Measuring the impact of FE on productivity
Productivity is how much we produce with the resources we have available. Though the rate of productivity growth is influenced by a number of factors, a country’s skills level is a major component. Giving people valuable knowledge, skills and behaviours boosts their productivity.
The Skills Index takes the increases in earnings attributable to different types of FE training and aggregates these to estimate a measure of total value-added from the FE system over time. This provides a proxy measure for the productivity impact of FE, based on the assumption that in a well-functioning labour market an individual’s earnings reflect their productivity. This approach is well-established in academia and public policy analysis - see, for example, Becker (1975) and Mincer (1974), and HMT (2018), The Green Book.
Using the Skills Index
The Skills Index reports on the value of funded adult Further Education achievements and all apprenticeship achievements. The full approach is set out in the Further Education Skills Index Methodology but the Skills Index is essentially measured as the change in value-added over time.
Value-added = FE achievers * employment rate for achievers in that qualification * estimated additional earnings from achieving the qualification
The Skills Index method holds both the employment rate and estimated additional earnings constant, so an increase (or decrease) in the Skills Index would be caused by one or more of:
- An increase (decrease) in the number of learners;
- An increase (decrease) in achievement rates;
- A shift towards (away from) more economically valuable training, through more (less) learning being undertaken in qualifications with higher additional earnings.
The Skills Index is not intended to be:
- A full assessment of the total value generated by the FE system.
- A full assessment of the productivity impact over a learner’s lifespan.
- A timely measure for evaluating specific policy changes.
- A method for tracking changes in the quality of qualifications delivered - the Skills Index monitors changes in the provision mix, i.e. the distribution of qualifications by level and subject.