Keeping kids in school pays big dividends

June 7, 2005

School drop-outs are costing the economy $10 billion a year, writes Tim Colebatch.

Chris Richardson is a busy bloke. A director of Access Economics, he's that smiling economist you keep seeing on the TV news, explaining the latest numbers. His day job is to monitor and forecast short-term shifts in the economy, and his track record stamps him as one of the best in the game.

But Richardson is also focused on the long term. Last week the Business Council and the Dusseldorp Skills Forum published an important study by Access under his direction, The economic benefit of increased participation in education and training.

You yawn? It's just stating the obvious? Please read on.

From the 1970s to the mid-'90s, Australia made big gains in lifting the proportion of young people who finish school. Roughly 80 per cent of young Australians now complete school or a real apprenticeship.

But 20 per cent of our young drop out, to their cost and ours. As the report sums up: "Early school leavers receive lower wages than their more skilled counterparts, are less likely to participate in the labour force, and are much more likely to experience periods of unemployment."

Suppose we could get another 50,000 young people a year to complete school or a trade apprenticeship: what would that do for Australia?

Heaps, says Access. It would lift workforce participation, because better-educated workers are more likely to look for work, and to find it. It would lift productivity, because better-educated workers do more skilled work. And while governments have to invest more in the short term, that would yield massive long-term gains.

All up, Access estimates that by 2040, the net gain to the economy would be equivalent to 1.1 per cent of GDP.

"Just 1.1 per cent!" you yawn. "That's not much." But it's 1.1 per cent of a stack of money. In 2005 dollars, it's a gain of $10 billion a year. If you saw $10 billion lying on the footpath, you'd stop to pick it up, wouldn't you?

OK, you'd have to share it with all of us. Even so, your share would be about $500, every year, per head. It's a big return for a small investment. Access says it's roughly as much as we would get from lifting immigration to 180,000 a year by 2040, or lifting participation rates of older workers.

How do we do it? The council and the skills forum set out six paths.

First, Commonwealth and state governments must work together. Hopefully, last week's agreement by the Prime Minister and premiers to set up a joint working group on vocational education and training marks a turning point from confrontation to co-operation.

Second, all young people should get a legal right to get 12 years of education and training.

Third, schools should be better resourced, more focused on quality and offer more vocational subjects.

And fourth, each school should have dedicated transition-to-work counsellors, with funding to help early school leavers find work and training places.

Fifth, and perhaps most important, new programs are needed to attract early school leavers back into school or apprenticeships.

And sixth, we need to be systematically studying the world's best practice and benchmark ourselves against it.

Let's jump to world's best practice in another area: unfair dismissal. Whatever can be said for the rest of John Howard's workplace reform agenda, his decision to strip half of Australia's employees of their right to job security or redundancy payments is far from world's best practice.

It goes explicitly against the advice the OECD gave his Government in April, and which it has spelt out repeatedly over the years: on unfair dismissals, governments should aim for a fair balance between the rights of workers and employers.

In 1994 the landmark OECD Jobs Study put it clearly. Job protection legislation, it warned, "can make employers more reluctant to hire new workers". The more stringent the protection, the more employers will seek ways around it, and the more workers will end up unemployed.

And yet, the OECD said, "legislated employment security, along with job guarantees negotiated by collective bargaining, also bring benefits. Employment security through long-term contracts can encourage investment in on-the-job training that is hindered by high labour turnover."

"A balance has to be struck between allowing employers greater freedom in decisions to hire and fire, and ensuring both sufficient employment security for workers and firms willing to invest in long-term training, and protection for workers against unfair dismissal."

Its latest report on Australia, in April, repeated the advice. While strongly advocating a new round of workplace reforms, on unfair dismissals it warned against throwing the baby out with the bathwater.


Australia, it estimates, already has the sixth-least restrictive employment protection legislation in the OECD. We need fine-tuning, not mass destruction.

PM, your small business origins have blinded you to how unfair your plans would be to workers and their families. Please think again.
