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

Dual vocational education and training (VET) systems are said to lead to lower youth unemployment. Some research has also linked dual 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 dual VET. Most notably, employment in routine-task-intensive occupations is declining due to automation, whereas technological change increases demand for non-routine cognitive tasks. For such high-end jobs, college-educated workers with general skills are argued to be better suited. This paper provides the first evidence on the effect of dual 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 dual VET remains associated with lower youth unemployment and wage inequality throughout the entire period. The rise of the knowledge economy is positively associated with youth unemployment at low levels of dual VET. However, where the dual VET share is high, the rise of the knowledge economy further reduces youth unemployment. In contrast, the negative effect of dual VET on wage inequality is not affected by the rise of the knowledge economy. Our paper significantly extends existing research on the effects of dual 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 dual VET.