Experience vs education: an exploration of impact on lifetime earnings

work-experienceInternships and similar programs are increasingly common to give young people valuable experience of the world of work that they can hopefully use to get a good first job.

Alas, a recent study by a team from the University of Houston suggests that most of these offerings are insufficient to offer the optimum benefit to the user.

“There is a gap between the expectation and the reality of the students’ experiential learning opportunities, like internships,” the authors say. “We have to ask if we are failing to prepare and support them when the newness of the experience wears off.”

Do internships work?

The paper reveals that students typically begin their internships full of enthusiasm, but before long, the inevitable routine of daily work kicks in and there is not enough support given to manage this transition, which often leads to disenchantment with the process.

Having longer internship periods can help to overcome this as it gives students the opportunities to experience both the highs and lows of working life, and to therefore learn from both.

All of this matters, because a second study that was recently presented to the Royal Economic Society Conference found that experience is hugely important in the long-term economic performance of an individual.

The importance of experience

The study set out to examine the relationship between wages and education over the life-time of a person.  In particular it set out to question the implied belief that more education will always result in higher income or whether experience counts for more.

The authors analyzed lifelong data pulled from the Office of National Statistics (ONS) New Earnings Panel Dataset, which enable them to conduct a year by year analysis from the 1972 education reform that mandated extra schooling for every child in England Wales.

The reform resulted in each child having to stay at school until they were 16, and was an increase of a year on the previous level.

When the income of those born before and after the reform were compared however, the extra year of education seemed to result in a significantly lower income in the first part of their lives.  This reduction in earnings lasted until their mid-30s, by which time things tended to level out.

The results suggest that the extra year spent in school was at best neutral in terms of earnings, but in worst case scenarios dampened earnings by 5%, or £45,000 over the lifetime of the individual.

The authors suggest that this difference is largely accounted for by the denial of early labor market experience.  If this work experience was retained, then the extra education one receives is actually a positive thing and beneficial to ones earnings.

“When teenagers leave school and enter the labour market they are competing with others from the previous school year who will always have had a year more experience. In the case of this reform, staying longer in school meant that the affected young people were two years behind. This is really important at the start of a career and made it more difficult to compete for jobs, meaning that they began on lower wages and took more than a decade to close the gap,” the authors explain.

The study concludes by recommending that education makes a significant effort to include high quality work experiences as part of the process to ensure that there is a smooth transition into the labor force and such income lags are avoided.  As the initial study suggests, this is something that we still need to work on.

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