Australia 2020 SummitEducation, Skills And The Productivity Agenda

April 2008

These background materials aim to tell an evidence-based story about how Australia is faring. They are not intended to be definitive or comprehensive, but were put together to stimulate discussion on the main challenges and opportunities facing the country and the choices to be made in addressing them. They do not represent government policy.

The materials end with a set of questions. We hope that these, along with many other questions, will be the subject of conversation both prior to and during the Summit.

3

The Australian economy faces a period of significant change both domestically and internationally

The Australian economy will need to adapt to meet coming challenges while grasping future opportunities

Source: ABS 3222.0, Population projections, Australia, 2004-2101 (2006); ABS 3201.0, Population by age and sex, Australian states and territories (2006); Australian Bureau of Meterology (2008); IMF, World Economic Outlook Database (2007)

1992

2008

Demographic transition Climate changeEvolution of the globaleconomic landscape

Trend in annual total rainfall,1970-2007 (mm/10yrs)

For more on global economic trends, see Australia's Future in the World (p2-4, 8)

For more on our demographic profile and climate change, see Population, Sustainability...

23.4

13.1

9.6

0

10

20

30

Proportion of population aged 65+ (%)

1980 2005 2030

1.0

1.9

3.6

4.4

5.4

6.8

21.1

1.0

1.7

3.1

6.6

3.6

16.6

19.0

0 5 10 15 20 25

UnitedStates

China

Germany

India

Share of world GDP (%)

UK

Canada

Australia

4

To meet these challenges, the economy will need to be flexible, productive, and highly participative

Sustainable growth

A working economy

A flexible economy

A productive economy

Covered in this stream

Human capital investment

High Participation

rates

Covered in Future Directions For The Australian Economy

Infrastructure

Marketefficiency

Competition

Regulation

Mobility

DigitalCapacity

5

Knowledge, skills and innovation are major drivers of prosperity, productivity and global competitiveness

Productivity and technological improvements drive economic growth

• Work by Robert Solow and Moses Abramovitz published in the mid-1950s demonstrated that as much as 85% of measured growth in US income per capita during the 1890-1950 period could not be explained by increases in the capital stock or other measurable inputs

• The unexplained portion has been widely attributed to the effects of technological change

• Between 50% and 60% of Australia's economic growth since 1990 can be attributed to productivity improvements

Education and economic prosperity go hand in hand

Education is also important for personal development, social mobility and health

1. Excluding Luxembourg and Japan (outlier/small economy and data not available respectively)Source: OECD, Education At A Glance 2007; Committee on Prospering in the Global Economy of the 21st Century, Rising Above The Gathering Storm: Energizing And Employing America For A Brighter Economic Future (2007)

0

25

50

75

100

0 15,000 30,000 45,000

= OECD countryGDP per capita: 2004 ($USD)

Proportion of the population that has attained at least upper secondary education - OECD countries1: 2005 (%)

6

Early childhood education and care (ECEC) are critical to outcomes later in life…

Private

Public

1. Cunha et al, Interpreting the evidence on life cycle skill formation (2005)Source: OECD, Starting Strong II: Early Childhood Education And Care (2006)

Rates of return to human capital investment1 – initially setting investment to

be equal across all ages

Longer term benefits of investment in ECEC - 40-year study group

ECEC program group

No-program group

Public and private expenditure on pre-primary education –

3- to 6-year olds only

ECEC is a key determinant of outcomes

ECEC have both private and public benefits

Australia is the lowest spender on ECEC in the OECD

Opportunity cost of funds

Job training

0 Age

Pre-school programs

Schooling

r

(% return)

0 20 40 60 80

Ready forschool at 5

Committed toschool at 14

High schoolgraduate

Earned$20k+ at 40

(%)

0.0 0.2 0.4 0.6 0.8 1.0 1.2

Sweden

US

UK

Korea

Australia

As a proportion of GDP (%)

Norway

Denmark

France

Mexico

Austria

Germany

7

…with strong evidence that starting early is essential

Note: SES denotes socioeconomic statusSource: Feinstein L, Inequality in the early cognitive development of British children in the 1970 cohort , Economica, (February 2003)

High SES, high early rank

Low SES, high early rank

High SES, low early rank

Low SES, low early rank

The importance of "starting early"

• A recent British study showed that social background is a more powerful predictor of educational outcomes by age 10 than attainment at 22 months

• It also suggested that less able richer children overtake more able poorer children by the age of six

0

20

40

60

80

100

20 30 40 50 60 70 80 90 100 110 120

Age (months)

Average position in student distribution (percentile)

8

At primary and secondary level, Australian students perform well compared to their international peers…

OECD Average

Australia

1. Program for International Student AssessmentSource: OECD, Literacy Skills for the World of Tomorrow – Further Results from PISA (2003)

Mean PISA1 Testing Score (Australia and OECD Average, 2003)

100

150

200

250

300

350

400

450

500

550

600

Reading Literacy

MathematicalLiteracy

ScientificLiteracy

9

…behind the averages, however, there are wide variations across sectors, socio-economic status and culture

Indigenous

Non-Indigenous

1. OECD Programme for International Student Assessment, a global survey of 15-year-old students 2. Includes 23,200 Indigenous people aged 15-24 years (25.2%) who were still at school and 689,400 non-Indigenous people aged 15-24 years (26.2%) who were still at schoolSource: Department of Premier and Cabinet, Victoria, Governments Working Together (2004); Productivity Commission, Overcoming Indigenous Disadvantage 2007; OECD, Literacy Skills for the World of Tomorrow – Further Results from PISA 2003

OECD Average

Australia

We have high variability in outcomes in reading and mathematical literacy by international standards...

...with significant differences in outcomes across schools, socio-economic status and culture

707071

505346

0

50

100

Male Female Persons

Proportion of population with no non-school qualification –aged 15 to 24 years2: 2004-05 (%)

0

3,000

6,000

9,000

School income per student from all government funding sources: 1992/2002 ($ per student)

Government Catholic Independent1992

2002

30%

57%64%

300

400

500

600

700

Reading Literacy MathematicalLiteracy

ScientificLiteracy

95th Percent

5th Percent

75th Percent

25th Percent

95th Percent

5th Percent

75th Percent

25th Percent

Range of PISA1 testing score (Australian students, 2003)

0

50

100

Scientific Literacy

Mathematical Literacy

Reading Literacy

Difference in PISA score between top and bottom SES quartiles

10

Analysis shows:

• Wide variance in school performance, not related to incoming aptitude or SES

• Many government schools perform very well, in fact 39% of government schools perform above the median for independent schools

• A number of independent and government schools perform poorly

• Catholic schools are more closely grouped around expected outcomes

School effectiveness also appears to vary widely across sectors and socio-economic status

Source: S. Lamb, D. Jesson, R. Rumberger and R. Teese, School Performance and Value-adding: Results From Analysis of School Effectiveness (2004)

School effectiveness measure based on VCE scores, by mean school SES and sector – Victoria (2000)

Independent school

Catholic school

Government school

-8.4

-7.2

-6.0

-4.8

-3.6

-2.4

-1.2

0.0

1.2

2.44

3.6

4.86.08

6.0

7.2

8.4

800 850 900 950 1000 1050 1100 1150 1200 1250

Mean SES score

School effectiveness measure based on VCE scores

11

We know that the quality of Australia’s teachers is strongly related to good outcomes…

1. Among the top 20% of teachers 2. Among the bottom 20% of teachersSource: Sanders & Rivers, Cumulative and Residual Effects on Future Student Academic Achievement (1996)

Impact of teaching quality on student performance in the United States: 1996 (performance percentile)

100th percentile

50th percentile

0th percentile

Student with high-performing teacher1

Student with low-performing teacher2

37th percentile

Age 8 Age 11

90th percentile

Importance of teacher quality

• Research suggests that teacher quality affects student performance more than any other variable

• On average, two students with average (50th percentile) performance could diverge by more than 50 percentile points over a three year period depending on the teacher each is assigned

• Teacher quality will arguably become better understood when analysed in the emerging context of "value adding" practices in education. This is the use of increasingly sophisticated measures and technologies to monitor the progress of students within a school, compared to students of "similar ability," or with the rest of a state

• Research suggests that the quality of school leadership is also an important factor

12

• There are around 256,000 school teachers in Australia

• Total teacher salaries amount to around $15bn

• Entry requirements for teaching degrees are relatively low

• Few incentives exist for professional development (few Australian teachers hold post-graduate degrees)

• Many outstanding teachers leave the classroom for higher-paying administrative roles

• Team leadership roles are not recognised in the same fashion as in other industries

• Only a minority of school teachers in Australia are male (27%)

• Current salary progression models mean many senior teacher salaries are not as high as in some comparable professions

• Teachers remain represented by unions and no professional body has been established as in other professions

• Teacher quality is critical to student outcomes, yet performance standards are not well defined or monitored

• Outstanding teachers are often not recognised for their excellence as might occur in other industries

• A high proportion of Australia's teachers are expected to leave the profession or retire in the next 5-10 years

• Fewer students are commencing teaching courses to fill the gap

…making the many issues on the education workforce agenda particularly important

Size of education sector Teacher education Career progression

Gender Remuneration Status of profession

Teacher quality Teacher performance Emerging teacher shortage

Source: ABS Census Tables (2006)

13

Australia's tertiary institutions are modestly funded by international standards

Source: OECD, Education at a Glance 2007

Expenditure on tertiary institutions as a proportion of GDP - selected OECD countries: 2004 (%)

Increase in public expenditure on tertiary education - selected OECD countries: 1995-2004 (%)

Australia is a moderate spender on tertiary institutions...

...and this spending has decreased over the last 10 years

0.0 0.5 1.0 1.5 2.0

UK

New Zealand

Ireland

Australia

France

OECD average

United States

Denmark

Private

Public

Proportion of GDP (%)

Australia

United Kingdom

New Zealand

Germany

Italy

Japan

Sweden

OECD average

Mexico

United States

Spain

Turkey

Poland

Ireland

Greece

0 100 150 20050

Change in expenditure (%)

14

Looking at adult skills, we are an increasingly well-educated society, but many are still missing out...

Total VET enrolments have decreased since 2000...

...but our overall qualification profile has improved

Despite this, many are still missing out

1. People aged 15-64 yearsSource: ABS 1301.0, Year Book 2008

700

750

800

850

900

950

2000 2002 2004 2006

Men

Women

Students enrolled in publicly funded VET:2000-2006 ('000)

0 10 20 30 40

(%)

Bachelor degreeor above: men

Bachelor degreeor above: women

Other non-schoolqualification:

men

Other non-schoolqualification:

women

1996

2001

2006

Highest level of education1: 1996-2006

0 10 20 30 40 50 60

(%)

Men withoutnon-school

qualifications

Women withoutnon-school

qualifications

1996

2001

2006

Proportion of people without anynon-school qualifications1: 1996-2006

15

...with millions of Australians vulnerable to a changing labour market

1. ABS study measures skills relative to "the minimum (skills) required for individuals to meet the complex demands of everyday life and work in the emerging knowledge-based economy"Source: ABS 4228.0, Adult Literacy and Life Skills Survey (2006); OECD, Education at a Glance 2005; ABS 6105.0, Australian Labour Market Statistics

Prose literacy skill levels Vocational or higher qualificationLabour force

by employment type

For more on women's education and work, see Strengthening Communities... (p7)

53.6%

46.4%

0

10

20

30

40

50

60

Prose literacy skill levels1 - proportion of people aged 15-74: 2006 (%)

Lower thanminimum basic

skill level

At or aboveminimum basic

skill level

0 10 20 30 40 50

Finland

Australia

United Kingdom

New Zealand

OECD average

Italy

Turkey

(%)

Canada

Japan

United States

Proportion of population with a vocational or higher education qualification - persons aged 25-64 in selected OECD countries: 2005 (%)

26

28

30

32

34

36

38

40

42

1996 1998 2000 2002 2004 2006

Employment type as a proportion of the labour force: 1996-2006 (%)

Professionals, managers and administrators are a continuously increasing

segment of the labour force

Clerical, sales and service workers have remained

reasonably stable, down slightly

Tradespersons, labourers, transport and production workers are a

decreasing segment

16

Although labour force participation has been rising, many other countries are still doing better

Source: ABS 6202.0.55.001, Labour Force, Australia; OECD (2002)

Participation is rising... ...but many other countries are still doing better

60

62

64

66

Labour force participation rate (%)

1978 20081988 1998

61.2%

65.2% SwitzerlandDenmark

NorwaySweden

FinlandGermanyPortugal

JapanSpain

IrelandFranceGreece

Italy

Inactive

Unemployed

Employed

0 10020 40 60 80

Participation rate (% of adult population)

Canada

AustraliaUnited States

New ZealandUnited Kingdom

Labour force participation rate, OECD countries 2005

17

Private R&D expenditure is among the lowest in the OECD...

...and, given our population, our research workforce is average in size

Looking at science and innovation, our performance is mixed

1. Or most recent available year, back to 2003Source: OECD, Main Science and Technology Indicators 2006, 2007; Productivity Commission, Public Support for Science and Innovation (2007)

Private

Government For more on innovation, research and development in the health sector, see Long-term Health Strategy (p19)

0 1 2 3 4

Gross domestic expenditure on R&D: 20061

(Proportion of GDP, %)

1.7%

(%)

2.7%

1.1%New Zealand

United Kingdom

2.3%Total OECD

2.0%Canada

1.8%

United States

Australia

3.9%Sweden

0 5 10 15 20

Total researchers per thousand workers across OECD countries (2002)

Finland

New Zealand

United States

Japan

Sweden

Australia

Canada

Total OECD

Germany

EU15

Italy

EU25

United Kingdom

18

We need to ensure that our cutting edge research has impact as well as encourage process innovation within existing industries

Turning knowledge into wealth

• Improve commercialisation of leading edge Australian science and research

• Move beyond low value-add resource exports that leave us heavily exposed to commodity markets

• Balance innovation and adaptation of global knowledge

Process innovation

• Continue to encourage people to find ways to do their jobs better

• Exploit collaboration tools: web 2.0 technologies, "just-in-time" training and mid-career training

• Transfer of international best practice

Innovation

19

Questions

What should be our approach to the early years development of our children?

What can be done to reduce the wide variations in outcomes and school effectiveness?

What should the "public commitment" to education be? Can "public" education only be delivered through "public" schools?

What can we do to ensure the highest quality teachers at all stages of the system, and for all subjects?

What can be done to extend participation in adult learning to those with the greatest learning needs and lowest participation rates?

What options are there for funding the education system, given the complexities of federalism?

How does an economy with low private investment in research and development innovate?

What can be done to ensure that Australia attracts and retains the most talented, creative and highly skilled people?

What can be done to foster innovation in the workplace and encourage the transfer of ideas across businesses?

What kinds of collaboration can best connect scientists to others in the economy?

What kinds of differences could the developing digital economy make right across the education lifecycle?

How can we continue to improve student retention rates at secondary school?