Measuring the economic impact of further education
In February 2009, the Department commissioned a study to develop a model to examine the impact of the Further Education (FE) sector in delivering its primary function: providing people with the skills they need in the labour market. The research team was led by Cambridge Econometrics (CE), in collaboration with the Warwick Institute for Employment Research (IER).
This research paper is concerned with the outputs of the model when used for all learning funded by BIS for people aged 19 and over. It presents: the approach taken; the model results; and the results of additional sensitivity testing, making use of the flexibility of the model, undertaken by BIS.
The approach to measuring the economic value of the sector was to estimate the Net Present Value (NPV) associated with undertaking different qualifications and aggregating them up to the sector as a whole. The NPV is calculated by estimating the discounted benefits from achieving a qualification over the working life of the learner, and subtracting the costs associated with undertaking the qualification.
- The future benefits consist of higher wages and better employment prospects for learners, as well as ‘spillovers’ to other individuals and employers;
- The costs consist of government funding and fees paid by individuals or employers, as well as output forgone during learning.
The results presented in the report reflect the allocation of FE participation funding in 2008/09 and the best evidence that is currently available on the benefits. The aim of the exercise was to produce a framework which can be continually updated as better and more up-to-date evidence becomes available. In this sense, it should be seen as a continual work-in-progress. Given that the current evidence is incomplete and imperfect, it was necessary to make a number of assumptions to fill the gaps.
The NPV of qualifications started in 2008/09 is estimated to be £75bn over the years in which successful learners remain in the workforce. Apprenticeships deliver the highest NPV per qualification started; but in terms of the return on government investment - the NPV of each qualification divided by its funding costs - vocational qualifications delivered in the workplace offer a similar return to apprenticeships at around £35 - £40 per pound of funding.
Measuring the economic impact of further education (PDF, 357 Kb)
