The economics of vocational education and training in Australia: CEET's stocktake

Chapter 1: PURPOSES AND STRUCTURE OF THE REVIEW

1.1 INTRODUCTION

The past decade has seen an intensification of interest in the role of education and training in helping people find jobs and stimulating national economic development. In Australia and elsewhere there have been numerous reports and policy developments aimed at strengthening the linkages between education, training and the labour market.

Despite the constant affirmation of the important role that education and training play in the economic success of individuals, enterprises and nations, there is much uncertainty about the likely pay-off from any additional investment in education and training or from any shift in the balance of existing investments. This review is intended to provide a basis for addressing these significant national issues.

The review focuses on the economics of vocational education and training (VET) in Australia. Economists are interested in analysing VET not only because many of its purposes are explicitly economic in nature - to help people get jobs, to lift enterprise productivity, and to make the nation more competitive - but also because it is a significant area of economic activity in its own right.

In 1998, around 1.5 million students were enrolled in formal VET programs. These students represented about a quarter of all enrolments in education and training in Australia. In 1997, almost 4 million people reported completing a training course during the previous 12 months. Expenditure on VET from public and private sources amounts to about 2 per cent of Gross Domestic Product (GDP), and many thousands of people are employed in the sector.

From an economic perspective it is important to understand the reasons behind these substantial allocations of resources, the uses to which the resources are put, and the extent to which they are used efficiently and equitably. The review is intended to provide a conceptual framework and empirical foundation that can be used to help address the purposes, role, effectiveness and future shape of VET.

Of course, the purposes of VET are broader than those captured by the outcome measures commonly used by economists, such as increased earnings and productivity. Important educational objectives such as the development of individuals' intellectual capacity and the promotion of a stable, tolerant, and equitable society are difficult to measure in economic terms, although they almost certainly have direct economic consequences. Accordingly, the review draws on a broader literature than the exclusively economic and acknowledges the limitations of economics in analysing VET, as well as the current paucity of data in some key areas. An important purpose of the review is to help identify a future research agenda on the economics of VET in Australia.

1.2 THE SCOPE OF VET

Maglen (1997) defines VET in this way in his inaugural lecture at the University of Melbourne:

VET is taken to encompass all educational and instructional experiences - be they formal or informal, pre-employment or employment-related, off-the-job or on-the-job - that are designed to directly enhance the skills, knowledge, competencies and capabilities of individuals, required in undertaking gainful employment, and irrespective of whether these experiences are designed and provided by schools, TAFE or higher education institutions, by private training providers or by employers in industry and commerce.

This very broad definition has a number of implications for the scope of the review. Maglen suggests that what is and what is not VET is determined by the outcome the educational and instructional experience is designed to achieve, not primarily its content. Thus, VET is not only education and training that is designed explicitly with employment as the objective. In this view of VET the forms it can take vary substantially - from informal on-the-job training to extended and complex courses of study. The knowledge and skills acquired through VET may be rudimentary and practical or highly theoretical and abstract. The employment orientation of VET means that it requires effective feedback from the occupations, industries and employers it is designed to serve. It also means that VET is not confined to any one age group, but involves people of many ages as their needs change throughout their lives, for example, whether people wish to enter the labour market to obtain employment, to obtain new skills and knowledge for their current work, or to change jobs or occupations. Needless to say, the diversity of forms and users of VET means that it is provided and delivered by a wide variety of organisations in the public and private spheres.

It has been argued that this definition is too broad. For example, do not many courses in higher education institutions (and schools) include educational and instructional experiences that contribute to individuals undertaking gainful employment effectively? It can also be argued to be too narrow, since not all VET or adult and community education (ACE) activities are always directly related to 'undertaking gainful employment'. Further, employment outcomes may be obtained from educational and training experiences that are not designed specifically with employment as the objective. This has been recognised as an important consideration, for instance, in ACE, where research has shown that many students have employment motives, and achieve employment outcomes, in what are officially non-VET courses.

In a recent CEET project, vocational education was defined a little differently, as all formal post-school education which prepares students (or further develops their skills) for a specific vocation, or work generally, up to and including the level of para-professional occupations (Selby Smith et al., 1998, p.157). This definition includes literary and basic education programs, as they also prepare students for work generally. 'Training' is taken to include both on-the-job and off-the-job training to a similar level. This definition is consistent with that used by McDonald et al. (1993).

Bearing these points in mind the material for this review is drawn from many diverse sources. While it draws substantially on research on the Technical and Further Education (TAFE) component of VET, it is not confined to TAFE. The review also discusses VET in schools, universities and ACE, as well as the great variety of VET conducted within enterprises and workplaces.

1.3 BACKGROUND

The 1993 strategic review of VET research and development, No small change, identified 'Policy and Economics' as one of the major areas of research needed in Australia (McDonald et al., 1993, p.42). The review conceptualised this area as being primarily concerned with 'The economic benefits of vocational education and training - both at the micro and macro level, including the relationship between education and the economy and the training agenda'.

It is not surprising that research on the economics of VET was accorded such a high priority. To a greater extent than in other fields of education, the debate about VET has a strong economic flavour, in considering both the productivity and earnings benefits that will (hopefully) flow from greater public or private investment in VET, and the role of financing mechanisms in facilitating access to VET. The bracketing of 'Policy and Economics' underscored the central role that economics plays in VET decision-making. Of course, the debate about VET involves far more than economic considerations, but the economy provides a persistent, and insistent, backdrop to the field as a whole.

What is perhaps a little more surprising is that there had been so little systematic research on the economics of VET, or on other fields of education for that matter. Various suggestions have been offered for this lack of research attention, including the lack of clear outcomes data for much education and training activity, and the limitations of economists' tools for analysing the 'black box' of education and training processes. It has also been suggested that academic economists are little interested in applied research, despite the comparative strength of economic research in other applied fields, such as health.

To help fill this research gap ANTA commissioned CEET in 1993 to conduct the first major review of the economics of VET in Australia (Burke et al., 1994), as well as an extended guide to the literature (Ferrier et al., 1994). This review argued that analysis of the economic benefits of VET needed a dual focus. The work clearly needed to conceptualise and measure the contribution of education and training to economic and social development. It also needed to better understand the implications for VET of the changing nature of the Australian economy. Both required that researchers understand the VET sector itself.

From an economic perspective, 'the benefits of VET' refer to the net benefits, that is the gains that remain after the resources and costs involved have been deducted. Consideration of the benefits of VET also has a strong distributional element - which individuals and groups receive the benefits, and who pays? It is simply not possible to consider questions of the level and distribution of costs and benefits through VET without detailed knowledge of the sector itself. Self-evidently, the VET sector does not exist in isolation from wider developments in society. A key part of the research agenda, therefore, lies in better understanding how VET is shaped by, responds to, and anticipates economic and social change.

Given the considerable expansion that has occurred in research on economic aspects of VET since 1993, CEET included in its work program for 1999 this stocktake of the economics of VET. The aim was to provide the basis for an informed discussion about the Centre's future work and where its contributions might be best concentrated, summarising what had been achieved and what still remained to be done.

Thus, CEET set out to synthesise the major findings of the research on the economics of VET in Australia over recent years, as well as key findings from overseas researchers. It also attempted to update the research agenda to take account of the substantial changes that have taken place in the policy and institutional framework of VET in Australia over the past decade.

1.4 KEY CHANGES IN AUSTRALIA

Australia is a particularly interesting country in which to be studying the economics of VET. Australia has moved more rapidly over the past decade towards a market-oriented, demand-led VET sector than have most Organisation for Economic Co-operation and Development (OECD) countries. It is especially noteworthy that these substantial structural changes, and the adoption of a national framework for VET, have occurred within a federal political system in which the prime constitutional responsibility for education lies with the States and Territories that make up the federation, and not the federal (Commonwealth) government.

The Australian economy has undergone significant structural change in the past 20 years. It has become much more open to international competition, a number of public sector activities have been restructured and privatised, and economic activity has become more diversified with less reliance on primary production and manufacturing. The economic changes have been associated with extensive initiatives to increase skill levels through education and training. Half of the labour force now holds a post-school qualification (certificate, trade qualification, diploma or degree), and this proportion will increase further as those people currently in education enter the labour force and less well-qualified persons retire.

Australia is enjoying a long period of consecutive economic growth. GDP rose 4.7 per cent in 1999 - 2000, after recording the thirteenth consecutive quarter of growth over 4 per cent and the longest period of growth over 4 per cent since quarterly national accounts began in 1959. Since the mid-1980s employment and productivity growth in Australia have generally been higher than in most OECD countries. However, the growth in the labour force has also been comparatively strong, with the net effect that unemployment has remained quite high, although it is trending downwards.

There have been numerous reports and policy developments aimed at strengthening the linkages between education and the labour market, and stimulating the development of training and learning cultures within enterprises (see, for example, Australian National Training Authority [ANTA], 1998). The policy emphasis is on developing an Australian labour force that is equipped to participate in an economy that is competitive in global terms. While many of these policies have been similar to those in other OECD countries, there have been some distinctive elements to the overall policy framework in Australia and the way it has been applied.

In terms of the range of system types, Australia is closer in character to having a 'loosely coupled' education and training system than it is to having the tight connection between the education and labour market domains that typifies German-speaking countries and parts of Scandinavia (McKenzie, 1998a, 1998b). However, the interface between education and the labour market in Australia is not as loose as that in the United States (US). Labour markets are relatively more regulated in Australia, school and VET curricula are more standardised, and qualifications produced by the education system are more closely linked to labour market requirements. The interface in Australia is probably even tighter than it is in Canada (a federal country with many other similarities to Australia). This is because the apprenticeship and traineeship system provides for more young people in Australia than in Canada, and the role of the Australian federal government has been much more significant in developing a national qualifications framework, and in generally providing coherence across the education and employment policy areas.

A particularly interesting feature of the Australian policy approach is the attempt to incorporate some of the key elements of tightly coupled systems linking education and training and the labour market with elements of more loosely coupled systems. Thus, attempts have been made to integrate a national policy and qualifications framework and an increasing role for employers with an emphasis on user choice, development of a private training market, creation of multiple pathways, and flexible delivery systems.

Since the mid-1980s there has been a concentrated effort in Australia to put in place a set of policies and programs to expand and strengthen the nation's VET system. An OECD review team which visited Australia in 1997 argued that, despite differences in emphases between governments of different political persuasions and between some stakeholder groups, there has been a striking degree of broad policy consensus around a set of five underlying principles that have guided the reform agenda (Schwartz et al., 1997):

Principle 1: A national framework

The OECD review team argued that there was broad agreement that Australia needs a national training system. In a country where education and training, at least below the university level, have been viewed as principally the responsibility of State and Territory governments, this represents a significant change. The decision to adopt a national training strategy is evident in the establishment of ANTA in 1992 and the Australian Qualifications Framework (AQF) in 1994.

Principle 2: Competency, not time based

The second key principle identified by the OECD review team was that Australia's VET system should be competency based. The VET system, in particular, is committed to awarding credentials based on demonstrations of what students know and are able to do. This means that course design, curriculum and assessment are all driven by the industry developed skill standards, and that demonstrations of prior learning based upon these standards will be recognised.

Principle 3: Demand, not supply driven

The third principle was that the VET system must be client focused and user driven. The major thrusts of the federal government and ANTA have been to promote more choice and competition, to reduce the monopoly of public training providers and generally to simplify and streamline the system. Key elements have been the creation of a public and private training market, and initiatives to make the system more accessible and responsive to the needs of two key groups of clients: industry and trainees.

Principle 4: Multiple pathways and flexible delivery

The fourth principle related to multiple pathways and flexible delivery. One consequence of the decline in traditional apprenticeships is that policy leaders and educational institutions have moved to create a much greater diversity of pathways for young people to follow in moving from school to employment. There has also been a weakening of the formerly tight boundaries that traditionally separated secondary schools, TAFE institutions, universities, and employer-based training. Credit transfer and recognition of prior learning have been important mechanisms in this regard.

Principle 5: A commitment to access and equity

Substantial evidence was found of a continuing commitment to the principle of access and equity. The reviewers heard significant concern expressed about how the least advantaged young people would fare in a more deregulated education and training system. However, they also reported a widely shared view that one important criterion for judging the success of the training reform agenda was its ability to reach disadvantaged young people and adults.

1.5 THE DISTINCTIVENESS OF AUSTRALIAN TAFE

There are few tertiary sectors anywhere that can match Australian TAFE institutes in terms of the breadth of programs provided, the varied backgrounds and ages of students enrolled, or the range of delivery modes employed. When viewed from a comparative international perspective, the key defining characteristic of Australian TAFE is its diversity.

Compared to tertiary education in many OECD countries, TAFE in Australia enrols a relatively high proportion of mature-age and part-time students. The net enrolment rate among 17-34 year-olds in Australian 'non-university tertiary education' (which largely corresponds to TAFE) was 5.2 per cent in 1996, which was well above the OECD country average of 2.4 per cent (OECD, 1998a). In this regard, Australia ranked fourth among the 19 countries for which comparable data were available. The relatively high participation in Australian TAFE is particularly evident among the 26-29 age group, in which Australia ranked first of the 15 countries compared.

The relatively high rates of participation across a wide range of ages in Australian TAFE reflect the diversity of programs on offer. These include:

• recreational non-award courses for personal interest, leisure or general enrichment;
• courses which provide pre-vocational training and basic education in areas such as literacy and numeracy and adult education;
• courses which provide initial VET, such as apprenticeships and technician training;
• courses which provide post-initial training, such as advanced certificates and associate diplomas in a wide variety of areas.

The only two countries with similar age participation profiles to Australian TAFE are Canada and the US, where the community college sector performs many of the same functions as TAFE in Australia. However, there are some distinctive program types in Australian TAFE - most notably apprenticeships - that have few parallels in North America.

The distinctiveness of Australian TAFE is further underlined by the fact that no other OECD country enrols as high a proportion of part-time students in non-university tertiary education. In 1996, almost 80 per cent of enrolments in Australian TAFE were on a part-time basis, which was the highest proportion among the 20 OECD countries for which comparable data were available (OECD, 1998a). By contrast, the corresponding proportions for Canada and the US were 38 and 64 per cent respectively, and the average for OECD countries was just 22 per cent.

Having a high proportion of the student population enrolled on a part-time basis (often in conjunction with full-time employment) implies that Australian TAFE institutes need to have flexible opening hours and a range of delivery modes, and to be able to call on a pool of staff with relevant industry experience who, of necessity, will often be part-time or sessional themselves.

A high proportion of part-time students also implies that considerable TAFE personnel resources need to be allocated to enrolling and advising students, and tracking their progress. This requirement has become even more marked through the increasing tendency of students to enrol for individual modules without the intention to complete a full course. The modularisation of curriculum delivery at tertiary level features more prominently in English-speaking countries than in most other parts of the world, and it is particularly evident in Australian TAFE.

1.6 STRUCTURE OF THE STOCKTAKE

Chapter 2 examines the changing nature and patterns of employment in Australia, since the production and consumption of VET occurs in a world of continuing change. VET both reflects and responds to the changing economic, organisational, industrial, technological, social and political contexts in which it is set, be they local, national or global. The focus of chapter 2 is the emergence of the knowledge economy, the confluence of the forces of globalisation and rapid technological change, especially in the fields of information technology and communications, and the organisational and political responses that are made to them by individual enterprises and by governments. These forces are bringing with them far reaching changes in the nature of work, in the skill requirements of the Australian economy, and in the relationships between enterprises, their managers and their work forces. All of these changes have major implications for VET. In particular, the chapter examines the changing nature of work; the changing skill requirements of the Australian economy; and the implications for VET of the changing industrial relations environment in Australia.

Chapter 3 is concerned with the demand for VET. VET is highly heterogeneous. It comes in a wide variety of forms; it is delivered in a multitude of different ways; and the form and mode of delivery can both change. Thus, the demand for VET is highly diffuse, complex and dynamic. The chapter seeks to identify and analyse the major determinants of the demand from three perspectives: individuals who undertake VET; employers who require their workers to have a wide and often changing array of skills, knowledge, attitudes and aptitudes; and governments, who are large-scale employers and who also see VET as playing key roles in the pursuit of their economic and social objectives. The chapter also examines how the demand for VET from the individual and employer perspectives translates into actual forecasts of the demand for places in VET provider institutions. CEET has played a major role in reviewing the ways in which the Victorian authorities assess the demand for training and some of CEET's findings are summarised here. Two specific aspects of the demand for training by employers are then examined. First, particular issues that arise for small and medium-sized enterprises are considered. Second, there is a discussion of some ways in which employers account for the skills of their work force and hence bring their demands for training into line with other expenditure and investment decisions that they make.

Chapter 4 is concerned with the supply of VET in Australia. It considers the quantitative indicators of the changes in supply over the past decade within a changing economic and policy context, and focuses on whether the changes in the supply met the desired objectives. The chapter begins with an overview of the economic and policy context within which the supply of VET occurred. Five specific questions are then addressed. Did investment in training increase? What was the cost to government finance of the changes that occurred? Were Australians better equipped for work as a result of the changes that occurred? Did equity in education and training improve? Was the education and training delivered more efficiently?

Chapter 5 is concerned with five specific issues on the supply side: intersectoral aspects, VET in schools, VET in ACE, regional aspects of VET provision, and VET teachers.

In considering intersectoral aspects, the chapter looks particularly at issues concerning VET and its relationships with formal educational sectors, such as schooling, ACE and higher education, and also at the roles and relationships of the public and private sectors in VET. Although the boundaries dividing the various sectors of education have always had particularly porous elements, they appear to have eroded more quickly in recent years. Paradoxically though, many of the characteristics that have helped to give different sectors a unique identity remain strong.

VET in schools expanded rapidly in the 1990s and in recent years training and education authorities have given increasing attention to its form and funding. The second section of the chapter considers the significant features and developments of the three main types of VET in schools; the profiles of the students who take it up; their destinations; and the costs of VET in schools.

Although there is no agreed national workable descriptor of ACE, and the range of ACE programs is diverse (reflecting the many varied outcomes desired by participants) it appears that the provision of VET programs by recognised ACE providers is expanding. In this third section of the chapter it is noted that ACE plays a special role in strengthening equity in education and training and that it tends to be especially responsive to the learning needs of particular communities, small business and regions. Various factors are identified which indicate that the capacity of the ACE sector to fulfil its potential contribution is constrained, under-developed and under-utilised.

In discussing regional aspects of VET the fourth section notes that decisions often aim to address both social and economic issues. These include community strengthening and wealth generation in the region, as well as access to the job market and the wellbeing of the individual.

VET teachers are the most critical element in determining the supply of skills, knowledge and attitudes produced through the VET system. Teachers play the central role in developing curricula, providing students and trainees with an appropriate learning environment, and in assessing and certifying the learning that has taken place. This final section of the chapter analyses trends in the Australian VET teaching work force as pointers to likely developments in, and possible problems with, the supply of education and training skills from the VET sector.

Chapter 6 is concerned with finance and market issues in VET. Thus, it considers both demand and supply factors. The major options for the finance of VET are outlined, concentrating on the extent to which each alternative could increase the level of investment in VET, provide incentives for the efficient delivery of VET services, and enhance equity. The next section then examines the changes in finance and organisation which have been introduced to develop a training market for VET in Australia. The development of a competitive training market emphasises the role of those who use the training services provided by VET, relative to those who supply them. The final section focuses on a major step in the development of the training market, the introduction of 'User Choice' in 1998. The intention was that clients would have a greater say in matters such as the location, timing and content of the training provided for them by those who deliver and assess training. Public funds would be allocated to the public or private provider they chose, subject to extensive regulation at the State and Territory level.

The final chapter, chapter 7, is concerned with four matters. First, the chapter consolidates some of the major findings of the book. Second, it identifies a number of important gaps in current research on the economics of VET in Australia. Third, while many equity-related issues have been considered throughout the book, this chapter identifies certain general aspects of the equity performance of the overall VET system. A range of continuing equity challenges are noted. And finally, it explores whether research affects VET policy and practice; if so, through what pathways; and whether the relationships can be improved. Despite considerable progress having been achieved it is clear that further improvements would be desirable and could be made.