Turning from the short-term politics of the budget, what does it do for Australia’s long-run future? At least one commentator has raised this question, and I’ve been asked in other contexts, so it’s probably time to organise my thoughts.
Most of the discussion of long-term issues has been framed by the Treasury Reports on Intergenerational Equity, which have not been very satisfactory. They’ve done their analysis primarily in terms of the “aging of the population”, which leads to a focus on retirement incomes and nursing homes. The retirement income problem is much overblown, as many analysts have pointed out. Health care is an issue but, as I’ll argue in a later post, thinking about it in terms of an aging population is highly misleading.
More importantly, this way of looking at the problem leads Treasury to ignore education almost entirely[1]. After all, if you’re thinking in terms of an aging population, it’s natural to ignore kids. But in reality the demographic change we’re looking at includes not only an increase in the length of lifetime but an extension of the initial period in which education is the main activity. Statistics on “working-age population” typically look at people aged 15-65. But in the current economy, the age at which people typically begin their first “real” job (as opposed to part-time jobs in conjunction with school or uni) is now in the early 20s. A substantial increase in education, along with a need for steadily higher standards, is going to cost a lot of money.
Before talking about education, I’ll briefly address the family income issue raised by the Budget, which is obviously related.
Although the packaging is, as I’ve said, too politically clever by half, I generally welcome the changes in family income support in the Budget. Because of the combined impact of income tax and means-tests on family payments, the problem of high effective marginal tax rates is primarily one that affects families, not high-income earners, as is commonly supposed. Having looked at this issue in all sorts of ways, I’ve come to the conclusion that the family assistance component of the tax-welfare system can only be fixed by tipping in a good deal of money. Obviously, this money has to come from everybody else, that is single people and couples without development children. The question is, which single people and childless couples? The Budget also included yet more tax relief for upper-income earners, reflecting again the mistaken belief that this group faces particularly punitive tax rates. If this money were clawed back, it would be possible to give something close to indexation for the majority of taxpayers, and still have more left over for families.
Coming to the main topic, with computer technology now available everywhere in the world, the only real differences between countries, in economic terms are determined by human capital, that is, by the skills of workers and by the impacts of poor health and social problems on the capacity of people to engage in useful work (within the market sector or outside it). The trends in technology seem unlikely to change, and this means that the average education level required for participation in the economy is going to increase steadily. Fortunately, there is no evidence that we have yet reached a limit in our capacity to increase education levels, provided sufficient resources are made available.
After a good performance in the 1970s and 1980s, following Whitlam’s big increases in expenditure, Australia has done exceptionally poorly in education, under both the Keating and Howard governments. Pushed by cuts from the Commonwealth, state governments made big cuts in education spending in the early 1990s, and the damage from this is continuing. School completion rates, which rose rapidly from the mid-1970s to the late 1980s stalled from the early 1990s, and actually declined for important groups (for example, boys attending state schools in SA and Victoria, which had the biggest cuts)[1]. Although things have improved somewhat at the state level, the Howard government has made things worse by shifting funding from state schools to the wealthiest private schools. There has been some increase in funding for Catholic schools, but the big beneficiaries have been the “Independent” schools attended by most of Howard’s Cabinet (though not by Howard himself).
The big damage done under the Howard government has been in the university and TAFE sector. Under a succession of ministers, we’ve seen various pieces of ideological fiddling, such as full-fee places, HECS flexibility and so on. The big problem though, is not what has been done, but what hasn’t been. For eight years, we’ve had, for all practical purposes, no increase in the number of new Australian undergraduates enrolling at university. Meanwhile, the TAFE sector has been left as an underfunded mess.
What we need is a commitment to an objective of universal school completion and universal access to post-school education, whether through university or TAFE (including apprenticeships). That would entail substantially expanding funding for both sectors, and extending a HECS option for the payment of TAFE fees among other things.
* Today belongs to me!
(This Simpsons quote is one my son’s favorites, and the episode is certainly relevant to the debate going on today.)
fn1. With the exception of an excellent report done by Don Harding in the early 90s, Treasury and the other central policy departments in Canberra have ignored education and the need for investment in human capital almost completely. Their natural tendency is to think of education as a consumption item or, in mercantilist terms, as a sort of overhead cost burden on the productive sectors of the economy.
fn2. The statistics behind this debate are tricky, and it’s been argued that they overstate the peak in 1992, producing an apparent decline when actually completion rates have levelled off. But, as with higher education, stagnation is not an adequate outcome
John Quiggin 
I keep hearing the bleating that we need to spend more on education, but I have a feeling that demand in this sector has peaked on demographic grounds. The echo effect of the offspring of the post war baby boom bulge is filling our tertiary education sector right now. By the end of the decade the tertiary sector will be struggling to maintain the current bums on seats. Hence the move to attracting overseas students.
I personally believe the education sector has a qualitative problem on its hands, rather than a quantitative one. This is particularly true of the university sector. This producer group has been very adept at extolling the virtues of a degree, particularly where employment is concerned. This argument is running out of steam.
Our unsatisfied demand is now in the technical trades areas, largely the preserve of the private and public TAFE sectors. There is huge demand for technical and trade skills, but unfortunately middle class parents have been sold the pup, that a degree is the gateway to life.
A typical example was my own son’s entry into an electrical apprenticeship, a couple of years ago. As a high achiever in YR12(for a boy), he sat for a number of entry tests with private training, group apprentice schemes. They needed applicants with good maths skills in particular, as well as the analytical skills tested for. He was accepted by PEER training, along with most others, on the proviso that they did PEER’s remedial maths course. This was because, as they explained, although most had done YR11-12 maths, it was their experience, that the lads were not skilled enough, to handle the basic maths skills required for their prospective course. As well, it was obvious to all the parents gathered for an intro talk, that they could not fill the demand for places. They were not prepared to drop their standards to fill the demand.
Essentially, large numbers of the type of applicants required for technician/trades areas, are being pushed into getting worthless pieces of paper(and HECS debts) at our universities. Labor can prattle on all it likes about creating lots of new apprenticeships for our kids, but it is pissing into the wind, if it thinks industry is going to lower its standards, in order to get the educational dregs off the streets. The applicants it really wants are being sucked into our universities, for many of them to graduate in their early twenties, as only good for the semi-skilled hospitality trade. Some of them, like my nephew, who piss around attempting various uni courses and odd jobs, will gain the real skills at TAFE in thir late twenties like he did, and will be in real demand as a qualified chef(from Regency TAFE) anywhere in the world.
My analysis of Latham and Labor on education, is that it is still welded to its conservative Whitlamesque past and the education producer groups. Like the Dunstan Labor Govt of the seventies, it will respond to the demographics of the baby boomers, with a grand plan like a satellite city for Adelaide at Monarto. By the time the Labor govt had sniffed the wind on this, it was all over. Now we have a nice tree studded zoo to remember them by.
Thank you for your insight Professor!! We’re eternally grateful. And it’s good to hear someone on our side of the Tertiary Education Debate.
from -=the Illiterate Ones=-
The problem of population aging stems from the increased role of women in the workforce (as well as increases in life expectancy).
The increased opportunity cost of raising children through women being in the workforce (and sociological factors such as ‘no fault’ divorce laws) have reduced fertility below replacement laws by increasing the costs of having and raising children.
In part too increased family incomes have not proportionately increased young-family welfare. Instead they have been translated into rising prices of fixed assets such as housing and land. This transfers wealth to older property owners and away from young families. This also has the effect of making it economically difficult for one parent to remain at home looking after young children — even should they wish to do so.
Nor will the older people necessarily repay youth in terms of higher per capita bequests as a consequence of reduced fertility. The average age at which women marry is now about 30. Their children will marry when their parents are around age 60 when the parents have 20 years or so to live. The bequests are uncertain and too distant to be of much use for young couples forming families and buying housing.
Handouts to new parents are more efficient than subsidised childcare particularly where mothers would not work were it not for the subsidies. If you want to augment fertility the best solution lies in policy moves which reward having children.
The net incidence of such taxes should fall on the incomes of those who enjoy the benefits of a larger population but don’t contribute towards it.
Illiterate Ones, I’m glad you liked it
observa, you seem to agree with me that there’s a large unmet need for TAFE places, which undermines your initial reference to “bleating that we need to spend more on education.” I think it’s pretty clear from my post that our problems in the TAFE sector are as bad as or worse than, those in universities.
Harry, I may have something to say about fertility effects later on, but this shouldn’t, in my view, be the main focus of policy.
I’m glad we are talking about human capital and education. In particular I’d like to restrict the meaning of education towards ‘getting accredited’.
I believe the issue, however, is not as straightforward as putting more people through school/TAFE/Uni.
The scarcity that we experience today, take for example the rise in labour costs of building new houses. This came about from two factors:
a) Lack of capacity investment: The lack of funding of TAFE apprenticeships. Builders complain that they are not getting enough out of their apprenctices – hence not willing to spend the time training them. In effect we are asking builders to subsidize the cost of training new workers to keep the costs down for everybody else.
b) Creation of scarcity: Take the requirement of accreditation – Whenever a new rule is passed that requires somebody to be technically qualified before they are allowed to do something, a long term shortage/scarcity is developed as there are additional barriers to entry. People already in the industry are given ‘vocational recognition’ – so the scarcity is not immediate.
These barriers can be quite high. For instance, no one would hire electrician apprentices who are over 21, as their costs would be too high. This leaves out a large section of able people who have been dislocated in their workforce to retrain in these fields, or taking our previous commenter’s example – electrical eng. uni graduates who want to become electricians are unable to do so.
Another example is the current shortage of GPs. The rule that requires new GPs to undergo training after medical school and then a limit of the number of training places creates scarcity that manifests after many terms of government.
Observa,
Your argument that the demand for tertiary degrees is in decline flies valiantly in the face of facts. Offers are declining because of reduced funding, despite the increase in applications. The boom in overseas students started in the 1980s, and is propelled by universities’ desperation for funds, not customers. Meanwhile, class sizes have nearly doubled, if that’s what you mean about the lack of bums on seats.
The story about your son seems to imply that secondary school mathematics outcomes have deteriorated, and so tends to confirm John’s argument that educational institutions in general are under-resourced. Contrary to your claim, the story does nothing whatever to demonstrate that university degrees are worthless, which sound like anti-intellectual prejudice to me.
John,
I would agree with you on the need for more resources in the TAFE sector, with a strong feeling that this should involve a tradeoff from the university sector. My reasons for this are as follows. The expansion of the university sector in the 1970s (in my state we built Flinders Uni as well as a host of CAEs), was largely a response to the demographic youth bulge of the post war baby boomers. However when this logical demand subsided, the producer lobby, essentially carried on as usual, by allowing entry to more marginal candidates. Essentially a dumbing down, or putting more square pegs in round holes. We might look at the attrition rate of first year uni students, who actually complete their first choice degree. As well, demand was kept high by marketing a degree as a life gateway, or qualification creep if you like. Of course employers, both public and private, were quick to cotton on and as a result, required higher degrees to sort out the wheat from the chaff.(try getting into Treasury or Finance with a straight degree these days) Increasingly, students who were filling trades and technical roles were enticed to uni and away from immediate entry into industry. As Chui points out, by the time they graduate, with few real work skills, adult apprentice rates are unattractive for both they and their employer.
This leads me to the problem with expanding the TAFE sector, even if you want to. Much of the TAFE sector is tied up with apprentice training, as well as updating vocational skills for those already employed in particular industries. No good doing Electrical Basics1, if you are not becoming an electrician. Now here is the rub. You don’t get to do these particular courses unless, like my son, you have passed an employers rigid screening process and usually employed nowadays by an industry group apprenticeship scheme. The Catch22, is that employers can’t get enough young people to pass the test, because they’ve all had drummed into them, from knee-high to a grasshopper, to go to uni.
It is true that TAFE can also be expanded to allow lads like my son’s mate to shift to a 1yr pre-vocational course, after completing YR11. He did such a course in aviation maintenance and is apprenticed locally. They fly him to Brisbane regularly for 1 week blocks, at an institution there. He gets all accommodation paid and a living allowance and no HECS debt. Can you believe that! Compare this with what Chui notes, for a degreed applicant, who then finds he’s too old for an apprenticeship. Trainee manager at Maccas meboy.
This is my fundamental criticism of Latham’s daydream about creating more apprenticeships and TAFE places. He will run into the same bottleneck that top marks-getters do when applying for Medicine at uni. There is a different screening process, than for other degrees. We need a cultural change in mindset toward education. Get the vast majority of kids into the workforce early and when they find their feet, they will go looking for tertiary study later on, in areas that really interest them. My son is already thinking along those lines when he finishes his apprenticeship. You’ll get them later John, if you play your cards right and support thorough and rigorous TAFE education now. They can learn how to learn at TAFE(particularly boys), with an income to boot. Now I won’t get started on the demise of the technical high schools.
‘Children are the future’ John and you are looking at long-term implications of the budget but are not interested in fertility. Is the intergenerational issue unrelated to fertility?
Child allowances, relaxed conditions on women entering the workforce and provision of increased childcare facilities all point in one direction — having children is cheaper. It seems to me this is a major stated aim of the budget and is worth thinking about. The measures don’y go that far but in the longer-term this might be the way the budget is seen.
Harry, I’ve already observed that the usual intergenerational analysis, focusing on population aging, is highly unsatisfactory. So I’m not particularly interested in fertility change as a response to a badly-posed problem.
That said, there are aspects of fertility change that are of interest, and I plan to post on them some time.
In a sequel to his earlier feast of non-sequiturs and anecdotal proofs, Observa clinches his case with the story of his son’s mate, who ‘…gets all accommodation paid and a living allowance and no HECS debt. Can you believe that! Compare this with what Chui notes, for a degreed applicant…’
The average starting salary for a graduate is about $36,000. This is about what you get if you complete the navy’s aviation maintenance course, but not everyone wants to be in the navy. In civil aviation I’d be surprised if the starting salary was this high. Even if it were, this is the top end of pay for apprentices, whereas the $36,000 for university graduates is an average. And the trajectory for graduates is much better.
I have nothing against vocational training, and my ideal education system would combine vocational trading and general education. So let’s argue the case for more funding across the board, rather than incite cynicism toward one particular sector. Observa has been reading too many denunciations by tabloid columnists of degrees in cultural studies.
Where’s Yobbo, when you need him, by the way, in this case to defend Macca’s.
Your comments on fertility fair enough John and I will await your posting with interest.
I draw attention to demographer Peter McDonald’s comments in AFR this morning stating the budget will have effects in stopping fertility falling below 1.7 babies per woman. France and the Netherlands introduced the policies the government has and kept fertility above 1.7. Southern European countries which haven’t have fertility below 1.3. Professor McDonald said the 2004 budget (with spending of $19.2 billion over 5 years on families) should be effective in stopping fertility decline further.
At 1.7 the population replaces itself with plausible migration. Populations that have declined have often done badly though the cause-effect nexus hard to sort out.
Harry, the article you mention was, I think, in the Courier Mail under the title ‘Nappy families’. I can’t find it on the net, but McDonald makes clear here that family payments need to be supplemented by child care and changes in the work place.
While we wait for John’s treatment on fertility, there was also an interesting article The empty cradle by Phillip Longman (available free for once) that suggests, inter alia, that longer term birth rates everywhere are declining and that there will be severe competition for migrants.
It’s more than a decade since I was involved in education so I’m not up with the latest research, but a few sundry remarks.
Academic, abtract and theoretical knowledge is valued ahead of practical knowledge, especially in Anglo countries. Germany was always given as a country that had a better appreciation of and emphasis on practical knowledge.
Observa’s notion of getting into the work force early does not suite every-one. Educators involved in secondary education would tend to favour multiple paths and maximum flexibility. The hegemony of university education over the latter stages of secondary education still seems to be quite strong.
Success in secondary education is not necessarily a good indicator for success in tertiary education. Success in the first year of tertiary education is a far better indicator. Some decades ago I worked in Adelaide for a few years and was in fact involved in teacher education when Flinders University was set up. Possibly to make over the numbers they waived entrance requirements to Bedford Park Teachers College students next door. No difference was found in the performance of matriculated students and non-matriculated students. Of course that was at a time when staffing ratios in universities were much better than they are now.
Credentialism is a long-recognised phenomenon in education. It was said that to become a garbage collector in New York you had to successfully complete secondary schooling. This had more to do with a proven ability to get out of bed and show up on time than anything related to learning.
Concerns about a dimunition of standards in secondary schooling are, I think, misfounded. My younger son is presently doing Year 11 (second last) in Qld. The work he does makes what I did in the late 1950s look like child’s play. He is a mensa-style maths student having performed in the top two percentiles in umpteen national maths tests. Yet he finds the advanced maths subject quite challenging.
I think Senior schooling (matriculation) is competetive over the years. The universities like to see a nice Bell curve in the results. So the better the students perform the harder the work becomes so that the authorites can sort people nicely. Sifting and sorting the wheat from the chaff is one of the main functions of secondary education.
The subject that really staggers me, though, is English. In Maths there are two academic levels offered plus practical maths for the non-academic. In English there is one academic subject and TAFE students, it seems, have to pass. The new trial English subject is more sociology than English. Thirty years ago TAFE here prided itself in its ability to educate every-one, to take you from where you were to where you wanted to go.
Brian, they are good articles and amplify a point I made. Italy has one of the lowest fertility rates in Europe and its working age population is forecast to decline 41 per cent by 2050. It is a country that has not strongly pushed pro-natalist policies.
Throughout history societies have worried about excessive and deficient population. The unusual feature of the expected current population declines in countries outside Africa is that they are occurring while the world is experiencing improving living standards.
Some market processes (declining prices of fixed assets such as housing) and government interventions (like the recent Aussi budget) will forestall population decline but these effects will occur with a long lag.
Harry, I have a theory it is about women’s choice and the current environment is intuitively perceived by women to be unsuitable for child-raising. Perhaps as the population thins out conditions will improve and they’ll get on the job again!
But I’d best wait until Prof Q has a serious look at the issue.
Brian, Women are having fewer kids because it is more expensive to do so. (i) The opportunity cost of women not participating in the workforce is high. (ii) Dual income families have driven up the prices of housing and other fixed assets. (iii) For women a key factor is the higher risk of divorce or separation and the increased vulnerability of families if one partner leaves the workforce for reasons of sickness, retrenchment — the ‘two income trap’. In the past families could survive on one income but it is difficult these days.
The housing factor (ii) is crucial – a preoccupation of couples planning marriage/kids is the cost of the mortgage. The risk factors under (iii) are also important — levels of bankruptcy among US single parent families (mum-based mainly) are huge. Having kids is a risky long-term investment for women.
Harry I agree with everything you say. I was being tongue in cheek, but some of my attempts at humour are so weak they aren’t noticeable.
The Longman article makes the point that women are not having as many children as they desire. As I understand it women’s fertility begins to taper from age 33 on the average. As Longman says “children often remain economically dependent on their parents well into their own childbearing years because it takes that long to acquire the panoply of technical skills, credentials, social understanding and personal maturity that more and more jobs now require. For the same reason, many couples discover that by the time they feel they can afford children, they can no longer produce them, or must settle for just one or two.”
We tend to load the educated ones up with debt and many are denied job security when the enter the work force.
Longman says we may have “created an environment in which the ‘fittest’, or most successful, individuals are those who have few, if any, children.” As a society, he suggests, we consume more human capital than we produce.
The education problem I was instinctinctively alluding to is no doubt inextricably linked to declining fertility. As a small businessman, I am increasingly aware of the ‘greying’ of workplaces, both in my construction field, as well as in the general industry of other acquaintances. As a result, I would agree with the general premises put forward in the Phillip Longman article referred to by Brian, in particular where Longman concludes, “Education should be a lifetime pursuit rather than crammed into one’s prime reproductive years.” This is my complaint about the current emphasis on the transition staright from school, to a tertiary education. We have inherited an outdated demographic demand system for tertiary education. Many degrees, which often have the noble spinoff of learning how to learn, will consume 5-6 years of the most precious and physically productive years of our youth. This is particularly so for many males who seem to fart around at uni finding their feet and the right course. They often change degrees and don’t finish in the minimum time, unlike many more of their female counterparts. Our aging society now requires its most able bodied to shoulder the most physically demanding tasks.(ie trades) The tertiary education producer group, does not see this until it wants to enlarge its houses, etc
Brian makes the common mistake many of us do when he alludes to a woman’s fertility peaking at 32yrs. Unfortunately it is around 26yrs and in the extra 6yrs Brian mistakenly gives them, the chance of fertility, miscarriage and birth problems rises quite significantly. This is a problem that increases exponentially beyond 26, which most young women are oblivious to. They still think like Brian, partying on at 32, although they fear the dreaded forty. Medicare will fix all.
My gut feeling is we need to change our way of thinking about the young. Probably we should move to Primary schooling for Yrs1-6, with a broad based education continuing into Secondary schooling for YRs7-10. This phase should be universal and free. At the start of YR11, a choice of continuing at YR11-12 academic stream, or a technical/trade/employment stream should be made. All ‘school leavers’ at this stage could then be given a life education voucher(really an education credit entry against their name), to be spent on approved training, over their lifetime. It may be that some component of this could be available to employers as a training subsidy, for apprenticeships and the like. At any rate we should encourage early entry into the workforce, coupled with ongoing lifetime education.
In any event, I see a huge shift in demand for physical skills based employment/training, in the immediate future, which cannot continue to be squandered at universities(at least in such large numbers)in these high demand years. The monetary returns are shifting rapidly to reflect this, even if certain producer groups are still preoccupied defending their Monartos.
Observa, the notion I put that “women’s fertility begins to taper from age 33 on the average” was conveyed from an expert I heard on the ABC’s “Life Matters” program recently. He was a specialist working in a fertility clinic and was emphasising that the “biological clock is ticking” and when you get to 33 you may well have problems. He actually gave the stats for 33 through to about 41 to show how fertility falls away. His point was that you should have finished baby-making by the time many women start after gaining qualifications, launching a career, finding a partner, home-making etc.
If women are best advised to finish having babies before they are 26, then the situation is even worse if fertility is the priority.
While I would stick with the notion that getting into the work force early doesn’t suite everybody, I am personally attracted to the idea of increased mixing of experience and learning. There are many reasons for this. One is that schooling retards personal maturity IMHO. When I started in the public service the typists who left school at Yr 10 and worked for 2 years were generally more mature than the clerical officers and others we recruited after Yr 12.
The configuration of schooling you favour is roughly as we have it in Qld except that our Primary goes to Yr 7 rather than Yr 6. Up to Yr 10 the curriculum is ‘developmental’. That is it seeks to broaden the student’s education and allow them to try out just about everything before specialising in Yr 11. Then they divide into the academic and the practical streams. I’d like to see more mixing of the two if we are to cater for all needs. At this point, however, the school systems really lose control and the curriculum is determined by the needs of the tertiary sector.
It would be expensive to introduce universally, but I’d like to see a full-on “middle school” concept implemented. (In Qld there is a fashion to introduce the concept in a Yr 7-9 or 7-10 format where it can be managed without spending too much money). Yr 1-6 or 7 is too large a span to be handled well in one institution. I think 1-4, 5-9, 10-12 would allow schools to concentrate more on particular phases of human development, allow more specialist subject teaching at an earlier age and overcome to some extent the severe discontinuities in the system at present.
Brian,
To be fair, Primary Schools in SA often have semi-detached Junior Primary school sections(Reception to YR2) within them. In SA, compulsory schooling is up to 16 yrs, which is often when most students complete YR10, since they must now do at least 2 terms, of a 4 term year, in Reception. If you are born in 3rd term, you can’t start until after your 5th birthday, which means you could complete a maxm. 5 terms in Reception, before starting YR1.
On women’s fertility, while it is true the hill peaks at 26, it is a more gentle curve away to the early 30s, which curves away quite steeply thereafter. This is similar to male footballers maximum physical performance and injury resistance. Nevertheless, our society generally behaves as if peak fertility is early thirties.
I would concur with the view, that most of our youth would be better served, maturity wise, by some serious combination of employment and training at about 16 yrs. The TAFE sector would have to be made more youth friendly as a result. Apprentice/junior type wages would have to be the norm, to reflect poor initial productivity. Lower apprentice style wages are more easily accommodated by young first-timers, as well as beginning to lift the expense burden for their parents. It should be assumed that many(most?), may well change careers or seek tertiary qualifications, when they have achieved a reasonable degree of life skills and have a greater sense of direction, from contact with an adult world. This is where an aging society is going and IMO we should be more proactive in this now. Physical productivity of youth is now of the essence. The oldies will have to push the buttons and hold the ladders of opportunity.