Earnings Returns to Different Educational Careers: The Relative Importance of Type Vs. Field of Education

The two choices that students in many Western European countries must make during their educational career are the type of education (vocational vs. academic) and the subject area (the specific field of education). Previous research shows separately that both factors have significant effects on later earnings. However, these studies have two limitations: First, they consider either type of education or subject area. Second, when analyzing monetary outcomes of education, most of these studies focus exclusively on average returns, neglecting the variance of the returns. These studies thus overlook important aspects of the nature of the returns to education, such as the risk in human capital investments. In our study, we focus on examining both factors, type of education and subject area, at the same time to examine how much they contribute to the variance of earnings in later careers.

For our empirical analysis we use the Swiss Adult Education Survey from 2011 which includes detailed information on individuals’ complete educational careers and earnings measures. We construct a sample of individuals who all have completed higher tertiary education but who have chosen different educational paths to obtain the tertiary educational degree.

To test how much variation in earnings is attributable to the type of education and to the subject area, we proceed as follows. In a first step, we estimate earnings equations including these two factors. Concerning type of education, we distinguish between purely vocational, purely academic, and mixed educational careers, i.e., individuals who combine vocational and academic education. Concerning the subject area, we follow previous literature and form the following five categories: (1) Commercial, (2) Health, (3) Science, Technology, Engineering and Math (STEM), (4) Social & Service, and (5) Mixed Fields, i.e. individuals who combine different fields. In a second step, we decompose the variance in earnings for the two factors and calculate how much they contribute to the variance in earnings.

These decomposition results show that the type of education is attributable to only 9% of explained variance in earnings, whereas the subject area is attributable to 17%, i.e., subject area in comparison to type of education explains about double the variance in earnings. At the same time our results for average returns to the single factors type of education as well as subject areas are in line with previous findings.

Given our findings that variation in earnings relates more to subject area than to type of education, policy discussions about the educational system in general and study choices in particular should draw more attention on the choice of subject areas than on the type of education. For the longer term risks in earnings the question of which type of education—academic or vocational—an individual chooses is less relevant than the question of which field he or she chooses to specialize in.