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Skills and Capability5.4 International Comparison

5.4.1 Total expenditure on educational institutions as a share of GDP

Education represents a bedrock investment into personal, national and global development. This is especially true for countries pursuing knowledge-based growth as a means to shoring up prosperity and addressing inequality. Among OECD countries, Australia has the 7th highest expenditure on educational institutions as a share of GDP (5.9 per cent in 2018–19) — well above the OECD average of 4.9 per cent.[159] While the majority of this expenditure is publicly funded, Australia's reliance on private funding of education is not common in other OECD countries.

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5.4.2 Expenditure on tertiary education institutions as a share of GDP

Higher education provides substantial economic and social benefits. Australia's expenditure on tertiary education institutions relative to GDP is the 6th highest in the OECD, having increased from 1.5 per cent in 2005–06 to 1.9 per cent in 2018–19. R&D activities, which are primarily performed by tertiary education institutions account for 0.7 per cent of GDP in Australia.[160] According to a recent study, education related exports made up 5.7 per cent of Australia's total exports in 2014–15, representing the largest service export and the third largest export category overall with higher education representing roughly two thirds of this. The study estimated the value that university education adds to Australia's productive capacity at $140 billion in GDP in 2014, lifting GDP by around 8.5 per cent. Beyond the economic benefits to labour force outcomes, higher education has been found in other studies to be positively associated with improved health outcomes, quality of life and a range of other social wellbeing measures.[161]

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5.4.3 Adults attaining a tertiary qualification

Tertiary qualifications deliver multiple private and public benefits. According to one recent study, disciplines such as health, education, engineering and business tend to have the largest significant positive wage premiums, and around 55 per cent of the benefits associated with tertiary qualifications were estimated to be public.[162] A report for Universities Australia shows that tertiary education creates spillover benefits for jobs, wages and employment growth. A percentage point increase in the share of workers with tertiary education in a city is associated with a 1.1 per cent increase in wages and 120 new jobs per 1,000 university graduates entering the workforce.[163] The overall share of Australians (aged 25 to 64) with tertiary qualifications is the 9th highest in the OECD, having increased substantially by 11.7 percentage points since 2010–11 to 49.3 per cent in 2020–21. This is well above the OECD average of 39.4 per cent in 2020.[164]

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5.4.4 Adults attaining a vocational qualification

Vocational education and training (VET) has important economic benefits that tend to be stronger in certain technological contexts. A recent cross-country study compared the effect on labour productivity of different VET systems using data from six EU member countries. It found multiple patterns of skill complementarity — especially in production-oriented sectors, in the presence of ICTs and in countries with apprenticeship-based VET systems. The complementarity between different skill types was weaker in service-oriented sectors and generally absent for countries with classroom-based VET systems.[165] Australia is primarily a service-oriented economy with a relatively modest proportion of adult population with VET qualifications in comparison with the OECD. In 2020–21, 19.4 per cent of Australians (aged 25 to 64 years) had VET qualifications, which is a slight decrease from 21.1 per cent in 2015–16.[166] It is estimated that apprenticeship and traineeship opportunities will be reduced by 30 per cent in the short-term as practice-oriented learning is impacted by the COVID-19 pandemic, further reducing prospects of attaining VET qualifications. Recovery of the labour market through vocational education measures can be achieved by ensuring that programs remain relevant and accessible in the future.[167]

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5.4.5 Government effectiveness

The degree of trust in government can be an important determinant of general polity effectiveness. Low levels of trust can reduce compliance with laws and regulations, diminish investor confidence, and increase risk aversion.[168] The World Bank measures the capacity of governments to effectively formulate and implement sound policies in its report on World Government Indicators. This captures perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.[169] The World Bank data suggests that Australia ranks 10th among the OECD countries on government effectiveness among OECD members - on par with Canada (9th) and New Zealand (12th) and ahead of the United Kingdom (16th) and the United States (19th). Australia's performance on this measure peaked in 2004. This result would suggest that Australia's innovation environment could be supported by a greater focus on increasing government effectiveness.[170]

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5.4.6 Regulatory quality

An important factor contributing to a government’s capacity to formulate and implement sound policies is the quality of its regulatory environment. The World Bank publishes an indicator that captures perceptions of the ability of governments to formulate and implement sound policies and regulations that promote private sector development. This indicator allows comparison of regulatory quality between countries.[171] World Bank data suggests that Australia rates well on regulatory quality, 4th among OECD countries. Australia's regulatory quality has been rising since 2005. This suggests that regulatory quality is unlikely to be a major barrier to business innovation in Australia.[172] This conclusion is consistent with the ABS data showing that government regulations or compliance concerns represent only the fifth most significant barrier to innovation.[173]

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5.4.7 IMD World Talent Competitiveness Ranking

The IMD World Talent Competitiveness Ranking tracks an economy’s ability to grow, attract and retain talent. Talent development efforts are particularly important in transitioning to the future of work, especially with trends towards digitalisation accelerated by COVID-19. The ranking is based on countries’ performance in three main categories: Investment & Development, Appeal, and Readiness. In 2020, Australia ranked 12th among the OECD, its highest ranking since 2013. Australia’s performance was strongest in the Readiness category, based upon the skills and competencies in the talent pool.[174] While it will take some time before Australia’s net overseas skilled migration returns to pre-pandemic levels, addressing skill gaps can help reduce the impact of the pandemic on local labour markets.[175]

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Footnotes

[159] OECD (20210) Education at a Glance 2021: OECD Indicators, OECD Publishing
[160] OECD (2021) Education at a Glance 2021: OECD Indicators, OECD Publishing
[161] Deloitte Access Economics (2016) Estimating the public and private benefits of higher education, Report for the Department of Education, Skills and Employment
[162] Deloitte Access Economics (2016) Estimating the public and private benefits of higher education, Report for the Department of Education, Skills and Employment
[163] Cadence Economics (2016) The Graduate Effect: Higher Education Spillovers to the Australian Workforce, Report for Universities Australia
[164] OECD (2021) Education at a Glance 2021: OECD Indicators, OECD Publishing
[165] European Centre for the Development of Vocational Training (2014) Macroeconomic benefits of vocation education and training, Research paper No. 40
[166] OECD (2021) Education at a Glance 2021: OECD Indicators, OECD Publishing
[167] OECD (2021) Implications of the COVID-19 Pandemic for Vocational Education and Training, OECD Publishing
[168] OECD (2015) The Innovation Imperative: Contributing to Productivity, Growth and Well-Being, OECD Publishing
[169] World Bank (2010) The Worldwide Governance Indicators Methodology and Analytical Issues, World Bank Policy Research Working Paper No. 5430
[170] World Bank, Worldwide Governance Indicators
[171] World Bank (2010) The Worldwide Governance Indicators Methodology and Analytical Issues, World Bank Policy Research Working Paper No. 5430
[172] World Bank, Worldwide Governance Indicators
[173] ABS, Characteristics of Australian Business, Cat. No. 8129.0, Cat. No. 8158.0, Cat. No. 8166.0, Cat. No. 8167.0 and ABS.Stat
[174] IMD International (2021) World Talent Competitiveness Rankings, International Institute for Management Development
[175] OECD (2021) Preparing for the Future of Work Across Australia, OECD Reviews on Local Job Creation, OECD Publishing