who graduated from both College Education and Vocational Education per age cohort. After gathering sufficient data, we would require employment statistics of tertiary education graduates in the Philippines for the past 25 years. The Philippine Technical Vocational and Training System (TVET) graduate statistics will be used as the primary data source for vocational education graduates. The TVET graduate statistics is provided by the Technical Education and Skills Development Authority (TESDA) which is the most recognized vocational school in the Philippines. We will use data from TESDA since there are different branches spread out through the country therefore adding more coverage and more data available. As compared to other vocational schools like AMA Computer Learning Center and Manila Womens Vocational School, which offers a specific focus in courses and is not that prominent, TESDA offers a variety of vocational courses which addresses the needs of the Philippine economy and offers an affordable tuition fee being that it is a government agency. The National Statistics Coordination Board (NSCB) college graduates statistics will be the data used for the college education graduates. The NCSB is the Philippines policy-making and coordinating agency for statistical matters. We would use data from the NSCB for it gathers the number of graduates per college/university in the country. Gathering data from every college/university in the Philippines would add more work and would be insufficient. After gathering sufficient data of both vocational and college graduates, we will narrow down the graduates down to those who are employed and divide them by age cohort. Since

there isnt sufficient data available to track an individuals employment status throughout the years, we will use the group data of both vocational education and college education graduates as an alternative to track how an individual progresses. With this said, it is implied that employment status is our dependent variable. College education graduates, vocational education graduates, and age are our treatment variables since we will test the employment probability of those who graduated from the two types of education. We would then test the employment growth of these graduates over the past 30 years. Variables like gender, family size, type of parents education, and financial status will not be used in the testing of employment since we would assume the equality of all individuals at the employment stage. With this said gender, family size, type of parents' education, and financial status will be the control variables in this model. Gender does not factor in since although men have been dominant in the work sector for a long time, we would assume that women empowerment has been applied to the Philippines in the employment sector. Family size is not going to be taken into account since we would assume the determination of each individual and that they are provided for in equal by the government. Type of parents education will hold no bearing since the individual will have a mind of their own to think of their career paths in the future. Lastly, the individual's financial status will not factor in since we would assume that equality will be prevalent in the employment period.

In Equation 1, = 1 if individual i is employed and 0 if otherwise; age and age-square capture the normal-age employment pattern in the economy; =1 if individual i has undertaken a college education and 0 if otherwise. measures the control variables that may affect the employment patterns including parents educational attainment, literacy rate, financial status, location of individual, and family size. The coefficient measures the initial employment probability of those with college education compared to those with vocational education, while 2 measures the differential impact of a college education relative to a vocational education on employment with each year of age. METHOD We are interested in the causal impact of the type of education and age on employment period of the individuals. We will test our main hypothesis, which states that the vocational education graduates loses its career entry-level advantage, as they grow older, using the difference-in-difference approach. We then observe the outcomes of two groups into different time periods per age cohort. We will focus on 2, which reflects the divergence in employment patterns by education types over age cohort. To allow for non-linear changes, we will consider a variant, where the impact of the type of education on employment can have a 10-year age interval per age cohort. The OLS regression, also known as, linear probability model, is less likely to be used in our model because we are using a binary outcome variable. Moreover, OLS regression produces non-conforming predicted possibilities, which predicts possibilities outside the [1,0] range. The OLS regression is heteroskedastic by construction, hence requiring constant robustness checks. To account for this, we will be using the Probit Regression. The Probit Regression will be used to test the relationships that exist between the individuals types of educational attainment had and the individuals employment status. We

discern that this method is appropriate for our analysis because our dependent variable (Yemployment) is a binary outcome variable. We say that the individual is employed if it results to 1, 0 if otherwise. The probit regression is based on Cumulative Normal Distribution which not only solves how the employment status (dependent variable) is estimated by the information of they type of education they acquired and age, but also, bounds predicted values between 0 and 1. One of the key features of the probit regression is the maximum likelihood estimation. This works best for our analysis because they become unbiased minimum variance estimators as the number of observation increases. Also, we can calculate and gather their confidence intervals because they resemble normal distributions and sample variances. We choose to use the Likelihood Ratio Test over Walds test and Lagrange Multiplier to test our hypothesis. We find that the Likelihood Ratio Test is more applicable to our analysis because it compares the maximum log of likelihood function for the unrestricted model with the restricted model. This test also follows a Chi-square distribution. Since the Likelihood Ratio test does not exhibit perverse behavior with small sample sizes, it is more attractive to use. Since we will not be using the OLS regression, we cannot use the R-squared as the standard measure of goodness-of-fit. Therefore, we shall opt for the pseudo R-squared. They pseudo R-squared were developed to resemble the R-squared in the sense that they are at the same scale but ranging from 0 to 1.

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Ash, M. (n.d.). Chapter 9: Regression with a Binary Dependent Variable. Retrieved from https://docs.google.com/a/dlsu.edu.ph/viewer?a=v&q=cache:Kgqgzhljex4J:courses.umass.edu/ pubp608/lectures/l22-2.pdf