Education inequality is costing Australia billions

The question of inequality has permeated recent public debate in Australia. From stagnating wages to CEO salaries, from retiring boomers to renting millennials, the widening gaps in our society have come under intense scrutiny. A less scrutinised gap is widening in our education system.

The Public Education Foundation has recently released an Issues Paper, What Price the Gap? Education and Inequality in Australia, which sheds light on this educational inequality and its cost to Australia. It analyses the costs of students at the bottom falling further below those at the top and estimates that over the six years from 2009-15 alone, this growing inequality has cost Australia around $20.3 billion, equivalent to 1.2 per cent of GDP. The longer-term cost to Australia is even bigger, because the gap was widening well prior to 2009.*

Educational inequality in Australia is extensive and manifests in a variety of ways, from funding and teacher coverage through to access to learning resources and curriculum. Inequality is worsening over time, and increases for each cohort as they move through their school years. The major determinants of inequality are parental education levels and socioeconomic status, although Australia performs relatively well on equality due to gender or ethnic background.  While school sector is correlated with inequality, it is likely this is a function of socioeconomic status rather than sector itself. Curiously though, there is considerable inequality within the public school sector as it reflects local disadvantage more strongly than the non-government sector.

It is widely understood that Australia’s school performance (as measured by international test scores) has been falling. What’s less understood is that this headline buries a stark, unpalatable fact: kids at the bottom of the performance distribution are falling faster and further than kids at the top.

The research builds a picture of the changing distribution over Australia’s performance in the international OECD Programme for International Student Assessment (PISA) tests. Of course standardised testing has its limitations, but one advantage is that it does provide comparable time-series data for evaluation across a host of countries.

From 2009 to 2015 (where the data is consistently comparable), the average performance across all subjects of students at the 10th percentile of the distribution (10 per cent from the bottom) fell by 21.3 points, while the performance of those at the 90th percentile fell by only 14.4 points. While all cohorts have fared worse, the performance of those at the bottom has fallen by almost 50 per cent more than those at the top, exacerbating inequality between the two ends.

The OECD calculates that a 50 point fall in test scores leads to a decline in long-term GDP growth of 0.87 per cent per year. Based on this, we have estimated the net present value of the economic loss to Australia of our falling educational performance. Our research calculates the loss attributable to the 2009 -15 fall in performance to be $118.6 billion.

Further, we have valued the cost to Australia of students at the bottom falling further than those at the top, i.e. what if all students had only fallen at the level of the top decile students? In this scenario, all students would have fallen by an equal number of points with inequality remaining constant.

The analysis finds that, of the $118.6 billion cost of declining performance, the cost to Australia attributable to the increase in inequality is $20.3 billion. As an estimate of the long-term trend, this figure is conservative as it does not include the earlier increases in PISA inequality (due to changes in the PISA test formats). The research outlines a range of recommendations to improve the performance of our lowest achieving students.  These include second classroom teachers to support underperforming students outside the classroom, especially in disadvantaged communities and keeping some spots in selective school for comprehensive students, and alternative learning programs, such as Hands On Learning and Big Picture Education.

Above all, we must sustain a firm commitment to needs-based funding for schools, which involves continuing to grow funding for least advantaged schools, where necessary by cutting spending on schools which are "overfunded" relative to socioeconomic standard benchmarks.

CEDA research: Read and download How unequal? Insights on inequality.