Australian educational institutions aren’t delivering value for money and need to become more agile in the way they deliver digital skills, a government report has concluded as “concerning declines” in education quality hinder graduates’ job prospects.

Noting that education is clearly linked with productivity, the Productivity Commission’s new 5-year Productivity Inquiry: From Learning to Growth Interim Report found that rising skill levels have accounted for around 19 per cent of Australia’s overall productivity increases since 1994.

“Education is vital in developing human capital,” the report notes – yet with one in five Australians still limited by having “low basic skills”, it adds, there are considerable opportunities to redesign the way the government focuses an education investment that reached $116 billion during fiscal 2020-21 alone.

“While overall education outcomes are relatively good, we are seeing some concerning declines,” said Productivity Commission deputy chair Dr Alex Robson as the new report – the latest in a series of interim reports within the ongoing Productivity Inquiry – was launched.

“Combined with a shift in the nature of skills demanded by Australian businesses, it is timely to examine where improvements can be made to improve productivity in these productivity-enhancing sectors.”

Go digital

Boosting digital skills should be a priority given that future growth is likely to involve “a greater level of skill-biased technological change,” the report notes – yet “stagnant” or declining student test scores, its authors add, have made it “imperative” to adjust the way Australians are educated “to ensure that Australia does not miss the opportunities of a world economy changing at an increasingly rapid rate”.

That economy will increasingly rely on a broad range of skills that cannot be defined and delivered in the neat course-based packages that schools and universities teach, the report found, recommending that “government subsidies for tertiary education could be allocated more efficiently and equitably, without necessarily increasing the total amount of funding.”

Prioritising subsidies for areas of chronic skills shortages is “a poor basis for setting subsidies,” the analysis noted, implicitly rebuking the government’s moves to lower the price of IT and other priority university degrees and, more recently, its declaration of support for engaging 1.2 million tech workers by 2030.

Instead, the report recommends changes such as increasing competition for funding across education providers, who would boost sector innovation, competition, and student choice with “stronger incentives… to deliver courses that adapt to growing and changing skill needs.”

The government should also consider “rebalancing public funding” away from its current front loading on university education, the report advises, suggesting that funding could be provided throughout recipients’ careers, “given the growing importance of lifelong learning”.

“There is a finite capacity for public investment in tertiary education,” the report notes, suggesting that “at some point, additional investment risks attracting students who would get little out of studying and might be better off directly entering the labour market.”

Start earlier to staff the digital economy

The report is a wakeup call for the long-established “bifurcated” approach that steers students towards university or VET systems with little follow up or ongoing support.

Demand for digital skills is now common across both high-skilled and low-skilled jobs – but employment rates for both university and VET graduates have fallen in recent years – and Robson said it was critical for education providers to consider “not just what to teach, but how to teach it”.

“With Australia now well and truly a service economy, demand for non-routine skills [such as analytical thinking and problem solving] is at an all-time high,” he said. “This means a strong foundation from schooling is even more important than for past generations.”

Recent research supports the idea that engaging with students earlier in their educational careers – and supporting them through university, VET, and beyond – may prove more successful at steering young people into technology and other in-demand careers.

Students who described themselves as a “math or science person” in Year 9 were almost twice as likely to major in STEM subjects at university and work in STEM-related careers down the track, a new University of Kansas (U of K) study of over 21,000 US students found.

“Early experiences get ‘under the skin’,” assistant professor of educational psychology Rafael Quintana explained, “as they are related to later outcomes independently of how these attitudes developed later…. Early experiences can have long-lasting, potentially irreversible effects.”

The U of K research corroborates the Productivity Commission’s suggestions that effective education and training requires a very different approach that demands new ways of allocating government funding.

“There is some urgency in addressing these challenges,” Robson said, noting that the number of students finishing school will increase by 20 per cent through 2030 – and that the tertiary sector and employers must be prepared to direct them.

“Nobody can predict what some of the specific jobs of the future will look like,” he said. “That is why an agile and adaptable education system is so essential for driving future productivity gains.”

The Productivity Commission inquiry will be accepting submissions on the interim report through 21 October, with a final report expected by February 2023.