Estimating Returns to Vocational Education at High Schools in Korea∗

It is important to investigate the effectiveness of vocational high schools since governance expenditure on them was large compared to general high schools. This paper evaluates the impact of vocational high school on labor market in Korea. As a measure of the efficacy of the vocational high school, I use the wage data from the Korean Labor and Income Panel Study (KLIPS). Restricting the dataset to high-school graduates only, the comparison of general high schools and vocational high schools is made in a modified Mincerian equation. It is impossible to estimate returns to vocational education in secondary schools via OLS due to the endogeneity problem arising from the negative relationship between and choices of vocational high school type and students’ ability. I rely on the exogenous changes in the educational distribution of individuals caused by the variation in the aggregate enrollment rates, which have been set and controlled by the Korean Ministry of Education and Human Resources Development. Thus, the preset capacity of each school is used as an instrumental variable for the choice of school. From this novel IV estimation, vocational high school gives greater returns to graduates in the sense of local average treatment effects. I find that enrollment in vocational high school gives about 30 percent higher wages than enrollment in general high school. This study also shows that the usual OLS estimates underestimate the effect of vocational high school on the wages while the IV estimates eliminate the downward bias generated by the selection problem. The result of this paper is contrary to the previous studies showing that vocational high school scarcely affects wages. ∗I am deeply indebted to my advisor Geert Ridder for his enormously valuable advice and comments. I would also like to thank to John Ham, Hyeok Jeong, Hyungsik Roger Moon, Heonjae Song, and John Strauss for their valuable comments and suggestions. †Department of Economics, University of Southern California, Kaprielian Hall 300, Los Angeles, CA 90089. (E-mail: [email protected].)