Reducing Education Disadvantage Will Increase Individual Well-being and Economic Prosperity

A report by Deloitte Access Economics to the Federal Government has found that increasing student achievement in Australia will have significant individual and economy-wide benefits. It says that a central issue for government is to address disadvantage in education and that school funding must be sufficient to overcome educational disadvantage associated with low socio-economic families and communities.

The study found that increasing student achievement increases education attainment to Year 12 and beyond school and increases wages and the likelihood of employment. It also leads to a more productive workforce and increased economic growth.

The level and quality of the education of a country’s labour force has been consistently demonstrated as a driver of its economic growth. A well-educated workforce will be more productive, is more likely to innovate, and will better utilise other factors of production at its disposal. At the individual level the benefits of education are reflected in higher wages, as workers are rewarded for their greater productivity. At the aggregate level, society benefits through greater levels of innovation, social cohesion, tax revenues and other positive spillovers. [p. vi]

In its analysis of the effects of increasing student achievement at the individual level, the report found that a 1% increase in mathematics achievement would increase the likelihood of obtaining a Year 12 qualification by 0.15%, increase wages by 0.09%, increase the chance of obtaining a university degree by 0.54% and the chance of being employed by 0.07%. Given the wage benefits associated with further study, combining the education attainment effects indicates that a 1% increase in student achievement increases wages by 0.12%.

A 1% increase in science and reading achievement would have broadly similar effects for the likelihood of obtaining a Year 12 qualification and a university degree and being employed. However, the combined education attainment effect on wages is higher for an increase in mathematics achievement than in science and reading – 12.5% compared with an increase of 8.8% for science while the impact for reading was statistically insignificant.

The study also found that increases in student achievement in mathematics, science and reading have strong positive effects on the likelihood of lower performing students obtaining a Year 12 qualification and being employed. For example, a 1% increase in mathematics achievement by students in the bottom 20% of achievement increases their likelihood of obtaining a Year 12 qualification by 0.33% and of being employed by 0.1%. These are much stronger impacts than the average effects reported above.

The wages effects also vary significantly between different levels of student achievement. The increase in wages is higher for students with higher test scores, which is not surprising because those with higher test scores are likely to be employed in higher skilled occupations.

As noted above, the effects on wages of increases in mathematics and science achievement are stronger than for reading. However, an increase in reading achievement for low performing students has a much stronger impact on future wages than increases in mathematics and science. This may be because reading is a foundational skill upon which further skills can be built and therefore produces higher returns for those with low competency.

The report estimates the economy-wide impacts of increased student achievement by two different methods. One was to aggregate the individual level results to a national level and the other was through a cross-country analysis based on aggregated data. The first approach found that a 1% increase in student achievement in mathematics would increase GDP by 0.16% by 2076 which amounts to a total increase in GDP over the period of $13 billion in 2016 dollars. The cross-country modelling found that a one per cent increase in student achievement would increase in GDP growth by around 0.33%. The larger increase found in the cross-country modelling occurs because this approach captures a range of economic spill-overs from education which are not captured in the individual level modelling. However, the report says that this result should be interpreted with some caution because of problems associated with this modelling approach.

The study also modelled the economy-wide effects of a range of different increases in student achievement using the aggregated individual level approach. If all schools in Australia increased their performance to the top 5% of schools (resulting in approximately a 3% increase in PISA scores), GDP is estimated to increase by 0.47% by 2076 when the entire workforce is endowed with greater education, which amounts to a total increase of $39 billion over the period in 2016 dollars. If results were increased to match those of Canadian schools (a 5% increase in PISA scores), GDP is estimated to increase by 0.75%, or $62 billion over the whole period to 2076. If results increased to match Korean schools (a 10% increase in PISA scores), GDP is estimated to increase by 1.48%, or $97 billion.

The report also analysed the scope for schools to improve student performance. The first stage of this was to estimate the contribution of school education to student results and it found that after accounting for factors out of the control of educators, school quality and educational practice can explain between 6% and 14% of the variation in mathematics results. In other words, about 86 to 94% of the variation in student performance is due to factors outside the control of schools such as the socio-economic background of families and communities, health, nutrition, early childhood education and location.

While school-specific practices have only a small effect on student results, the report emphasises that this does not detract from the crucial role schools play in transmitting education to young people.

Schools are the vehicle through which education, both academic and otherwise, are imparted on youth. They are paramount to building the cognitive and life skills essential for success as a nation. [p. 82]

It found that student behaviour, morale and their attitude towards school strongly influence students’ mathematics results. Relatedly, how teachers interact with students in the classroom was found to have a strong positive influence on outcomes – student-teacher relations, teacher support and the disciplinary climate in class all have a strong influence on maths scores. The amount of time spent on homework was also found to have a strong positive influence on maths results. On the other hand, a shortage of mathematics teachers has a significant negative influence. The report suggests that these are areas that can be subject to policy measures to improve outcomes.

The report also highlights the need for governments to address what it calls “systemic disadvantage” in the schooling system. It says that schools in low socioeconomic suburbs, or those with a large intake of students with poor English proficiency, often face negative educational outcomes. It notes research showing that schools in low SES areas have significantly lower results than those in advantaged areas across test scores, year 12 completion and post-school transitions. It estimates that if systemic school level factors were overcome, the difference in student outcomes would fall by as much as 15%.

It says that while funding is not the whole answer to overcoming disadvantage in education, it is a necessary condition:

At a minimum, funding should provide for sufficient resources to overcome the effects of educational disadvantage. [p. 86]

Such a finding must be an embarrassment to the Federal Government and the Minister for Education because the Government’s new Gonski 2.0 funding arrangements clearly fail to provide the necessary funding for disadvantaged students. Public schools, which enrol over 80% of disadvantaged students, will remain under-funded while two-thirds of private schools, who serve more advantaged families, will be over-funded. The discord between the Government’s funding policy and the report’s recommendation possibly explains why such a substantial report was quietly published in early December without any fanfare – it wasn’t even the subject of a ministerial press release.

The need to provide sufficient resources to overcome the effects of educational disadvantage remains the fundamental challenge facing Australian governments. The Deloitte report demonstrates that improving the results of low performing students will have major benefits in terms of extending their education and their future employment prospects. It will also have significant economic benefits in terms of increased productivity and economic growth.

Trevor Cobbold


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