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Issue 5, May 2007 | Fred Argy


In all countries, education performance varies markedly between high and low socio-economic groups. The achievement gap can be partly explained by genetic influences but it is also due to differences in resources and opportunities.

The first section of the paper explains why it is in the national interest for governments to address education inequality problems. The second section examines the evidence on spread of education performance in Australia and suggests that Australia may be under-investing in education for the disadvantaged. The final section identifies a few of the specific education inequalities needing policy attention.

Why governments should be concerned about education inequalities

Longitudinal studies across the world indicate that education success rates at school and post-school are in good part determined by social class origin - in particular parents' wealth, occupational status, education and aspirations. Education inequality then flows to employment inequality.

The aim of government regulatory and fiscal involvement is to reduce this parental advantage by helping disadvantaged individuals to achieve their desired education capabilities and preferences. By making education outcomes more dependent on intelligence, motivation and effort, government intervention, well targeted and implemented, can also benefit society as a whole.

Many people are unable to make informed choices because they have limited knowledge of the income returns they can expect from various education inputs. Nor are they able to exercise their preferred choices because of limited resources. Again, employers are discouraged from training up low-educated employees because of the high cost and risk of poaching. So, on their own, education markets work very imperfectly in maximising utility. More importantly, they cannot take account of 'third party' societal spin-offs (positive 'externalities') from the wider access of citizens to education and training. We note four such externalities below.

First, wider education access enhances the political health of the nation: voters are better able to participate in social, community and political life and make intelligent, balanced choices. It also minimises the risk of excessive concentration of political power.

Second, wider access to education can reduce social tensions arising from perceived inequalities of opportunity. Even people who tell pollsters they are prepared to live with wide inequalities of outcome strongly believe that people of equal ability should be given an equal chance to succeed at school and in employment - irrespective of parental wealth, status and power2. Ordinary citizens are seeing a widening gap in median earnings between those completing at least high school and those with less than a high-school education (e.g. in USA from 19% in 1979 to 42% now)3. They are being told that the trend is driven by technological change, which has become more skill-intensive (requiring more educated people) and raised the productivity of high skilled workers more than low-skilled workers - and by shifts in patterns of demand, stemming in particular from international trade liberalisation and outsourcing of services, which have favoured economic activities that require post-school training. And they may understand all that. But they will still resent the growing premium paid by employers for education qualifications if they felt that access to education was unequal.

A third reason for governments to encourage wider access to education is that it can improve the efficiency of the labour market and employment participation rates. Globalisation and rapid technological change require a reasonably mobile and flexible labour supply. This is less likely to happen if education choices are constrained by financial considerations or structural market failures. With the prospect of an ageing population and increasing dependency ratio, all developed countries are looking to improve employment participation among people who are currently unemployed, under-employed or on the margins of the workforce - mainly early school leavers or people with disabilities. And research studies are showing that government initiatives to improve transitions from school and adult learning outcomes can yield big gains in workforce participation and hence higher incomes per capita4 and that completing year 12 in Australia can greatly reduce the risk of unemployment5.

A final 'external' benefit from more equal access to education is its impact on the nation's productivity potential (output per hour). The existence of unequal education opportunities is a sign that the economy is under-performing6. Reducing these inequalities allows intelligent, well-motivated people to more closely realise their education and employment potential, lowers the incidence of crime, decreases the need for health care and welfare and delivers a more resilient and innovative economy7.

The case for government involvement is overwhelming. The problem for policy makers and advisers is in deciding how much government subsidisation and regulation of education is optimal and what areas of education offer the highest additional returns. These questions are discussed in the rest of this paper.

Are Australians under-investing in education for the disadvantaged?

Australian governments are already intervening heavily in the education markets e.g. public education is compulsory and relatively free and university students are heavily subsidised (although less than they were). Isn't that enough to equalise opportunities? My answer is guardedly no - for several reasons.

First, Australia's international position is worrying. It is true that on most international benchmarks, Australia has high education standards: by comparison with their counterparts in 27 OECD countries, Australian 15 year olds on average rank second in literacy, sixth in mathematics and fourth in problem testing8. Nor is there evidence of any recent systematic decline in average standards.

Where we lag behind most other developed countries is not in average standards but in levels of education access by the more disadvantaged. The differences in academic performance between our highest and lowest performing students (and even between the lowest and the median) are large in Australia and more dependent on the influence of class, family and social background than in many other countries such as Canada, Ireland, Austria, Korea, Finland and other Scandinavian countries. The OECD puts us in the 'high quality/low equity' box in its international comparisons of reading literacy9.

The reasons are not hard to find. Governments in Australia spend less on education and active labour market programs such as training than a majority of developed OECD countries and what is spent on education flows proportionally more to the more advantaged students. Our education system is relatively more dependent on private financing. The best-off Australian families spend about 2.6 times more on each of their children than the poorest 20% of families10 and much of that spending is on their education.

The effects of education inequality manifest themselves in the labour market, with Australia suffering from relatively large inequalities of private income among the working age population (before taxes and government benefits)11, wide differences in the distribution of work across income units and stubbornly high rates of under-employment and joblessness among low-skilled, low-educated workers. As well, we have a relatively high proportion of low-skilled occupations requiring low education qualifications12.

Imperfect policy targeting of education resources is evident in many parts of Australia's education and training arrangements. The next section outlines a few of the specific deficiencies.

What are most pressing education inequality problems in Australia?

The problems are evident at all levels of education.

(i) Early childhood education and care (ECEC)

The seeds of education and employment disadvantage are sown early in life. Yet ECEC has been a long standing area of neglect in Australia. Participation in preschool programs in Australia is very low compared with other OECD nations and so too is total public expenditure for pre-school education and care. This is reflected in wide inequalities of access to pre-schooling.

Better access to ECEC for children of disadvantaged backgrounds, especially between ages 2 and 4, would give these children a better start in life. It would contribute greatly to their cognitive (and to a lesser extent non-cognitive) development and health and, when they become adults, facilitate their entry into employment13. The long term benefits to society will come in the form of lower welfare dependence and crime and higher national productivity.

(ii) Secondary education

Although full-time students at private schools receive less government funding than students in public schools, the gap is narrowing14. As well, parents are stepping up their per capita investment in private school education. So we are seeing a large and widening gap between the total education resources (public and private) deployed on rich children relative to poor children. The total per capita spending on education is (on average) a quarter to a third more for children attending private schools than for children in a public secondary school15. And the gap is wider if capital spending is taken into account.

Children in private schools enjoy cumulative advantages by interacting with other children who have well-educated and ambitious parents. Public schools with a high proportion of disadvantaged kids (which applies to most of the smaller schools) offer less favourable peer pressures, school facilities and buildings16 and have more difficulty attracting good teachers. A recent study found that in addition to childhood IQ and family resources, grade outcomes are greatly affected by teenage peer and school factors17. In the increasingly intense competition between public and private schools, there is a vicious circle at work. With a steady exodus of the better students, the public schools are left with a rising proportion of slow-learning, ill-disciplined kids as well as a relatively higher cost per student. Within the public school system, disadvantaged kids are not sufficiently targeted, with only 5 to 10 per cent of government funding based on needs.

Another problem is that children and youth living in low socio-economic homes have less access to information and communication technologies, especially if they live in outer urban and remote communities. By comparison with other OECD countries, the digital divide is unusually great in Australia18. With the development and spread of digital connectedness based on faster broadband technology, the technological divide may widen in the future. Better access to information technologies can play a major role in improving learning skills and the motivation to learn of low achieving students.

There are also serious geographical disparities in education standards - both within urban Australia and between urban and rural/remote young people. Country students are less likely to finish school, tend to perform more poorly than urban students and have a more restricted choice of subjects. Education performance is also relatively low in almost all outer suburbs of the major cities because of the more limited choice of schools available19.

So it is no surprise to find that in the last decade the achievement gap between rich and poor kids has widened20 and the gap in performance between schools with a high proportion of disadvantaged students and the rest has also widened21. It is estimated that 20% of adults (nearly all from disadvantaged backgrounds) now have poor literacy skills and computer literacy is even lower22. From a national perspective, under-achievement stemming from socio-economic barriers represents a huge waste of potential human capital. It is a crucial factor in the onset and persistence of disadvantage23. The Schools Resourcing Task Force of the Ministerial Council for Education, Employment and Youth Affairs has argued that an additional $2.4 billion per annum is needed to ensure all public schools achieve the agreed national goals of schooling

In short, while our secondary education system is still mildly progressive, the trend is disturbing.

The current political debate on secondary education in Australia is centred on 'cultural' issues and quality of teaching. These are not unimportant but the focus should be more on disadvantaged kids. In particular, we should be addressing inequalities stemming from:
- the physical deterioration occurring in public schools;
- the exclusiveness of non-government (non-Catholic) school enrolment policies;
- the defective socio-economic formula used for allocating grants;
- the lack of incentive for good teachers to teach poor kids; and
- more generally, the inadequate targeting of public education funds.

(iii) University education

Fewer than 20 per cent of year 12 students go to independent schools yet they receive about one-third of all university offers - up more than 4 percentage points from 2000.

The large and possibly growing under-representation of students from low social backgrounds and from government schools24 could be in part due to credit constraints or the prospect of running up a HECS debt or the rising costs of university education. However, the bigger problem with low income students by far is that they are unable to meet the 'entrance' qualifying scores required, so the problem should be principally traced back to the secondary education system more than to universities per se.

That said, there is evidence indicating that low incomes and the stress of combining studies with long hours of paid work seriously hamper the education efforts of poorer Australian university students. This problem may be set to get worse as a result of the Government's ban on compulsory student unionism. Students from really low socio-economic backgrounds were by far the biggest users of the union facilities and subsidies; they are now the biggest losers and are being forced to rely on charities25. The Vice-Chancellor's Committee recently warned that "fifty per cent of students were neglecting their studies to work and advocated an increase in the youth allowance and more financial assistance to those in lower socio-economic groups"26.

(iv) Adult vocational education and training (VET)

Until recently, we have been seeing a trend decline in levels of participation in vocational education and training (VET) by some disadvantaged social groups in Australia. This may stem in part from the relative decline in government funding and increased user pricing. But another factor has been that employers in the public and private sectors have chosen to invest less in in-house training - whether due to outsourcing, fiscal stringency or an increasing focus on short term financial performance in a more competitive market. Low apprentice wages may also have deterred able applicants and the attrition rate is high. At the same time, hours of training have been tending to decline with the replacement of apprenticeships by short term traineeships.

OECD reports have frequently pointed to the wider economic benefits of adult learning programs targeted at low-skilled or older workers and a recent Australian study has found that a well-designed investment in intensive training would so appreciably increase employment participation rates that it would more than pay for itself over time as it would lead to much higher tax revenues and lower government expenditure27.

With around 40% of school leavers now entering a university at some stage of their lives, and with the urgent need to increase the employment participation rates of the under-educated, it is arguable that the higher education debate has been too centred on university and not enough on VET. Fortunately, at Federal and State levels, there has been a considerable reawakening of interest in this area. For example, the Federal Government is now investing directly in technical colleges and offering Work Skills Vouchers. Although this has been described as "policy on the run and not aimed at the fundamental causes of the (skill) crisis"28, it is a useful beginning. One anomaly deserves a critical look: TAFE students do not have parity with university students in terms of access to funds to support their training and living expenses (FEE-HELP and HECS are not available to most TAFE students) and this is hard to justify.


The various inequalities of education opportunity outlined above are causing our economy to under-perform. They constitute a serious breach of the Australian 'fair go' - the belief that people of equal intelligence should have an equal chance in life if they are prepared to study and work hard. Inequalities will always persist but governments have an obligation to spread education opportunity as widely as possible - from kindergarten through to secondary school, university and adult vocation training. The aim should be to remove impediments to education achievement stemming from "poverty, poor nutrition, ill health, ignorance, social distance and poor or zero child care, to say nothing of conditions in schools"29.
Education and training is not appropriate for everyone. For some with complex patterns of disadvantage, other measures such as relocation assistance, wage subsidies, the creation of more unskilled jobs, are needed to facilitate the transition to work. But a coordinated federal/state assault on education inequalities, targeted at disadvantage in early childhood, public schooling and VET, would make a big contribution to a fairer and more productive society.

  1. The author was a high level Federal policy adviser. Since his retirement in 1991, he has written extensively on the interaction between social and economic issues. His two most recent papers are: 'Equality of Opportunity in Australia: myth and reality'(Australia Institute discussion paper no. 85, April 2006) and 'Employment Policy and the Clash of Values', Journal of Public Policy, forthcoming-.
  2. See Fred Argy,'Equality of Opportunity in Australia: myth and reality', Australia Institute Discussion Paper 85, April 2006, section 4.5.
  3. Chairman Ben Bernanke, 'The level and distribution of economic well-being', Economist's View, 6 February 2007. 
  4. See Productivity Commission, 'Potential Benefits of the National Reform Agenda', Research paper, December 2006, Chapter 12. 
  5. See ACOSS Media Release 5 March 2007. 
  6. Argy op. cit. page 59ff
  7. The Productivity Commission, op. cit., reviews some of the recent evidence on p.248. One earlier study found that changes in aggregate skill levels over the last century accounted for an important part of the gains in annual per capital economic growth in Australia (Chapman and G. Withers (2001), Human capital accumulation in reshaping Australia's economy edited by J. Nieuwenhuysen, P. Lloyd and M. Mead, CUP 2001). Few economists question the positive externalities from education (although there are exceptions such as Alison Wolf).
  8. Programme for International Assessment (PISA), Education at a Glance, 2005, OECD Paris.  
  9. OECD (2004),Education and Equity, OECD Observer February 2004.
  10. Based on a study cited by Ross Gittins in Gittinomics (Allen and Unwin 2007)
  11. The bottom quintile accounts for 1.6% of market incomes in Australia - the lowest of all the 0ECD countries and compared with an OECD average of 4.5% (Forster and d'Ercole 2005, Annex Table A.4).  
  12. Argy ibid  section 4.4
  13. OECD (2006), Starting strong: early education and care, ISBN 92-64-03545-1 and F. Cunha and J. Heckman (2007), The technology of skill formation, NBER Working paper 12840. There is also a recent study by Vinson reported by Adele Horin, SMH 26/2/07. 
  14. Productivity Commission, Report on Government Services, 2006, page 3.27 to 3.29. 
  15. Professor Richard Teese, article in The Age March 5, 2007.
  16. Independent schools spend nearly five times more per student on buildings and grounds than the NSW government spends on the public schools (Professor Vickers in Impact Summer 2007).
  17. G. Kalb and S.A. Maani, "The importance of observing early school leaving and peer characteristics in analyzing academic performance", Melbourne Institute Working paper no. 05/2007
  18. Argy ibid, section 4.5.
  19. There are, for example, "enormous inequalities between schools in wealthy suburbs and those in Melbourne's west" (The Age report 22/1/07)
  20. Study edited by Teese and Springer cited by Adele Horin in SMH March 3, 2007.
  21. Andrew Norton (his blog 7/3/07) examined year 12 retention data by SES background over the period 1997-2005. He found that the gap widened in that period -  mainly because of a 5 point gain by the top third and a point decline in the bottom third. 
  22. Professor Vickers, Impact Summer 2007.
    M. Keating, "Investing in VET", Centre for Public Policy Conference 2007
  23. Report by Emma Madonald, Canberra Times 27/2/07
  24. Andrew Norton blog 17/1/07. 
  25. Lisa Macnamara, The Australian, 8/1/07
  26. ABC Online 15 March 2007
  27. See M. Keating, ibid pp. 12-16. Also Competition and Cohesion, New Matilda, 16/2/07 p.4
  28. Ken Wiltshire in CEDA 'Chief Executive', February 2007.
  29. Teese op cit.