The Economic And Social Benefits Of Public Schooling In Australia

Report – Centre for Future Work, 28 August 2023

The case for investing in public schools: the economic and social benefits of public schooling in Australia

Public schools are accessible to everyone. They provide a vital ‘public good’ in ensuring universal access to the education that is essential for a healthy economy and society.

However, inadequate funding for public schools – measured by persistent failure to meet minimum resource standards established through the Schooling Resource Standard (SRS) – is preventing students in public schools from fulfilling their potential. Growing evidence (including the latest NAPLAN testing results) attests to declining student completion and achievement in Australia, with major and lasting consequences for students, their families and communities, and the economy.

This report measures three broad channels of benefits:

The immediate economic footprint of public schools, including direct and indirect jobs in schools, the education supply chain, and downstream consumer industries.
The labour market and productivity gains resulting from a more educated workforce.
Social and fiscal benefits arising from the fact that school graduates tend to be healthier, require less support from public income programs, and are less likely to be engaged with the criminal justice system.

Read the full report here: https://apo.org.au/sites/default/files/resource-files/2023-08/apo-nid324052.pdf.

Summary

Education has long been recognised as a vital determinant of both personal life chances and broader economic and social performance. Public schools play a critical role in ensuring access to educational opportunity for Australians from all economic and geographical communities. Public schools are accessible to everyone. They provide a vital ‘public good’ service in ensuring universal access to the education that is essential for a healthy economy and society. However, inadequate funding for public schools – measured by persistent failure to meet minimum resource standards established through the Schooling Resource Standard (SRS) – are preventing students in public schools from fulfilling their potential. Since public schools account for the large majority of students from disadvantaged backgrounds, this underfunding of public education has amplified impacts on national scholastic, economic and social indicators. Chronic underfunding is contributing a decline in scholastic achievement in Australia that is visible across numerous indicators: including falling school completion rates, declining performance on standardised tests, and deteriorating relative performance in international achievement comparisons. Again, students from relatively disadvantaged socio-economic, regional, and Indigenous backgrounds are most harmed by the erosion of public school funding.

This report surveys Australian and international research regarding the broader economic, social, and fiscal benefits of strong schools and scholastic achievement. It then evaluates the scale of those benefits in Australia’s case, considering three broad channels of impact:

1. the immediate employment and economic activity associated with the operation of the public school system;

2. the enhanced labour market and productivity performance of students who complete their schooling; and

3. the broader social and fiscal benefits arising from the correlation between school completion and welfare, health, and crime.

First, public schools in Australia have an enormous immediate economic footprint. They enrol some 2.6 million students (about two-thirds of all school pupils), and directly employ about 285,000 full time equivalent staff. Including indirect economic impacts (felt upward through the supply chain that feeds public schools, and downstream via enhanced consumer spending), public schools support some $45 billion in GDP, and a total of 365,000 jobs. Public education has been an important source of job creation, economic activity, and capital investment in recent years.

Second, public schools generate even larger economic benefits through the subsequent enhanced labour market experience of school graduates. Students who finish Year 12 are on average more employable, more productive, receive higher earnings, and pay more taxes than those who do not finish school. Year 12 graduates earn $10,000 more per year than early school leavers: a 21% wage premium that cumulates to over $400,000 in additional lifetime income. This does not include the even larger wage premia enjoyed by school graduates who then go on to higher university or vocational education. Businesses and employers, too, benefit from the enhanced productivity of school graduates. The gains in earnings and productivity of Year 12 completion boost Australia’s GDP by another $49 billion per year.

Third and perhaps most importantly, the enhanced life chances provided to public school students as a result of their access to universal, high-quality education generate very important benefits and savings experienced throughout society. Australian and international research confirms that school graduates are healthier; they are less likely to need public income supports; and they are less likely to be involved in the criminal justice system. These outcomes are hugely beneficial for those individuals, their families, and their communities. But they also have enormous impacts on the economy, and on government budgets – including by reducing the call on government-funded health care, income programs, and police and justice systems. This third category of impacts is more diffuse and harder to quantify than the direct economic and labour market impacts discussed in the first two points, but they are likely even more important in the long run. The value of public education in contributing to a society that is healthy, inclusive, productive, safe, and fair cannot be overestimated.

In addition to describing these three broad classes of economic benefits from public education, this report also simulates the incremental economic gains resulting from stronger support for Australian public schools to meet minimum resource benchmarks established through the SRS process. We estimate those benefits would ultimately more than offset the incremental spending required to fully meet the SRS. Key findings include:

• Additional funding of $6.6 billion per year to public schools to meet the SRS would constitute a 15% increase in total public school funding.

• These additional resources would help to reverse the recent decline in school completion rates: regaining 2017 completion rates in a low-case scenario, and lifting completion rates further (in line with historic trends) in a high-case scenario.

• Via increased direct employment and economic activity, improved earnings and productivity for school graduates, and reduced fiscal and social costs from early school-leaving, these improvements in funding and school completion would drive economic and fiscal benefits totalling $17.8 to $24.7 billion per year (in 2022 dollar terms) after 20 years.

• That economic payoff is two to four times larger than the annual fiscal cost of fully meeting the SRS for public schools.

• Economic benefits would grow further in subsequent years, as successive cohorts of better-educated school graduates feed through into the overall population.

• Governments themselves benefit significantly from the increased economic activity, higher tax revenues, and reduced fiscal costs associated with better-resourced schools and improved school attainment. In the low-case scenario, these fiscal benefits total $9 billion per year after 20 years (in 2022 dollar terms), enough to fully offset the ongoing fiscal commitment required to ensure full SRS funding. In the high-case scenario, these benefits are even larger, totalling around $14 billion per year. In either case, investments in meeting the SRS are ultimately returned to government through the fiscal benefits of a healthier, more productive, and more equal society.

The primary motivations for adequately and properly funding public schools are to enhance the life chances of the students who attend them, to reduce economic inequality and segregation, and to ensure that young people’s trajectories are less predetermined by the socio-economic status of their parents than is presently the case. However, in weighing the costs and benefits of incremental fiscal support for public schooling, it is vital that governments fully consider the significant and far-reaching benefits of stronger public education for economic activity, future productivity and earnings, and the long-run health and well-being of our communities. Continuing to underfund public schools in the interest of short-run fiscal savings is hardly a good investment, once the far-reaching and significant costs of poor school achievement are taken into account. These hard economic arguments for improving public school funding, and meeting the minimal benchmarks for school resourcing established in the SRS, should cement the case for providing adequate resources to Australian public schools.

The rest of this paper is organised as follows. The next section reviews the main parameters of public schooling in Australia: including the scale, composition, and fiscal dimensions of the public school system. The following section reviews previously published research on the broader economic, labour market, social, and fiscal benefits of strong school achievement. The paper then considers three major dimensions of the benefits of public schools: their immediate economic footprint, their contributions to better labour market and productivity outcomes, and their broader spillover impacts on social outcomes (such as health, welfare, and crime). Finally, on that basis the paper simulates the combined economic benefits of improving public school funding in Australia to meet the SRS. It shows that the total economic benefits arising from adequate public school resourcing would be two to four times larger than the cost of meeting the SRS, and that fiscal gains associated with those economic benefits would ultimately offset the cost to government of improved public school funding.