Young people leaving school at age 16 with few or no qualifications face a bleak future. As with high school drop outs in the US, employment rates are low for most of their working lives, as are earnings when they work. So a programme that encourages people from low-income families to stay on in school at age 16 would seem to be sensible policy making.
The Educational Maintenance Allowance is a benefit that 16 and 17 year olds from low-income families can receive only if they continue in full-time education. To receive it, students are required to regularly attend college or the weekly payment is stopped, and there are bonuses for course achievement encouraging completion.
Unusually in the UK, EMA was fully trialled with a good study design to give clear answers to how much it changed behaviour. The study carried out by the Institute for Fiscal Studies suggested that among those eligible, those staying on in school increased by six to seven percentage points.
However, from January 2011 the government is going to abolish EMA for new starters, which will have its main effect next September for new school leavers. The government argues that that 90% of EMA is deadweight and this justifies its abolition based on qualitative evidence that this 90% would have continued in education regardless of the payment. However, just because it changes the behaviour of just one in 10 of those eligible, this doesn’t mean it is not cost effective if the benefits to this group are large enough.
The IFS research shows that in areas where EMA was trialled, students as a whole were around two percentage points more likely to reach the thresholds for Levels 2 and 3 of the National Qualifications Framework and they also had A Level grades around four points higher on average. This was probably because of the attendance requirement and achievement incentives.
The benefits went wider than those who just attended school as a result of EMA. The value of these qualifications in terms of future earnings was greater than the cost of the programme. The IFS argue that even if this increase in participation is relatively small, the longer-term benefits to those affected by the policy in terms of future productivity more than outweigh the cost of the scheme.
Yet this doesn’t include the impact on reduced unemployment, greater well being and even the potential impact on the next generation of having better educated higher earning parents. An interesting piece of research by Leon Fienstein and Ricardo Sabetes showed that in EMA areas crime generally fell and youth convictions for burglary fell significantly.
So all the evidence is that EMA was a well designed policy that improved life chances and had wider ranging benefits. But the greatest paradox is that the government has kept payments for children attending college that go to nearly all children (child benefit) while slashing the targeted support for the poorest to attend school.
Yet all the evidence is clear that it is those from the poorer families for whom the incentive effects are greatest and the longer-term value to society is greater. If the government wants to save money in this area then reducing child benefit for post-16s would achieve the savings without the wider adverse consequences for the life chances of Britain’s poorest children.
As one of the government’s buzz words is responsibility, it is counter-intuitive to dismantle a policy that encourages responsibility for these young adults, who face the biggest opportunity cost of further education, by making a direct payment, conditional on full attendance at school. It is heartening to see so many young people demonstrating against the abolition of EMA and it is important for academics to stand up for good evidence-based policy making.
Paul Gregg is professor of economics and Lindsey MacMillan is a post-graduate research assistant at Bristol University’s Centre for Market and Public Organisation. This post first appeared on the CMPO Blog
