The Economics of Gonski

A slightly edited version of this article was published in the Australian Financial Review on 18 February 2013.

There is a compelling economic case for the $6.5 billion investment in disadvantaged schools recommended by the Gonski review of school funding. Low achievement and low school completion amongst disadvantaged students impose high costs on the economy.

These costs include higher unemployment, lower lifetime earnings, lower productivity, less taxation revenue, higher health care and crime costs, and higher welfare expenditure. The Gonski funding will be worthwhile if it is well targeted at those most in need and at programs that work.

The general consensus of economic studies is that the increase in annual adult income earnings from spending one extra year in secondary school exceeds 10 per cent. The Productivity Commission recently estimated the average earnings gain from an extra year of schooling in Australia at 10 to 13 per cent.

In 2009, the annual earnings of Australians aged 25-34 who only completed school were 25 per cent higher than those who did not. Year 12 completion also opens up the prospect of tertiary education. Gaining a university degree increases earnings by about 40 per cent compared with Year 11 or below.

Educated workers are the foundation of economic growth. Higher levels of education are associated with increased workforce participation and labour productivity. It increases workforce skill levels and contributes to greater innovation and use of new technology. These are critical to improving Australia’s competitiveness in the world market.

Productivity Commission estimates show that increased skill levels contributed over 20 per cent of annual multi-factor productivity growth from the mid-1980s through the 1990s. The OECD estimates that an extra year of schooling would raise productivity by 4 to 7 per cent.

Increased workforce participation and productivity would boost GDP. Economic modelling for the Business Council of Australia estimates that an increase of 0.15 in the average level of schooling of the workforce would result in a 1.1 per cent increase in GDP by 2040. This amounts to about $16 billion on today’s figures.

Low education is also a public health issue. Individuals who do not complete school engage in more risky health behaviour, have less health knowledge, higher rates of illness and earlier deaths than those who complete school. OECD and other studies show that the health returns from increased school completion are substantial.

About 35 per cent of Australia’s prisoners have not completed Year 10 compared to seven per cent of the general population. Overseas and Australian studies show that increased education significantly reduces the costs of property crime for individuals and the justice system.

People who fail to achieve a Year 12 education are also more likely to be reliant on welfare support. More education can increase their employment and income and thereby reduce government welfare payments.

Money does matter in reducing education disadvantage. Many high quality studies, including a recent one from the London School of Economics, show that increased funding for disadvantaged schools can lead to better student results.

But, money is only the start. Success depends on how effectively it is used. History is replete with examples of waste in education funding.

There is a wealth of studies to draw on to improve achievement in disadvantaged schools. In particular, the OECD has compiled a huge data base of research evidence and practices in different countries and synthesised it into key recommendations about the most effective strategies for these schools.

The quality of the human resources in disadvantaged schools is fundamental to success. Principals, executive teachers and classroom teachers all need to have specialised knowledge and training to handle the challenges of disadvantaged schools. They need to be well-supported with outside expertise and services. It is imperative that high quality staff are retained for continuity of programs and good teacher-student relationships.

Early identification of students who are struggling and early intervention are essential. Disadvantaged schools should have a range of support measures such as special learning assistance, off-line programs, mentoring and counselling. The learning environment should have high expectations with strong teaching and emotional support for students. Small class sizes just for these schools are also beneficial if they involve changing teaching practices.

Developing strong family-school links to reduce absenteeism and disengagement and to enhance achievement is also a key. There is little more than rhetorical support for such programs in Australia. They too require specialised knowledge, training and support and need to involve the local community. They may include home-school liaison, mentoring of students by community members, and parenting and family literacy programs.

Australia faces a huge challenge to improve the education outcomes of low income and Indigenous students. Without Gonski it is not going to happen and Australia will continue to bear the high social and economic costs of education disadvantage. The Gonski funding is important for our future economic competitiveness and prosperity, but realising its potential depends on using it effectively.

Previous Next

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.