Shifting the Dial: 5 year productivity review
Chapter 3: Future skills and work
In this chapter
- 3.1 A well-functioning labour market to support living standards
- 3.2 Strong foundational skills
- 3.3 Confidence and stability is needed in the VET system
- 3.4 Independent skills assessment framework to support innovative forms of learning
- 3.5 Improving university outcomes
- 3.6 Revisiting lifelong learning: an expanding role for education and training throughout life
Benefits assessment: substantial, through raising foundational skills and providing greater access to learning through life
Vocational education & training (VET)
Informal learning & emerging forms of learning
Ensuring the skills relevance of the existing workforce
Improvements to support labour markets
3.1 A well-functioning labour market to support living standards
For almost all of us, they are more than a source of income. They provide opportunities for social interaction; a source of self-esteem; or a feeling of purpose through making a contribution to a profession or community. And the skills embedded in jobs are one of the principal drivers of increased productivity.
Occupations, skills and jobs come … and they go
Effective labour markets do not stand still. Occupations, skills and jobs come … and they go. More than a century ago, lamplighters, icemen, and telegraph operators fell into decline. In the middle of the last century, dunny men and bread delivery vans became a less familiar sight on our streets. Towards the end of the century, switchboard operators, typists and TV repairmen became rarer and rarer. Travel agents, bank tellers and supermarket cashiers still exist as occupations, but opportunities in these occupations are diminishing. The falling cost of technology relative to wages was in part responsible for these shifts, while for others, new services simply superseded old ways of delivery.
No matter how transformative the telephone, electricity, indoor plumbing, refrigeration or personal computing have been (and in productivity terms, all have been more transformative than the digital revolution, so far) no technology (nor aggregation of them) has succeeded in removing people’s capacity and desire to work. In fact, history has shown that over the long run, technology has been a friend to many employees, removing jobs that are often unpleasant, physically tiring, dangerous or tedious. Overall employment persistently grew despite these fundamental technology changes, as did wage rates.
Critical to this adaptation were the skills delivered by the education and training system. Moreover, new technology and changing consumer preferences drove demand for new skills and jobs.
- High-skilled jobs tend to be complementary to new technology — raising productivity and the demand for suitably skilled workers. The productivity savings result in lower prices for consumers, higher wages for the employees, and/or higher profits, leading to increased demand.
- With lifestyle and demographic changes and rising incomes, consumers are increasingly seeking new products and services, particularly when it enhances convenience. Technology is driving this demand and creating new jobs and occupations, primarily in the services sector. Demographic change has also increased the demand for workers in the ‘care sector’, including aged care and childcare.
While the speed and magnitude of future change is contested, even the most conservative estimates suggest that collectively automation, the ageing of the population, deferred retirement and the continued growth of the services sector will mean that the type of jobs and people’s lifetime experiences in the labour market will change significantly in the coming decades (Supporting Paper 8 (SP 8)).
It would be possible to resist technology with rigid rules, but productivity growth would be lacklustre and job outcomes would likely be no better. Governments play a critical role in avoiding this scenario by creating a good quality and adaptive education and training system, and the policy framework that allow labour markets to function well (figure 3.1).
It is essential to have policy settings that enable
workers to find work and change jobs readily
That is, it is essential to have policy settings that:
An objective assessment of Australia’s labour market suggests that it is reasonably adaptable by international standards (OECD 2016a, 2017a). But there are still prosperity-enhancing reforms that could be made in the labour market.
Figure 3.1 A well-functioning labour market
If we had to pick just one thing to improve … it must be skills formation
The focus of this chapter is on skills formation because technology adoption, use and diffusion — the long-run drivers of productivity — require people with the right skills. As an illustration, the low cost of sensors, computing power, fast broadband, the internet and the capabilities created through data analytics have made data a new major business resource. General Electric once made washing machines. Increasingly, it has moved towards service provision using data to improve the efficiency of high-cost machinery — from jet engines to power generators. Likewise, mining — once a classic employer of blue collar workers — now requires white collar employees with the ability to interact with remotely managed or computer directed equipment. These new business models require people with skills and an understanding of the IT systems in use.
There is additional value in improving skills formation — from foundational to advanced — because it gives people better job security, income and job satisfaction. These effects are not well measured in the official statistics, but have major implications for prosperity and quality of life more broadly.
But the current skills system has fractures that put at risk its capacity to deal with the future labour market changes. There are deteriorating results among school students. The VET system is in a mess, and is struggling to deliver relevant competency-based qualifications sought by industry. Leading segments of the university sector are more focused on producing research than improving student outcomes through higher-quality teaching.
A fundamental quandary for some parts of the system — as in primary school education — is that failure to act early has consequences for people’s job and lifetime outcomes that may only emerge many years later, but are at that point largely irreversible. This requires clear directional reforms with a long-term focus.
Consequently, governments need to act now, and test the likely long-run quality of outcomes from education by assessing peoples’ acquisition of academic and other skills while they are still in the system (hence the relevance of PISA scores discussed below). The system is poor at sharing data and using it to focus on improvements. Only with an active commitment to improved data sharing can evaluation be properly used to refine policies, based on evidence.
A focus on skills for future work does not mean that the other elements of a well-functioning labour market are not important or do not need policy attention. On the contrary, the Commission has examined many of these aspects in recent years (box 3.1). And there are still many reforms unaddressed that could shift the dial in productivity.
Box 3.1 Plenty of other labour market reforms
While this report focuses on the medium term, governments should not forget areas of the labour market that could be improved, with near-immediate effect. In particular, the Commission:
- undertook a comprehensive review of the Australian workplace relations framework (PC 2015d)
- completed a research study assessing geographic labour mobility within Australia and its role in a well-functioning labour market (PC 2014c). Geographic labour mobility is also being considered in the context of the current inquiry to Transitioning Regional Economies (PC 2017d)
- examined, among other matters, whether the cost of and access to childcare was a barrier to parents of young children participating in the workforce in the Childcare and Early Childhood Learning inquiry (PC 2014b)
- evaluated how changes in the preservation age for superannuation and the age pension affects labour market participation decisions of mature age workers (PC 2015c).
Much of this research and the recommended reforms remain relevant to policies aimed at improving the functioning of the labour market.
In addition, reforms in other parts of the economy can have positive impacts on the labour market. Reforms to improve the functioning of cities, such as better transport infrastructure and improved access to housing (chapter 4), would also improve labour mobility within cities and the functioning of the labour market more generally. Better population health raises labour force participation and productivity (chapter 2). Indeed, health care is an important complement to skills formation, especially given the rising rates of debilitating chronic illnesses.
Core competencies are changing
For many future jobs, new skills and knowledge will be needed as part of the core competencies. While some persist in characterising it as a curriculum-based problem — the emphasis being on increasing the number of students studying science, technology, engineering and maths (STEM) — at a fundamental level all workers will need the skills to interact with digital technology, regardless of whether they study physics to year 12 or not. A range of ‘soft’ skills (such as communication, empathy, creativity and adaptability) complement other ‘harder’ skills and are useful to navigate changes in job requirements. In short, while an innovative economy requires the development and use of skills in many disciplines and at a variety of levels, there is no skills-related silver bullet.
In that context, Australia needs a skills formation system that ensures people are work ready for the jobs on offer, and that the education and training system not only develops the required skills efficiently and cost-effectively, but has a system of qualifications that are meaningful to employers when people seek work.
Everyone accepts that education and training in the early years of life is a vital part of that system (box 3.2). But increasingly, so too is a serious commitment to ongoing education and training, including work-based training, in a labour market that is likely to increasingly involve major changes in tasks and occupations, and sometimes even abrupt career shifts.
Box 3.2 Early learning experience, parents and
Early Childhood Education and Care (ECEC)
The focus of this chapter is on education and training starting from primary school and continuing through life. But fundamental to learning during these stages is the experience of very young children.
Children are learning and developing from birth (and before) and the nature of interactions between a child, the adults around them, the environment and experiences to which the child is exposed all contribute to the child’s early learning foundations. This makes early childhood a period of both opportunity for enrichment and vulnerability to harm.
Family characteristics and environment are the strongest predictors of a child’s development and outcomes later in life. Research has highlighted the importance of the quality of the interactions between the child and their parents (and others) and how this provides the sensory stimulation affecting early brain development and later cognitive and social outcomes.
Formal educational programs, prior to starting school, can play a role in child development and education. There are positive development outcomes for all children from about 3 years and above from taking part in quality preschool and ECEC programs. There is evidence of immediate socialisation benefits for children, increased likelihood of a successful transition into formal schooling and improved performance in standardised test results in the early years of primary school as a result of participation in preschool programs. The benefits are even greater for children from disadvantaged backgrounds and can persist into adulthood.
The impact of ECEC on younger children is mixed. However, children from homes where the quality of care and the learning environment is below that available in ECEC, are most likely to benefit from ECEC participation.
Source: PC (2014b).
As the system designer and primary funder and supplier of formal education, governments have to change what they do. To achieve a better functioning education and training system geared to long-run productivity improvement and manageable transitions in the nature of work, governments need to:
- improve the education outcomes of school students through ensuring that the best possible teaching methods are being used in the school system, supported by an educational evidence base and the employment of high-quality, well-trained teachers in the fields where they are needed (section 3.2)
- introduce a more graduated system of student assessment to signal to employers the level of proficiency in vocational education and training (section 3.3)
- develop an objective accreditation system that signals the quality of skills, regardless of how they are acquired, to encourage the growth and acceptance of new models of skills formation that are faster, cheaper and more flexible (section 3.4)
- improve student outcomes by providing affordable, high-quality university education with qualifications that are relevant to labour market needs (section 3.5)
- provide greater information for those in the workforce looking to change occupations and trial innovative policy methods based on the ‘investment model’ approach. (section 3.6).
The key premise running through these reforms is that skills formation is one of the central pillars for productivity improvement, even if its benefits are not immediately realised.
While observations about the current state of the education system and outcomes are made in this chapter, the aim is to look into the future, taking account of emerging trends, and consider what policies and decisions should be taken now to set Australia on a path to higher participation and incomes and improved prosperity and wellbeing.
As the system designer, primary funder and supplier of formal education, governments have to change what they do
3.2 Strong foundational skills
A good school system ensures that people have the key foundational skills — numeracy, literacy, analytical skills — and the capacity to learn so that they can easily acquire knowledge throughout their lives. And ‘soft’ skills, such as teamwork, collaboration, leadership and creativity are equally essential to adaptability and retention of employment.
In some critical areas, there are signs that Australia’s
school system is not functioning well
In some critical areas, there are signs that Australia’s school system is not functioning well.
- National and international assessments of student achievement in Australia show little basic skill improvement over a sustained period; and in some areas standards of achievement have dropped.
- Australian student’s performance in the OECD’s PISA tests showed:
- absolute falls in average scientific, reading and mathematical ability
- a growing share of lower performers
- diminishing share of high performers in all three domains.
- Results from the Trends in International Mathematics and Science Study show little change in Australian students’ achievement since the study began in 1995.
- NAPLAN measures of Australian students’ reading and numeracy achievement indicate little improvement between 2008 and 2015.
- Australian student’s performance in the OECD’s PISA tests showed:
- The national participation rates in year 12 physics and advanced mathematics has fallen by more than 30 per cent from 1992 to 2012.
- Learner engagement — one of the most reliable predictors of gains in learning — is low for some students, with approximately 40 per cent of students involved in unproductive behaviours (being inattentive, noisy or anti-social). School attendance is considerably lower for the most disadvantaged students.
The above trends are worrying on a number of grounds.
First, Australia’s sustained decline in academic achievement (as reported by the PISA results) represents considerable lost opportunities for individuals in terms of their overall wellbeing, as well as lost economic prosperity for society.
- While Australia’s academic achievement is above the OECD average, declining performance over time means Australia’s young people may now be less capable than previous cohorts. For example, in mathematical literacy, an Australian 15 year old in 2015 had a mathematical aptitude equivalent to a 14 year old in 2000.
- An OECD projection suggests if all 15-year-old students in Australia attained at least the baseline level of performance in PISA by 2030, Australia’s GDP in 2095 would be 10 per cent higher.3 Moreover, Australia’s growing group of low performing students will be increasingly exposed to unemployment or low participation in the future world of work. As noted by Thomson (2016), a prominent expert in this area, ‘[t]hese students do not have the level of knowledge that will allow them to participate as productive citizens in a modern society’ (p. 5).
- The declining proportion of high performing students sits at odds with the skills requirements of an advanced economy, which will increasingly depend on the capability of that group to be employed in highly skilled jobs. Basic foundational skills in science and mathematics developed at school are likely to be fundamental to future work.
Second, while Australia’s performance in international studies have either stagnated or decreased, high performing countries (Singapore is an example close to home) continued to improve despite their already elevated standing.
The declining proportion of high performing students sits at
odds with the skills requirements of an advanced economy
Third, the declining or stagnating results have occurred during a time of considerable policy focus on schooling, including funding increases. These efforts have focused on changes to schools’ shares in funding (as well as the quantum); reviewing curriculums; attempting to raise year 11 and 12 retention rates; testing academic proficiency and an emphasis on STEM. These ‘input-focused’ policy measures, while desirable, appear to be insufficient in achieving the overall objective: strong foundational skills for all.
School workforce and teacher education
Raising student performance depends on the capabilities and practices of teachers and principals, engagement with parents and the community, the way schools run and the curriculum they use. Thousands of educational researchers globally have looked at how to get good outcomes in schools, and there have been over 40 Australian reviews on teacher education alone in the past decade, including one undertaken by the Commission. Common themes have emerged, including the importance of workforce quality and proven teaching approaches. Engaging with parents and the community, altering school curriculum and ensuring targeting of funding are important complementary initiatives.
To improve student outcomes, the policy consensus favours direct measures to address the effectiveness of the teaching occurring in schools (see education evidence based below), the quality of the school workforce and the quality of teacher education. And for good reason, as there are strong links between the ability and aptitude of individuals entering the teaching profession, the quality of their training and their eventual teaching effectiveness.
Despite this, there is evidence that literacy and numeracy levels of the pipeline of new school teachers have declined. Unlike high-performing countries, Australia is not selecting the next generation of teachers from high-performing school leavers. Countries with high academic outcomes have tended to pursue deliberate policies to attract the most able people into teaching, including offering salaries and working conditions that enable teaching to compete with other professions.
A related concern is that many teachers are ‘teaching out of field’ (that is, they are barely, if at all, qualified in the disciplines they are teaching). For example, in information technology, about 30 per cent of year 7 to 10 teachers have neither studied the subject at second-year tertiary level or above, nor been trained in teaching methodology for that subject at the tertiary level.
Teaching out of field not only affects students, but anecdotal evidence suggests that it also contributes to teacher attrition. Addressing the high levels of teaching out of field will require special recruitment efforts and targeted high quality professional development for existing teachers willing to acquire the knowledge and teaching skills in the relevant disciplines.
In the 2016-17 Budget, the Australian Government announced a range of measures to improve teacher quality and teacher effectiveness, which are consistent with the Commission’s recommendations in the Schools Workforce study. These include:
- linking teacher salary progression to demonstrated competency and achievement against the Australian Professional Standards for Teachers, rather than just length of service
- requiring graduate teachers to achieve registration at the Proficient Level of the Professional Standards within three years
- providing incentives for high-performing teachers to work in disadvantaged schools (Australian Government 2016c).
In May 2017, the Australian Government established the Review to Achieve Educational Excellence in Australian Schools, to provide advice on how extra Commonwealth funding provided in the 2017-18 Budget should be invested to improve outcomes. Some State Governments have also introduced measures to improve teacher quality and effectiveness, including introducing minimum entry requirements for teacher training (Anderson 2016; NSEA 2017). However, measures that deal with the ‘flow’ will only slowly address deficiencies in the ‘stock’.
Nevertheless, the measurable performance indicators are alarming in a productivity, as well as, a personal welfare context. Accordingly, it is critical that efforts by governments to improve teacher quality continue to be monitored and rigorously assessed for outcomes given the accepted wisdom is that the quality of teachers is what sets high-performing systems apart. Progress on translating that wisdom into tangible outcomes could be assessed in the next five years, possibly in the next Productivity Review.
Countries with high academic outcomes have
tended to pursue deliberate policies to attract
the most able people into teaching
A national evidence base will also help improve education outcomes
Understanding what works ‘best’ and for whom requires micro-performance data that look into the classroom, particularly at teaching practices, to provide insights and evaluations into how to improve education outcomes across schools and students. SP 3 discusses the benefits of comparative performance indicators.
All Australian governments and a large number of organisations invest considerable effort in collecting data and disseminating educational evidence. Most of these data are collected for monitoring, benchmarking and assessing performance in achieving objectives at the system level as well as promoting transparency and accountability, and informing resource allocation (‘top-down’). But relatively few collections are for the purpose of evaluation, such as identifying ways of improving student achievement (‘bottom-up’). Not only are there gaps in the evidence of the evaluation of policies, programs and education practices, greater understanding is needed on how to turn best practice into common practice on the ground. Understanding how to successfully implement best practice is as important as evaluating what works best (PC 2016g).
Without improving and applying evidence to policy making and teaching in schools and classrooms, there is a substantial risk that increased resourcing of schools will continue to deliver disappointing outcomes. Even small improvements in outcomes for all students from applying evidence to policy making in schools and classrooms would offer significant benefits to Australian families as well as for the capabilities and productivity of Australia’s future labour force.
Recommendation 3.1 Improve educational outcomes of school students
Australian governments should:
- address teaching out of field within a tight time-frame
- improve the skills and effectiveness of the existing teacher workforce, with comprehensive professional development initiatives and other mechanisms, supported by evidence that these are genuinely effective
- continue the current reforms to improve the quality and effectiveness of new teachers, but test their value.
HOW TO DO IT
Teaching out of field should be addressed through targeted professional development of existing teachers willing to acquire the relevant knowledge. Teacher salary differentials should also be used to overcome subject-based teacher shortages.
To improve teacher effectiveness, a more rigorous micro evidence base about what works in schools and how it should be implemented is required. But existing laws mean that data sharing between governments is poor. This should be the subject of institutional-level reform, as outlined in the Productivity Commission’s recent inquiry reports into Data Access and the Education Evidence Base.
The next 5 yearly Productivity Review could assess the impact and effectiveness of policies to raise student performance outcomes.
3.3 Confidence and stability is needed in the VET system
At the heart of Australia’s VET system is the objective of ensuring that employers can hire employees who are work-ready. VET plays a key role in providing training for nationally recognised qualifications in job-related and technical skills (NCVER 2007; NSW Department of Industry 2016).
As simple as that objective appears, realising it is not straightforward given the demands placed on the VET sector. Not only does the system need to provide broad ranging job-related training relevant to employers, it must do so for a wide variety of students with very different needs. It is expected to be a place where young people leaving school can pursue non-academic pathways, where workers can retrain and gain new skills to keep pace with a changing economy, and where people marginalised by the traditional education system can get a second chance (Oliver and Yu 2015).
Despite its important but complex role, the VET sector has been beset with a raft of problems leading to a sector characterised by rapidly rising student debt, high student non-completion rates, poor labour market outcomes for some students, unscrupulous and fraudulent behaviour on the part of some training providers. These outcomes reflect a range of problems in the VET sector.
First, the expansion of VET FEE-HELP access after 2012 is a well-documented example of how policy can fail if governments do not ensure proper policy design along with suitable regulatory oversight. This policy failure has caused considerable uncertainty and reputational damage to the sector as well as diverting government resources and focus to develop new policies to repair the damage. The Australian Government has announced a series of reforms that should start the process of returning confidence and stability to the sector. Better oversight of providers and tighter controls on service users’ access to government funds under VET FEE-HELP would have had administrative costs, but could have helped avoid other costs that ended up being much larger (PC 2016d).
Second, existing training packages — that is, nationally endorsed training standards and qualifications — do not always serve the needs of the employers and students. (The Commission has also found a lack of user focus in other publicly-funded services, such as the higher education system (section 3.5), health services (chapter 2), and public infrastructure (chapter 4)). Instead, these training packages are sets of highly detailed and technical standards that have proliferated over the years, yet at the same time take so long to develop that they can be out of date before they reach the end users. As a result, employers complain of qualifications that do not meet their needs and individuals find it hard to know where to obtain a quality training program (Caplan (2016) in Beddie, Hargreaves and Atkinson 2017).
If training does not deliver what employers need, employers are likely to not participate in accredited training and find other ways to skill their workers (Beddie, Hargreaves and Atkinson 2017). Survey evidence points to this already happening. About half of all employers use unaccredited training, with close to 90 per cent of those employers being satisfied with the training. In contrast, only 76 per cent of employers using the VET system to train workers in vocational qualifications were satisfied (NCVER 2015).
Third, training packages are too specific to current job requirements. They need to be broadened to ensure they also equip people with sufficient skills to adapt to changes in the workplace. Being ‘work-ready’ does not need to be job-specific (Moodie 2015). Instead, training packages could focus on core skills that are needed in most workplaces (literacy, numeracy, digital and communication skills) with the addition of technical skills for the sector, as well as for a particular job (Beddie, Hargreaves and Atkinson 2017).
Fourth, declining VET student numbers at a time when university enrolments are increasing highlights a serious problem with the attractiveness of vocational training (Noonan 2016). VET is funded by the Australian Government as well as State and Territory Governments. While the Australian Government’s overall funding has increased, some State and Territory Governments’ contributions have declined (Noonan 2017). Student fees have also significantly increased, effectively shifting costs to the Australian Government and to students. In an era of demand-driven funding for universities, the widespread availability of income-contingent loans for these students, combined with the prestige of a university qualification, the VET sector struggles to compete with universities for some courses and qualifications.
In light of these and other problems, the Commission’s stakeholders raised a number of areas where VET could be reformed, including the provision of more generic, transferable skills, ensuring youth have good career advice prior to entering VET, and improving VET teacher capabilities and effectiveness. All of these issues are critical to a well-functioning skills’ formation system. Above all, the system’s design should reflect the needs of its customers, with regulators and providers adapting to meet that goal.
It is likely that the broad directions suggested by stakeholders will improve the VET sector, but realising any benefit depends on the right design, a recognition that users have diverse views about the details of any reforms, and that implementation is a key to success.
Some stakeholders have urged a comprehensive re-assessment of the VET system, especially given concerns about the system’s responsiveness to users, declining student enrolments and the emergence of the universities as competing suppliers. However, undertaking a comprehensive assessment of the VET sector is beyond the scope of this inquiry, though one may well be justified.
Introducing grading in the VET system would help
employers in recruiting and job matching
Nevertheless, consistent with its thrust across all the themes in this inquiry, the Commission has some over-the-horizon perspectives, designed to stimulate innovation more broadly. When a system is recovering from such disastrous intervention as has occurred here, it is justifiable to concentrate resources on making it functional again, but it is also important to make some investments in ideas for the future.
Consistent with this chapter’s focus on the acquisition of skills as a contribution to higher productivity and individual wellbeing, this section examines a potentially significant reform that provides employers with better signals of the level of proficiency of VET students.
Better signalling of proficiency for vocational training
In the VET system, competency-based assessments provide people with a qualification based on their ability to perform a task to a minimum standard. Typically, there is no grading of the relative performance of students. Yet many dimensions of performance lie on a continuous scale (speed, reliability, ability to switch between tasks, organisational skills and problem solving capabilities).
The introduction of proficiency grading would:
- create incentives for attainment of excellence for students (because it positively affects job prospects and wages)
- provide information to employers to enable efficient recruitment and job matching
- give the VET system the necessary status to compete with other routes (such as university) to a successful career
- assist future learning pathways for students wanting to upgrade from a vocational qualification to a university qualification (such as upskilling from an ‘enrolled’ to a ‘registered’ nurse).
Grading does not necessarily mean VET students would receive a traditional letter grade or a score out of 100. Some proficiency scales only introduce relative performance once a student is deemed competent (for example, competent with merit or distinction). The term ‘grading’ is used in this section more generally to indicate some level of relative proficiency.
Graded assessment has been used in Australia (Gillis, Clayton and Bateman 2008; Hancock 2014). Some governments (Queensland and Western Australia) piloted statewide systems in the early 2000s. But the policy focus shifted to ensuring the quality of delivered courses and the effectiveness of teaching in the VET sector, with grading no longer the emphasis. Although some individual training providers in Australia have implemented graded assessment ‘in an attempt to meet demands from end-users for more detailed information about the quality of student performance’, approaches diverge widely (Gillis, Clayton and Bateman 2008, p. 6).
While introducing a graded proficiency system into vocational assessment would provide valuable information, some parts of the sector are currently ill-equipped to move to this system. An Australian Government discussion paper on the quality of assessment in VET raised concerns about the capacity of VET teachers and assessors to consistently identify the competency of students, much less deliver performance grading, noting:
… while there has been an effort to encourage VET practitioners to assess holistically, it is generally agreed there remains room for improvement in this area. Some learners have also raised concerns that assessment tasks were seen as ‘too easy’ and people were ‘let through’ who should not have been. (DET 2016, p. 4)
Given the current state of the sector, it is unlikely that providers and governments together can immediately adopt a proficiency-based grading system and certainly not across the full suite of vocational skills.
But since planning for such a systemic change will take some time, it can and should start now. In developing strategies to strengthen VET teacher and assessment quality, the Australian Government, in consultation with States and Territory Governments, should examine how and where graded proficiency could be introduced.
There are grounds for the earlier adoption of a proficiency approach for those qualifications where employers and other educational institutions identify a pressing need for more granular assessment. A comprehensive consultation process with employers, training providers and students should be used to identify suitable areas for early adoption. This would also provide lessons about the best pathways to developing proficiency-based assessment more broadly.
An early mover advantage could be supported by initially not making proficiency-based assessment mandatory, but allowing it to arise from the employer demand. Publishing and promoting successful early adopters would add value and help to extend the benefits. The government role would be primarily directed towards validating the system for grading.
Recommendation 3.2 Proficiency not just competency
The Australian Government should develop tools for proficiency-based assessment for skills where employers want to know how well an employee can perform a task, rather than whether they can perform it at all.
HOW TO DO IT
The Australian Government — in conjunction with State and Territory Governments and the Australian Industry and Skills Committee — would initiate planning for proficiency-based assessment processes. The Australian Government should not compel vocational education and training (VET) providers to adopt proficiency-based assessment.
Models would be the subject of employer and VET provider review, with a process that supported early adopters to trial and deliver proficiency assessments. Before their broader application, an evaluation of the trials should be completed, with wider consultation across employer groups and institutions.
3.4 Independent skills assessment framework to support innovative forms of learning
To cope with the likely risks and pressures in the labour market, the education and training system will need to be flexible enough to teach new skills quickly and efficiently. This will probably mean that non-formal and informal education, including emerging forms of learning, will play a larger role in the future skills formation of workers.
Developing skills and demonstrating competency will be important, regardless of the method of learning. But having an accepted currency for signalling credentials will be essential if genuinely new models for educational provision are to challenge higher-cost traditional models of skills. There are grounds to supplement current arrangements and provide recognition of skills and capabilities developed either outside the traditional learning system or from a variety of formal institutions (or a combination of both).
Independent validation of learning is not new. A driver’s license is an exemplar — it is issued for anyone demonstrating competency regardless of the method of learning.4 There is widespread acceptance that people are able to acquire driving skills without formal (or paid) instruction, with confirmation of their skills by testing.
Not-withstanding that the Australian qualification framework recognises prior learning, this appears to mainly relate to fast tracking through formal educational courses rather than replacing those courses altogether.5 Further, the current validation of informally acquired learning is typically undertaken by an educational institution. These institutions are also involved in selling a competing product, so are likely to face a potential conflict of interest when assessing the learner. And often if the learner is deemed not-yet-competent in certain areas, the institution can provide them with the training needed to make up the shortfall (for a fee).
Innovative business models lower costs of learning
New forms of learning are emerging, made possible by developments in technology. In particular, technology is reducing the time and financial costs of acquiring knowledge. These new forms of learning are attractive to workers and employers.
Some institutions and businesses are acting unilaterally. They are providing short, modular, affordable courses focused on the skills and capabilities that employers are seeking, using online options to make it easier for people to combine work and training. Examples include:
- the Georgia Institute of Technology, Udacity and AT&T collaborating to offer an accredited Master of Science in Computer Science that students can earn exclusively through MOOCs. A fee is paid for accreditation ($7 000), but for a fraction of the cost of traditional ($25 000) on-campus programs. The MOOC attracts people in their mid-30s who do not want to leave their job, while the traditional degree attracts students in their early 20s wanting to study full-time with an on-campus experience
- Udacity’s nanodegree in self-driving cars draws on instructors from industry leaders such as Mercedes-Benz and Nvidia. Students pay a few hundred dollars per month for as long as it takes to finish the course with rebates if they complete it within a year
- some Australian universities have partnered with EdX to offer micro-masters, such as the Australian National University’s evidence-based management program, courses that can either be taken on their own or counted towards a full Master’s degree
- Pluralist is an online education platform company that connects people of differing levels of knowledge to experts by offering a variety of video training courses for software developers and IT administrators. Experts are paid based on how often their video is viewed — providing an incentive for them to keep updating their content
- Griffith University offers virtual field trips in the hospitality industry. This approach recognises that the industry requires work-ready graduates with the skills to cope with real world problems, while increasing student numbers and time limitations require alternatives to face-to-face learning experiences.
There are also opportunities for innovative work-based learning that lead to professionally-recognised qualifications in areas once seen as solely the domain of university-based learning. As part of the UK Trailblazer Apprenticeships program, for example, Price-Water-house-Coopers (PwC) developed (alongside 30 other employers) a ‘Higher Apprenticeship’ that recruits students directly from school. After three years, this leads to a professional qualification as either a Chartered Certified Accountant (ACCA) or Chartered Accountant (ACA) (BIS 2013; Newton et al. 2015; PwC 2017). This approach is feasible because the skills learned as an accountant are vocational in orientation and there is an independent test of capability to acquire recognition as an ACCA or ACA. Moreover, as in traditional trade apprenticeships, the work that students undertake as part of their learning contributes to the output of the business, which allows the course to be offered without the level of fees charged at universities. The Australian Government has also been trialling the concept with PwC in Australia (NCVER 2017; Singhal 2017).
Need to have a common currency for signalling credentials
The credibility of these emerging education and training options is generally based on the reputation of the businesses and/or the institutions involved. For example, the involvement of Google in the Udacity Android nanodegree provided sufficient credibility for Flipkart, an Indian e-commerce platform, to hire these graduates without interview, based on their nanodegree project and Udacity profile. As a result, the online model for provision of education from existing universities is likely to grow without any government role, as will arrangements that involve commercial parties, such as Google or PwC.
However, there are impediments to the growth of genuinely new models for educational provision.
- The capacity of students to self-assemble a qualification from multiple sources — a MOOC here or there, self-learning, and work experience — is unlikely to provide dependable accreditation or a signal to employers of the inherent ability of the student.
- While universities generally determine their own testing and certification standards, there is some oversight of standards by the Tertiary Education Quality and Standards Agency to set quality standards. In contrast, there is no oversight to ensure the quality of testing in these new models of learning, providing limited credibility of the knowledge learnt.
- University and VET qualifications are often tied to the regulation of occupations — further upholding the value and reputation of traditional forms of learning and the associated accreditation.
- Copyright arrangements are constraining growth in the sector, as innovative firms and educational institutions are unable to access, or are required to pay substantial amounts for, material to be incorporated into MOOCs and other online learning. A replacement of Australia’s narrow purpose-based copyright exception system with a principles-based fair use system would remove some unnecessary restrictions on these new models of learning — while still providing a balance between the interest of the holder of the rights and the users.
Consequently, there is a gap between what is demanded (flexible, affordable and easily-acquired skills) and what is accepted as a universal signal of skills and ability in the labour market. A framework or system that enables recognition of and trust in new types of learning is a missing element. As outlined in The New York Times:
Free online courses won’t revolutionize education until there is a parallel system of free or low-fee credentials, not controlled by traditional colleges, that leads to jobs. (Carey 2015, p. 1)
The emerging education sector is well aware of the problem of acceptance and recognition in the jobs market for their products and are already seeking solutions. These include universities awarding certificates, nanodegrees and micro-masters (as outlined above), digital badges (similar in concept to scout badges) and online platforms, such as Degreed and Accredible, acting as a central repository for modular learning. Degreed plan to take this process one step further by creating a network of subject-matter experts to assess learners skills along with standardised grading. DeakinDigital, based at Deakin University, tests capabilities and issues credentials that certify people’s ability in non-technical areas such as problem solving and communication. These solutions are in their infancy, subject to proliferation (hence lacking the credibility provided by large-scale uptake), and are yet to be understood sufficiently to serve as a signalling tool in the labour market.
Certification frameworks ensure the outcomes of an education system have value to society. Traditional, higher costs methods of learning, such as a four-year university degree or an apprenticeship, have these regimes. But the financial and time costs of these traditional methods are a major barrier to skills formation.
If Australia’s education system is to be adaptive to the forthcoming labour market challenges, it is necessary to have an education system that values these new models of learning. A certification framework will go some way to doing this. The proposed regulatory framework could involve any combination of:
- endorsing existing rigorous independent assessment solutions
- contracting out the assessment of skills to approved organisations to conduct skills assessments
- direct provision of accreditation by a government body (if necessary).
Any system would require a rigorous, independent and employer-accepted assessment of the quality of learning. Ideally, a party without any training responsibilities would assess a person’s skills using a validated approach, to avoid a conflict of interest. This model is more applicable to some fields than others. For example, IT and economics are disciplines in which skills are readily measurable and where it is possible to acquire knowledge assembled from low-cost sources.
This validation framework would not be restricted to skills developed through MOOCs, online video platforms or traditional educational institutions, but could include any skills generated through other activities (such as volunteering). While designed to assist all workers, particular groups may benefit more, including youth entering the labour market, women returning to the labour market after a break, and older workers.
Currently, the lack of a certification framework impedes the growth and acceptance of new models of skills formation, reduces investment in education and training, sustains an inefficient legacy model of providing skills, and so leaves workers vulnerable to poor labour market outcomes, which has an impact on the capabilities and productivity of Australia’s labour force. There are prospectively large gains to productivity and efficiency from supporting new models of learning.
Recommendation 3.3 Disruption of education through independent assessment
The Australian Government should develop a framework to facilitate the independent accreditation of skills obtained through any learning method.
HOW TO DO IT
A capacity to assess and accredit skills and competencies acquired outside of traditional settings should be established and funded by the Australian Government. For university-level qualifications, this may be the Tertiary Education Quality and Standards Agency.
The Australian Government, in conjunction with employers, the Industry and Skills Committee and the Australian Skills Quality Authority, should investigate areas of vocational education and training where an independent certification model could robustly test a person’s skills.
3.5 Improving university outcomes
Universities have always been relevant to skills formation, but their role has grown from being a niche provider for a very small share of Australians, to a system accessible to most and used by many. In 2011, the share of the population aged 15 years and above with a bachelor’s degree or higher (19 per cent) was over nine times the figure for 1971 (2 per cent). This figure is even higher for younger cohorts, with nearly 40 per cent of 30-39 year olds holding a bachelor degree or higher in 2016.
The university sector has a range of issues, but our focus is on student outcomes
In spite of (or because of) its recent growth in importance, there are a range of structural challenges facing the university sector. Just some of these risks include:
Most of these issues facing the university sector will not diminish over time either. Indeed, given current enrolment growth rates following the move to a demand-driven university model, it will not be too long before the university sector is the key vehicle for skills formation in the economy. Meanwhile, ongoing technological change is already disrupting university business models as the methods of acquiring and disseminating knowledge evolve (such as the growth of MOOCs, discussed above). These changes are only likely to increase the scale and urgency of the challenges facing the university sector.
It will not be too long before the university sector is
the key vehicle for skills formation in the economy
The Commission has concentrated on the value and impacts of universities’ teaching functions, given the role that teaching plays in the development of workforce skills and knowledge (figure 3.2). This approach aligns with the focus elsewhere in this report on improving the value of services for consumers (such as patient-focused health care in chapter 2 or user-responsive road and city design in chapter 4), rather than addressing institutional issues with the providers. A full discussion of university education and the policy options below is in Supporting Paper 7 (SP 7).
Figure 3.2 Issues in the university sector and the Commission’s focus
Text version of figure 3.2
The range of different issues that the university sector faces, including:
- maximising the public benefits of university research
- public governance arrangements
- challenges in an evolving academic workforce
- the role of non university higher education providers
- risks from the reliance on international education exports
- overcoming remaining obstacles to access for disadvantaged students
- administration costs and arrangements
- improving incentives for research collaboration and commercialisation.
The additional issue of skills development and student outcomes is highlighted, indicating the Commission’s focus for the subsequent discussion.
Student outcomes are often poor …
University students do not always get great outcomes from their education.
First, many students do not even complete their degrees. In 2014, more than 26 per cent of students had not completed their degree program within nine years of commencing. Having over a quarter of students not complete their qualifications represents a significant loss of resources for those students (in time, effort and money), as well as for taxpayers. Recently, rates of short-term attrition have also been trending upwards — short-term rates have risen from 12.5 per cent in 2009, to 15.2 per cent in 2014.
Although these rates remain within their historically normal ranges and much of the increase reflects a few outlying providers, they also do not yet include the long-term effects of the shift to a demand-driven system. As proportionally more students enter university, it is possible that more of them will be poorly prepared — not only students who may not have done well in secondary school (as measured by Australian Tertiary Admission Ranks or ATARs), but also students with marginal attachment or engagement at university (such as some mature-age or part-time students). On the other hand, the overwhelming majority of variation in attrition rates comes from individual factors (such as student motivation) or university-level differences, such that it is also possible there is no link between expanded access to university and rising attrition rates.
For those who do complete their degrees, post-graduation outcomes have been getting worse. Full-time employment rates for recent graduates have been declining, even as the Australian economy has continued to grow (figure 3.3). Many of those who do not work full-time are not in that position by choice, with the underemployment ratio among graduates at 20.5 per cent in 2016, compared with about 9 per cent in 2008. Graduate starting salaries have also been growing slower than wages across the broader economy (declining from nearly 90 per cent of average weekly earnings in 1989 to about 75 per cent in 2015).
Figure 3.3 Undergraduate full-time employment
As a proportion of those available for full-time employment, four months after completiona
a Shaded areas indicate recessions.
Although long-run unemployment remains low for those with a bachelor degree (at 3.1 per cent in May 2016), this can hide a range of serious issues. For starters, unemployment is much higher for younger graduate cohorts (at 6.5 per cent for 24 year olds). Further, over a quarter of recent graduates believed they were employed full-time in roles unrelated to their studies, to which their degree added no value. To the extent that someone without a costly university education could have undertaken these roles, this can then have cascading employment and income effects down the skills ladder.
Post graduation outcomes have been getting worse
Many employers are also not satisfied with the quality of recent graduates, with about one in six supervisors saying that they were unlikely to consider or would be indifferent to graduates from the same university.
University students are also not satisfied with the teaching in their courses (figure 3.4). Australian universities continue to perform poorly on student satisfaction measures relative to the United Kingdom or the United States.
Of course, the problems in student outcomes are often not the fault of the universities, nor the education they provide. The inherent capabilities and choices of students are vitally important to their future, while labour market conditions and mere chance are also decisive.
Figure 3.4 University students are often not satisfied with their courses
Percentage of students who did not give a positive rating, 2016
Text version of figure 3.4
The percentage of university students who did not give a positive rating for a range of different course satisfaction measures. According to the student responses on eight measures:
- 44 per cent of students did not develop spoken communication skills
- 39 per cent of teachers did not demonstrate concern for student learning
- 38 per cent of students did not develop the ability to solve complex problems
- 38 per cent of learners were not engaged
- 37 per cent did not develop work-related knowledge and skills
- 36 per cent did not develop written communication skills
- 33 per cent did not rate the study as well-structured and focused
- 28 per cent did not rate the student support positively.
… but university staff are more focused on research
Not-withstanding the critical role of their teaching function, universities tend to given pre-eminence and prestige to their research functions. The selection process and career development of academics generally depends more on their research results and publication numbers than on their teaching ability.
Indeed, even where staff have an interest in teaching excellence, teaching-focused roles have a poor reputation, and are not seen as conducive to career progression (surveys indicate that while over 80 per cent of academics think that ‘effectiveness as a teacher’ should be highly rewarded in promotions, less than 30 per cent think it actually is rewarded).
In turn, universities are encouraged to recruit research-centric staff by international university rankings that are based largely on research capabilities. As universities rely on their international rankings to attract footloose international students (and their associated revenue), this encourages a ‘gladiatorial obsession’ with relative research performance in the rankings of the top 100 universities, while a focus on teaching quality is not rewarded. That universities must foster excellence in research is unquestioned. However, universities are in the unique position of not just generating ideas that push out the boundaries of knowledge, but in also transferring that knowledge to students — a diffusion role that is not subject to the same level of status as research.
How might teaching incentives be realigned?
Part of the reason why universities may be more focused on research prestige and less on teaching outcomes is because they do not face sufficient incentives to improve the latter (not just financial incentives, but also institutional and regulatory incentives). More closely aligning the interests of universities and their staff with those of the people paying the bills — students and taxpayers — could be one mechanism to drive improvements in student outcomes. The objective would be for universities to respond by improving their teaching quality, as well as to consider the effect of their admissions criteria, pre-commencement information and ongoing student support services on student outcomes. Overall, this could result in:
- greater human capital development — by improving the value and relevance of the skills and knowledge that students are taught during their degree
- better matching of students to the universities and courses that suit students’ long-run interests (reducing wasted education investments) .
By improving student outcomes, it could also lead to lower amounts of Higher Education Loan Program (HELP) debts that are not expected to be repaid (‘doubtful debts’), incidentally reducing costs for taxpayers.
However, creating, designing and implementing new incentive structures for institutions as complex as universities is not easy. A risk is that universities alter their behaviour in unanticipated ways, with undesirable consequences. Moreover, changes to one part of the university system (such as funding arrangements for teaching) can have incidental and profound effects in other areas (such as research), which creates new policy questions. Accordingly, initiatives that aim to fix one problem in the system can reverberate — requiring a cascading series of policy interventions.
As a result, the Commission has indicated potential changes, rather than recommending them at this stage, as further work would be needed on impacts, development and testing, prior to implementation. A formal Reference to undertake such a systemic review is one possible course for policy makers.
Improving information availability to underpin wise choices
Given the resource and time costs of university education that are borne by students, as well as the fundamental effect this has on productivity, careers and life choices, the sparse provision of reliable meaningful information about the quality of courses, degrees and universities is perplexing. Generally, students cannot determine in advance whether a university’s teaching is good quality or if the degree suits their capabilities and preferences, inhibiting their ability to make good decisions. Three years of effort on a degree that has no real currency is bad for both the student and the economy. In turn, universities have weak incentives to improve teaching quality if prospective students are unable to determine their quality.
The Australian Government has already acknowledged that the sources of information on university teaching quality and student outcomes need to be improved. The Quality Indicators for Learning and Teaching (QILT) data and website are being expanded, while recent work by the Higher Education Standards Panel aims to improve the range and relevance of pre-commencement information available to prospective students.
However, further improvements will be needed once these changes are complete. In particular, as is already recognised in schools, there is merit in measuring the degree to which universities causally contribute to the outcomes of their students (‘value added’). This is because the absolute outcomes for students are as likely to reflect the quality of the students, as they are to reflect the quality of the universities:
Top universities that attract A+ students and turn out A+ graduate[s] surprise no one. But what about universities that accept B+ students and produce A+ graduates? Which is doing the better job? (OECD 2013)
As in so many other policy areas discussed in this report, good data and its availability to trusted parties are also going to play a large role in establishing the genuine impacts of universities. This will require the collection of more information from universities, as well as greater use of linked administrative data from government agencies, such as the Department of Human Services and the Australian Tax Office (SP 3). Better data on student outcomes would not only inform students, but would also create lessons for universities about what creates good outcomes. Teaching methods, syllabuses and teacher quality matter a great deal to the educational outcomes in schools, but this recognition is lacking in universities.
Enhancing consumer (student) rights
In much of the economy, a consumer receiving a service that is not ‘fit for purpose’ or that is not supplied with ‘due care and skill’ has recourse to compensation or re-provision (a ‘right to return’) of the service. Until recently, universities were, by dint of a technicality, free of obligations under Australian consumer law (ACL). That appears to have changed with the introduction of the demand-driven system, opening up the avenue for a student to seek compensation or re-provision of the course if there are sufficient deficiencies in curriculum design, course delivery, student support, supervision quality or the ‘fitness for purpose’ of a qualification.
Clarification of Australia’s consumer law may be needed
to ensure that higher education providers are accountable
for the quality of their services to their students
Whether, in fact, the ACL will adequately give students that recourse is unclear, as it has not yet been tested in court. Although the ACL can help to protect consumers’ interests, actions can be difficult to mount, there will always be some ambiguity about what constitutes a breach, and case-by-case restitution can be costly.
The United Kingdom has recently clarified their consumer law to ensure that it applies fully to higher education providers.
Recommendation 3.4 Covering universities under consumer law
The Australian Government should monitor consumer law developments in Australia and the United Kingdom (UK), to ensure that the Australian Consumer Law applies to the higher education sector.
HOW TO DO IT
If, on further examination, it appears that action in Australia is difficult to mount and that the UK arrangements have had a positive impact, the Australian Government should clarify in legislation that the Australian Consumer Law does relate to higher education. This should give the student the right to compensation or the ‘right to a repeat performance’, on the same basis as other products that prove to be not fit for purpose.
Introducing ‘skin in the game’
One way to realign the incentives of universities is to introduce ‘skin in the game’ — financial incentives linked to student or taxpayer outcomes. Currently, universities provide education services to students with no responsibility for their post-graduation outcomes or the quality of the teaching they provide. Linking student outcomes to university payments could help to overcome this.
The Australian Government has already announced one such mechanism as part of the 2017-18 Budget, with plans to allocate 7.5 per cent of Commonwealth Grant Scheme (CGS) funding on a performance-contingent basis. Potential measures of performance under this measure seem likely to include student retention, satisfaction and outcomes, although designing and implementing the metrics will involve significant challenges. The Commission has considered some desirable features of such measures and some possible pathways forward on the Government’s proposal in SP 7.
Further complementary policy options could also be considered to try to reduce attrition rates. As universities can have some influence over student retention through their admission criteria, pre-commencement information and ongoing student support services, linking financial incentives (or penalties) to student attrition would place part of the consequences with them. While the Government’s proposed performance-contingent funding seems likely to include measures of attrition as a key variable for determining the reward (or penalty) provided to universities, complementary policy options in this area could also include:
- the requirement that universities bear a moderate share of the HELP debt of students who do not complete their qualifications, as currently only the Australian Government and students jointly bear these obligations. The relative obligations borne by the three parties could depend on when students exit and the individual circumstances
- paying the university a completion bonus for each graduating student — such as by withholding a share of the CGS grants until the student is awarded their qualification.
However, such options face some challenges and require further development and consideration before they could be implemented.
First, both may create some incentives for universities to refuse to fail under-performing students. Whether these incentives are material is unclear because universities employing this strategy would put at risk their long-run reputation; leave the university open to action under the consumer law; and potentially lose any proposed performance-contingent funding.
Secondly, universities have only limited influence over student attrition rates — the choices and preferences of the students themselves and external factors (such as the economic climate or family responsibilities) are also highly influential. As such, the extent to which universities should be penalised for student attrition depends on the degree to which they affect student outcomes. If implemented, it would be prudent to start small and recalibrate based on observed outcomes.
The teaching-research nexus
Part of the rationale for universities undertaking both research and teaching functions is the ‘teaching-research nexus’ — the theory that close proximity to world-class researchers makes students more engaged, develops their critical thinking, aids their research skills and keeps them up to date with the latest research findings.
However, these skills and attributes can be nurtured by high-quality teaching-only academics as well. For instance, teaching-focused staff with adequate support can keep up to date with the latest research findings. Indeed, the skills and attributes that make an academic a good researcher will not necessarily also make them a good teacher. In line with this, there is little empirical evidence that a positive nexus exists (particularly at the undergraduate level).
Despite the lack of evidence, the nexus is reinforced by regulatory requirements that restrict the title of ‘university’ to only those institutions undertaking both research and teaching. This matters because the title ‘university’ has a special status for employers and students, regardless of the extent to which universities enhance skills acquisition. However, in many other countries (including the United States and England), there is recognition that a university can undertake excellent teaching without conducting research. As research is expensive to conduct, this can also create barriers to entry and provide a competitive advantage to existing institutions in Australia’s university-centric market.
As part of the 2017-18 Budget, the Government announced it would examine the requirement for universities to conduct research as part of the review of the Higher Education Provider Category Standards. If, as a result, the higher education market was opened to teaching-only universities, rigorous quality standards and auditing would still be needed, in order to avoid repeating the mistakes of the VET sector (discussed in section 3.3 above).
There is no compelling policy rationale for requiring high-quality providers to conduct research in order to be able to label themselves as a ‘university’.
Teaching surpluses, research funding and cross-subsidies
The existing funding arrangements often result in domestic students paying for university research as part of the cost of their education, despite that research being of little direct benefit to them.
Currently, most domestic students attend university in a Commonwealth-supported place (CSP). The Australian Government regulates the resources provided to the universities for each CSP by providing a pre-determined taxpayer subsidy for each student (Commonwealth grants) and placing maximum limits on student contributions (which normally get paid through the HELP loan system). Resource amounts vary by field of study, with annual resources per equivalent full-time study load (EFTSL) ranging from $12 158 (for humanities subjects), to over $30 000 (for medicine and agriculture subjects).
Government regulation of CSP resourcing is necessary because price competition is difficult to establish in the domestic university market. This is primarily because the vast majority of domestic students have access to income-contingent HELP loans and consequently have a low price sensitivity, which was a necessary by-product of enabling university access on merit, rather than family income.
Further, in the absence of good information, lower prices may undermine the prestige of a university and its capacity to attract good students. In addition, students are often not geographically mobile, implying that many universities often only compete within a city-sized market, rather than across Australia. While there is some movement of students from their home state to attend university, in the four biggest states, well over 80 per cent of commencing students originate from the same state, likely reflecting the cost of moving out of their parents’ home (the dominant accommodation choice for higher education students).
There is strong evidence that the maximum CSP prices set by the Australian Government are often well in excess of the full costs of some courses. Universities do not compete down prices for such courses (an indicator of the imperfect competition described above). This generates ‘teaching surpluses’ for certain high-margin courses, which universities can then use to fund research. Across all universities, the cross-subsidy from teaching to research generated by Commonwealth-supported domestic students was estimated to be $1.5 billion in 2013. This is nearly half the amount that universities receive from the Australian Government in direct research funding ($3.5 billion).
This has several concerning outcomes. For one, such cross-subsidies are invisible to students and, given the standard accounting methods used by universities, are not disclosed accurately to the Australian Government either.
Of most relevance to this inquiry, such cross-subsidies may also have adverse impacts on skill formation, ultimately affecting Australia’s productivity. Under the demand-driven system, the number of places available for students in a given course is determined solely by the university. Cross-subsidisation creates strong incentives for universities to offer more places for prospective students in high-margin courses and fewer places in low-margin courses, in order to maximise teaching surpluses for research.
This can result in oversupplies or undersupplies of graduates in certain fields, based solely on the incentives created by arbitrary Government funding levels and student contribution caps. Students in oversupplied programs can then struggle to find employment after graduation, wasting the resources used to educate them, while under-supplied courses can often be in areas that are vital for the community (such as dentistry or health).
New funding arrangements that align total CSP resources to expected teaching costs (both fixed and variable) would help to minimise these inefficiencies. Some initial work on the cost of teaching by discipline has already been undertaken by the Australian Government as part of the 2017-18 Budget, alongside the roll-out of improved accounting methods for universities (specifically allocating expenses by purpose, not just type).
However, reducing cross-subsidies would decrease funding for research (by definition). Without offsetting policies, this would strain university budgets in the short term and potentially affect Australia’s long-term research capacity (and hence productivity).
The Australian Government could consider options that addressed the need for adequate research funding, while still reducing the adverse impacts of existing high-margin courses. For example, it could set cost-reflective prices for courses, saving costs and then return it to universities through increased research funding. However, that would raise questions about the best ways to allocate such funding, which the Commission has not investigated in detail. Once that avenue of inquiry was opened, it would logically extend to all university research funding, and indeed, potentially, to the Australian Government’s policies for funding research in the wider economy. Consequently, further consideration of offsetting measures would be needed before implementation, as well as consultation with the affected parties.
There is a strong in-principle case that per-student CSP resourcing (from combined student contributions and Commonwealth grants) should more closely reflect the expected cost of teaching.
As this would likely remove a significant source of revenue from universities, it would also create a range of research funding issues.
The funding model in present use has not been updated to deal with the shift to a demand-driven model and, if left unchanged, could adversely affect Australia’s future skills formation.
Improving the role of HELP in productive skills formation
The HELP scheme is a critical program for ensuring that higher education is accessible to all Australians, and (given the growing significance of the sector for skills formation in an evolving economy) is a foundation for future productivity. However, its design poses several problems for economically efficient decisions about skill acquisition.
Much of the recent debate about around higher education policy has focused on the sustainability of the growing value of HELP debt that current and former students owe the Government. The value of outstanding HELP debt has increased from approximately $12.4 billion in June 2006 to over $47.8 billion in June 2016. Projections indicate that this trend will continue, up to nearly $200 billion by 2025 (SP 7).
The proportion of HELP debt that is not
expected to be repaid is rising strongly
The proportion of doubtful HELP debt is also rising strongly. While some temporary factors have contributed to this recent increase, there are also a range of significant long-term challenges to debt repayment, including:
- growing numbers of retirement age students with limited expected participation in work
- the growth of part-time employment with earnings below the repayment threshold, particularly for second incomes in otherwise wealthy households
- offering HELP loans for VET qualifications, which have lower expected private benefits
- the potential automation of some entry-level jobs, limiting graduate opportunities
- potential growth in student non-completion rates, as the opening of the university sector to more students may lead to the entry of less academically-prepared students.
Many of these structural challenges can lead to the unproductive use of HELP, particularly on wasted education investments. An exemplar is the case of those post-retirement age students who do not pay off their debts and who have acquired skills that have a lower likelihood of benefitting the public at large. While the scale of some of these problems are small now, they look likely to grow. However, such expenditure is not uniformly wasteful either. Therefore, the government should avoid arbitrary limitations and rules, such as indiscriminate age limits that discourage up-skilling and retraining.
To address these challenges and reduce the costs of the HELP system, the Government announced a range of reforms as part of the 2017-18 Budget, including changes to the HELP repayment schedule. From 2018-19, debtors will begin making repayments at a rate of 1 per cent once they reach $42 000 income, rather than the current threshold of $55 874 with an initial repayment rate of 4 per cent. By requiring more individuals to make repayments (estimated at nearly 200 000), this increases repayments and reduces costs.
However, most of the long-term structural challenges remain unaddressed by lower HELP repayment thresholds. In particular, many university-educated part-time workers in otherwise wealthy households will still be under the threshold. Similarly, post-retirement age students will be largely unaffected if they have left the workforce, as their earnings will likely remain below the threshold.
Further, although lower repayment thresholds would increase HELP repayments, it may also distort workforce participation decisions. This is because the HELP system results in ‘repayment cliffs’ at each subsequent income threshold, which can induce ‘income bunching’ at those thresholds.
Although the lower repayment rate (of 1 per cent) would help to minimise the disincentive effects of the reforms, lower repayment thresholds are also likely to disproportionately affect part time workers, who generally have more control over their hours worked, and so may respond with reduced workforce participation. More broadly, subjecting over two million debtors (given that nearly all debtors will be paying more under cascading changes to subsequent income thresholds) to increased marginal tax rates can also have labour supply effects, even if only temporarily while the loan is repaid.
An alternative to lowering repayment thresholds is to allow outstanding debts to be collected from deceased estates (rather than being written off, as currently occurs). The fiscal gain would, of course, be much deferred. But it would reduce doubtful debts substantially (by approximately two-thirds according to one estimate), and would not have as much of a distortionary effect on participation decisions, as the marginal impact of improved collection would generally occur post-retirement.
It would also be consistent with the treatment of other tax debts and private debts, and would better address many of the long-term structural challenges faced by the HELP debt system (including post-retirement age students and part-time workers in otherwise wealthy households). Collection from deceased estates could also be structured to protect against financial hardship for the debtor’s family members.
Decreasing HELP repayment thresholds can affect workforce participation decisions for some marginal debtors.
A better method of recovering outstanding HELP debts and addressing long-term challenges to HELP debt sustainability is collection from deceased estates. Equity concerns posed by such an approach can be alleviated by creating a provision for small estates, only collecting from the estates of debtors beyond prime working age and providing the Australian Taxation Office with discretionary powers to waive remaining debts.
3.6 Revisiting lifelong learning: an expanding role for education and training throughout life
The preceding discussion has largely focused on reforms to the supply side of the education and training system. Demand for education can also be affected to the extent that quality is improved (university teaching), accessibility and flexibility is enhanced (online courses), the value of learning increases (better recognition and accreditation of learning), or prices change (CSP funding or HELP design). But there is an underlying presumption that there are students motivated to attend these institutions.
The demand for education and training, particularly among some cohorts, such as older workers, cannot be assumed. In the face of technological change, ensuring the skills relevance of the existing workforce will become increasingly important. Additional measures may be needed (or barriers removed) to help workers (and/or their employers) realise the pay-off from up-skilling and retraining.
As the potential breadth of training requirements are wide and varied, reforms will cut across the whole education system. Some workers, for example, may need to develop foundational literacy and numeracy skills, while others may need information and guidance about pathways to up-skill their already high levels of education.
Front-ended study dominates learning
In Australia, an individual’s education and training is typically front-ended — that is, their formal learning occurs early in their life, after which they enter the workforce and continue working until retirement, interspersed with on the job training. The school, VET and university systems play the main role in educating and training young people at the start of their life.
Historically, this model of learning has been effective, as it maximises the amount of time a person can earn higher wages from their additional skills, maximising returns to education. It also lowers the effective cost of education and training because it takes place at a time in people’s lives when they can obtain part-time casual jobs while studying, and when full-time jobs are difficult to obtain or would not pay well.
While participation in formal education is substantially lower for older cohorts and continues to decline with age, Australia’s post-secondary school education and training system has played a role in providing some mature workers the opportunity to:
- return to the education system to obtain an initial qualification (‘second chance’)
- undertake different or higher qualifications, such as postgraduate study or transitioning from a VET qualification to an undergraduate degree (up-skilling and retraining).
Grounds for greater investment in skills development
While education and training in the first 20-25 years of life remain critical, there are grounds for more systematic and greater investments in the skills of people throughout their working life. In particular, the returns from further training and education may rise over the coming decades. Three main mechanisms lie behind this:
- The duration of working lives should increase (raising returns to further education).
- The cost and accessibility of training and education can be expected to improve — if policy settings allow this (section 3.4).
- The nature of occupations and jobs are likely to change sufficiently quickly that skills become redundant and existing workers are vulnerable to unemployment, underemployment and poor skills utilisation (SP 8).
- This stems from the potential acceleration of automation into occupations previously not considered feasible. It was, for example, previously thought that driving a vehicle was so reliant on subtle perception that machines could never undertake the task — this is clearly no longer the case. With the advent of trials of driver-less vehicles around the world, automated long haul freight distribution is increasingly seen as viable. Its widespread adoption would displace many truck drivers.
- The impacts of digitalisation are also changing the nature of the firm. There is increased scope to offshore jobs in the services sector, including in areas previously expected to be safe from outsourcing (such as human resources jobs). And firms — enabled by exchange platforms like Airtasker — are able to contract out short-term, discreet tasks. The prevalence of the gig economy is often grossly exaggerated. Nevertheless, as discussed in the Commission’s recent report on digital disruption, it may grow in significance, with a greater proportion of workers thus relying on a portfolio of work and a wide range of skills, rather than long-term employment with a limited number of employers and a narrower set of skills.
In summary, technological change is making it worthwhile to undertake more training, new ways of learning make the additional investment easier and cheaper, and people working longer gives them longer to obtain the benefits from more training (figure 3.5). These factors increase the return on additional relevant investment in education and training.
Figure 3.5 Skills formation for existing workers — drivers and implications
The level of adult participation in education and training in Australia is high compared with other countries (figure 3.6). However, this participation tends to relate to the enhancement of professional skills associated with already acquired post-school qualifications. The extension of opportunities to other groups will be important for minimising structural adjustment costs and distributional impacts of potentially large shifts in the labour market. As The Economist has emphasised, focusing on narrow groups for lifelong learning poses large risks for people and society:
… the lifelong learning that exists today mainly benefits high achievers — and is therefore more likely to exacerbate inequality than diminish it. If 21st-century economies are not to create a massive underclass, policymakers urgently need to work out how to help all their citizens learn while they earn. (The Economist 2017, p. 2)
Barriers to employment and training among the working, especially older workers, are well-known (discussed further in SP 8). The ageing of the workforce means that a greater number of workers will be facing barriers that may result in poor job matching, underemployment, unemployment or early retirement. Increased and unexpected vulnerabilities from technological advancement adds a new element to structural change, creating a broader group of people who are not necessarily aware of potential risks or the pay-off from re-skilling.
Figure 3.6 Adult participation in formal education, 2012
Per cent of age group
Source: OECD Education at a glance, online statistics.
Text version of figure 3.6
Figure 3.6 Adult participation in formal education, 2012. Per cent of age group Country 20-29 years 30-39 years 40+ years Australia 35% 13% 6% USA 25% 8% 2% UK 22% 6% 2%
Lacking a trigger to prompt some workers to retrain
An essential component for improved living standards is early intervention. Policy settings should be such that actions are taken before workers are retrenched or made redundant. Redundancy is a poor starting point for re-skilling. It means there is a potentially lengthy interruption to employment, which then reduces subsequent job prospects.
The problem facing vulnerable employees is one of creeping gradualism. The risks of job loss grow slowly, varying by place and skill, so that there is no obvious trigger for acquiring new skills before the risks are realised.
For example, long-distance truck drivers, as noted above, are at risk of displacement if automated vehicles are adopted for long-haul freight distribution. But they do not know when. It might happen only for some trucks on some routes, or may occur for some companies ahead of others. Regulatory uncertainty about the safety of autonomous vehicles also make predictions difficult.
For the workers in this situation, switching occupations not only involves a gamble in terms of forgone wages and conditions, but it removes people from the familiar milieu of their job and their colleagues — workplaces are often valued as much for the relationships they create as their earnings.
Risks of job loss grow slowly, so there is no
obvious trigger for acquiring new skills
How do I know? Access to information
Beyond the multiple new approaches discussed above for access to flexible, innovative and affordable skills formation, there remain some barriers to well-informed choice for skill formation options.
Governments have taken some steps to overcome the information barriers to skills development and employment. There are a burgeoning number of websites to assist people considering particular occupations and looking to undertake training, including:
- My Future — a national career information and exploration service
- My Skills — a directory of training opportunities in the VET sector
- Job Outlook — a careers and labour market research site
- Quality Indicators for Learning and Teaching (QILT) — information on higher education course and graduate employment outcomes.
The Australian Government is also developing a new website to provide a single point of entry for information about higher education admissions policies and processes. There is evidence that improved availability of course outcome information helps people, including disadvantaged workers between the ages of 25-54, seek out courses with good expected labour market outcomes.
But just as the Commission found in health care (chapter 2), the enthusiasm to use the web for information provision carries with it the risk of a confusing maze of information, working against the very purpose for which such sites exist. One improvement would be to consolidate the information about training and education into one website. While the websites listed above are usually linked, they do not provide a single, comprehensive information source for either school leavers or those in the workforce to review their employment and study options. A single platform may make it easier to navigate for the end user — particularly workers who have not had much contact with the education and training system for a number of years. A single platform will also make it easier to market to the public, providing greater awareness of the information available. Increased knowledge and use of a single platform represents a cost-effective method to promote careers and training information. However, any such portal must be properly maintained to be useful, with a single agency accountable for its quality and usability.
There is also scope for improvement in the content of the existing tools. The Australian Human Rights Commission (2016) found that ‘information and guidance available to older people considering formal skills training is inadequate and does not support people to overcome barriers’ (p. 93). It also found that there were gaps in the provision of information for VET courses on the My Skills website. And information is often far too lacking in granularity to be really useful:
Currently, graduate occupation information is limited to ANZSCO major group level (for example, Technician and trades workers, Managers, Labourers), which provides no indication to prospective students on the likelihood of their finding work after graduating in the occupation for which the course is designed to prepare them. (Polidano, Van de Ven and Voitchovsky 2017, p. 10)
The improvements announced by the Australian Government in the 2016-17 Budget to the QILT website will provide a more accurate picture of graduate earning outcomes, but as noted earlier, the measures should be developed to provide an indication of value added. Increased collaboration between the Government, educational institutions and employers could help with the development, expansion and funding of an online tool. The process of consultation between them in developing a single tool would be valuable in its own right.
Recommendation 3.5 Make it easy to access learning options
The Australian Government should ensure that Australians of all working ages can readily access comprehensive and up-to-date information about career and education options, including how to make career changes later in life.
HOW TO DO IT
As a first step, the Australian Government should consolidate the existing range of career guidance and education information websites into a single portal to provide school leavers and existing workers with a comprehensive one stop shop. It should outline:
- future career opportunities
- areas of skills need
- educational requirements for different careers
- the range of education institutions providing relevant qualifications
- measures of the performance of institutions (vocational education and training and universities) in each course, including student experiences and outcomes (such as future employment and income).
A further step is for the Australian Government to establish a cross-portfolio review of the policies needed to develop a workforce with greater capacity to adapt to structural change. The review would examine the changes needed in the education and training and tax and transfer systems along with the need for awareness raising approaches
Lessons from the investment approach and innovative funding methods
The investment approach in the Australian Government’s ‘Try, Test and Learn’ (TTL) program may have lessons for the development of employment and skill initiatives focused on older cohorts at high risk of losing their jobs due to structural adjustment. The TTL is an early intervention program that aims to improve the economic and social participation of young carers, young parents and young students at risk of long-term unemployment. These groups were identified as promising targets for interventions since actuarial assessment suggested that the cost savings from avoiding prolonged welfare dependency were high. The TTL model is not prescriptive in nature, but harvests ideas for small-scale interventions gathered through submissions from the community sector, government, academics, business, and individuals. The advantage of many of the ideas put forward under the TTL program is that they are low cost and readily able to be abandoned or scaled up. Many use online platforms and peer support (a ‘free’ input). Through this initiative, the Australian Government is seeking to develop a body of evidence of ‘what works’ and to discover how behaviours, pathways or systems can be changed to improve workforce participation.
While the funding round for TTL is not complete and programs are yet to be implemented, a similar model could be used for workers who may also face protracted periods of welfare dependency after occupational dislocation — particularly if they shift to a disability payment. The evaluation outcomes from the TTL will provide lessons for the future development of a new program targeting that group.
There are no easy answers, but we know change is needed
From an economy-wide perspective, all of the prior discussion in this chapter of labour market trends coalesces around workers:
- whose original formal qualifications are at risk of becoming redundant, under pressure from automation or a shift to services-based consumption
- who are vulnerable if the school system has not adequately develop the necessary foundational skills for future learning
- whose skill needs might depend more on the gradual accumulation of new skills through multiple avenues, rather than acquisition of an entire formal qualification obtained from a conventional skills provider
- with employers that have weaker incentives to offer re-training if gig economy and offshore workers are readily available
- who through inertia may underestimate the need for skills as the economy and its needs change slowly around them
- who may be poorly informed of the options that are already available.
These workers may be otherwise destined to remain on support payments or in poorly-matched employment. The return of such workers to higher wage and more sustainable jobs may well require a re-think of skills provision. Improvements in living standards are inevitable if the counter-factual is to remain on social support.
Since the dominant provider of education in this country is and seems likely to remain a role of governments, and since the fiscal burden of a failure to acquire new skills will remain with government under our social safety net if no action is taken, the case for better-designed and more accessible mature age education seems well-made.
Policy solutions may not be easy or uniform for this diverse group, but given the uncertainty about how technology will affect the labour market, it is important that this issue be at the forefront of public debate. Government, industry and individuals need to continually assess and re-assess the impact on the labour market based on evidence. Structural change is not new but some approaches used to tackle it could be — in particular early intervention.
- However, poor academic performance is not generally the result of any single risk factor, but rather a combination of various barriers and disadvantages that affect students throughout their lives and consequently will require a range of policy interventions beyond education. Locate Footnote 3 above
- In addition to a driving test, some State Governments require drivers to demonstrate, using a log book, that they have completed a minimum number of supervised driving hours. Locate Footnote 4 above
- In its inquiry into discrimination against older Australians, the Australian Human Rights Commission (2016) found a number of problems with the existing system of recognised prior learning. It recommended the Australian Skills Quality Authority undertake a strategic review of the availability and administration of the system at a national level. Locate Footnote 5 above