MPFD Working Paper on From school to work: does vocational education improve labour market outcomes? An empirical analysis of Indonesia

Working paper31 Dec 2018

While vocational education is believed to provide students with the opportunity to learn specific-job relevant, empirical evidence on the impact of vocational education on labour market outcomes is far from conclusive. In order to reduce youth unemployment rate, the Indonesian government plans to increase the proportion of vocational schools in upper-secondary education, from 42 per cent today to 70 per cent by 2025. Using a rich longitudinal household survey for Indonesia, this paper analyses the effects of different school types on four labour market outcomes: labour force participation, risk of unemployment, job formality, and income. To correct for endogeneity bias, this paper uses multiple instrumental variables, including parents’ educational backgrounds and the proportion of each school type in the district to reflect the supply of each school type. The results suggest that public vocational education provides better prospects of labour outcomes for women, relative to public general schools. However, no such difference is found for men. Moreover, the results suggest that many vocational schools, especially private ones, perform poorly in terms of their graduate’s job formality and income. For vocational education to truly improve labour market prospects for youth, greater attention needs to be paid to quality assurance as well as change in hiring practice.