Yesterday's Model for Tomorrow's Economy? The Effect of Firm-Based VET on Youth Unemployment and Wage Inequality in the Knowledge Economy

Type
conference paper
Date Issued
2023-01-28
Author(s)
;
Abstract
Skill formation systems that emphasize firm-based vocational education and training (VET) are said to lead lower youth unemployment. Some research has also linked firm-based VET to lower wage inequality. Yet, recent contributions suggest that the technological and organizational changes associated with the rise of the knowledge economy undermine the beneficial effects of firm-based VET. Most notably, employment in routine-task-intensive occupations is declining due to automation, whereas technological change increases demand for non-routine cognitive jobs carried out in high-end jobs. For such jobs, collegeeducated workers with general skills are argued to be better suited. Such developments do not bode well for firm-based VET systems, which traditionally focus on routine-task-intensive occupations. This paper provides the first evidence on the effect of firm-based VET on youth unemployment and wage inequality in mature knowledge economies. We have assembled a new panel data set for 37 advanced economies from 1996 to 2020. We find that firm-based VET remains associated with lower youth unemployment and wage inequality throughout this period. The rise of the knowledge economy (operationalized as patenting activity in the ICT and artificial intelligence fields) is positively associated with youth unemployment and wage inequality at low levels of firm-based VET. However, where the firm-based VET share is high, the rise of the knowledge economy further reduces youth unemployment and wage inequality. Our paper significantly extends existing research on the effects of firm-based VET by explicitly theorizing and modelling its interaction with the knowledge economy. Contrary to the fears often espoused in the literature, we find no evidence that the knowledge economy undermines the beneficial effects of firm-based VET. Rather, our findings suggest that a strong firm-based VET sector combined with a knowledge-based economy contribute to lower youth unemployment and lower wage inequality.
Language
English
Event Title
Conference of the Swiss Political Science Association
Event Location
Basel
Event Date
03-02-2023
URL