The Economic and Social Benefits of the TAFE System
Despite chronic underfunding
and failed market-led VET policies, Australia’s historic investment in the TAFE
system continues to generate an enormous and ongoing dividend to the Australian
economy.
TAFE’s Economic Footprint
The direct operation of TAFE
institutes results in over $3 billion in additional economic activity in
Australia each year, including around $2.3 billion in wages, salaries and other
employment benefits paid annually. Purchases and supply chain inputs associated
with TAFEs extend and multiply this impact on the broader national and regional
economies, generating another $1.6 billion per year in ‘upstream’ economic
benefits. Counting indirect jobs in the TAFE supply chain, a total of $3
billion in employment incomes is generated by TAFE institutes each year. In
turn, that income translates into an additional $1.5 billion in incremental
consumer spending on Australian-made goods and services. Including the direct
activity of the TAFEs, its supply chain, and ‘downstream’ consumer spending
impacts, we estimate that a total of over $6 billion in economic activity,
supporting 48,000 positions (directly and indirectly), is generated by the
presence and activity of Australia’s TAFE institutes.
Increased Earnings and
Productivity
Students who complete VET
qualifications with TAFE institutes move into the labour force with skills that
generate higher earnings compared to the earnings of workers without
post-school qualifications. Employees and owner-managers with VET qualifications
(including Certificate I/II/III/IV, Diploma and Advanced Diploma) receive a
wage premium of 39% compared with those whose highest educational attainment is
Year 12 or below.
In addition, a more skilled
workforce yields significant productivity benefits to employers, as well as
higher tax revenues for government. The total annual benefit that the TAFE
system generates thanks to its accumulated contribution to the skills of
Australians is estimated at $84.9 billion. Some of this is paid in higher
incomes to workers; some of it is captured in higher profits by employers. And
some of it is paid in incremental taxation revenues to government, which we
estimate are worth $25 billion per year—several times more than governments
currently allocate to the cost of running the entire TAFE system.
TAFE increases employability
and lowers unemployment.
After training TAFE
graduates are more likely to be employed, and less likely to be unemployed,
than workers with less training. Moreover, with increased access to skilled
workers, industry can expand production and employ more people, increasing
total output across the economy. We estimate the TAFE system has increased the
employability of the VET-educated population, relative to those without
post-school education, resulting in an increase in employment of around 486,000
positions.
Reduced social and
healthcare spending
The TAFE system increases
employability, thereby lowering unemployment and supporting a healthier
workforce and society. An important consequence of this is reduced social
assistance and public healthcare expenditures. We estimate the annual value of
reduced social expenses at some $1.5 billion per year ($1.2 billion in reduced
welfare and $289 million in reduced health costs).
Combined annual
economic benefit
The total annual benefit
(driven by the accumulated historic and current investment in the TAFE-trained
workforce) is estimated at $92.5 billion. That represents around 4.5% of
Australian GDP. Those benefits can be traced back to the extra employability,
productivity and incomes (and associated savings on social benefit costs)
demonstrated by the TAFE-educated workforce.
TAFE Annual
Economic Impact Results |
|
TAFE Economic Footprint |
$6.1 billion |
Higher Earnings and
Productivity (Includes Higher Tax
Revenues) |
$84.9 billion ($25 billion) |
Fiscal Savings (Social
Benefits) |
$1.5 billion |
Total
Benefit |
$92.5
billion |
Total Annual Costs |
$5.7 billion |
Wider Social Benefits
The
substantial economic benefits supported by the TAFE system do not tell the
whole story about the importance of TAFEs to our all-round economic and social
well-being. The TAFE system also underpins a wide range of broader social
benefits that are harder to quantify. For example, TAFEs promote stronger
economic and labour market outcomes in regional areas. They help ‘bridge’
access to further education and jobs pathways for special and at-risk groups of
young Australians. They ensure greater social cohesion, and help to reduce
crime. TAFE students are more likely to come from the lowest quintile
of society according to socio-economic disadvantage, more likely to be
Aboriginal or Torres Strait Islander, and more likely to identify as having a
disability compared with students of private VET providers or universities. All
these features confirm that TAFEs are critically important in addressing
systemic inequality in Australia’s economy and society.
Modest running cost
Compared to the preceding
inventory of direct and indirect economic and social benefits, the costs of
operating the TAFE system are modest by any measure. The costs of operating the
TAFE system accrue to governments, students and employers in the delivery of
vocational education through TAFE institutes. We estimate the combined costs of
the TAFE system—including government funding for training and administration,
employer and student assistance, loans and income support payments, student
fees, and employer apprenticeship and traineeship training costs—at $5.7 billion
per year. That represents only about 0.3% of Australia’s GDP.
Benefits Far Outweigh
Costs
The TAFE system has made a
leading, decades-long contribution to training and skills in the Australian
economy. On the basis of historical enrolment data, we estimate that 72.5% of
Australian workers currently holding VET qualifications received their training
through the TAFE system. Hence, Australia’s historic investment in quality
public vocational education generates an enormous and ongoing dividend, in the
form of the enhanced productivity, higher earnings, increased tax payments, and
reduced social benefit costs associated with those workers. This is a valuable
and continuing payoff to the funds that were invested in TAFE s: both now and
in the past.
There is no doubt that the
benefits of TAFE education to individuals, employers, the government and wider
society far outweigh the costs. As noted, the combined annual costs for
operating the TAFE system’s 35 institutes last year were modest—$5.7 billion.
In contrast, the annual economic benefits generated thanks to investments in
TAFE-provided training were estimated at $92.5 billion. In other words, the
flow of annual benefits resulting from the present and past operation of the
TAFE system exceed the current annual costs of operating that system by a
factor of 16 times. The increased tax revenue generated through the operation
of TAFE is $25 billion annually, and this alone is more than four times its
total cost.
Keep in mind that the flow
of these economic benefits resulting from a better-skilled workforce is the
legacy of Australia’s historic commitment to high-quality public vocational
education. But that commitment has been undermined in recent years by
reductions in fiscal support for public VET, and failed policy experiments with
privatised, market-delivered, but publicly-subsidised VET programs. As a
result, the flow of economic benefits generated by well-trained, better-paid
VET graduates is in jeopardy today. Australia is not replacing its stock of
high-quality TAFE graduates – which means that over time, that flow of economic
benefits will inevitably decline. Reported problems encountered by many
industries and employers in recruiting and retaining adequately-skilled workers
in numerous occupations attests to the growing costs of Australia’s
underinvestment in reliable, publicly-delivered VET.
Imagine a well-built house:
it generates value each year that someone lives in it. But if the house is not
maintained, and its structural integrity assured, then that flow of benefits
will quickly erode.
TAFE as anchor
of COVID recovery
As the economy staggers in
the face of the COVID-19 pandemic and resulting global recession, we need
expanded access to VET education, stronger pathways from training to work, and
a more cohesive and coordinated post-school education system. Revitalised TAFE
institutes, as the most reliable ‘anchors’ of vocational training, must be at
the centre of that reconstruction process.
After the Second World War,
Australia launched a coordinated national training strategy, as a key part of a
National Reconstruction Plan aimed at ensuring returning soldiers would have
productive employment opportunities – and making sure the economy did not slip
back into a stubborn depression. We need a similarly comprehensive national
strategy for skills and training today, starting with the urgent restoration of
public funds to the most experienced, reliable and high-quality,
national-level, vocational training provider in Australia: the TAFE system.
Our findings demonstrate
that there is strong economic rationale for strengthening and expanding VET
access for young, at-risk groups, and for all workers who lack post-school
qualifications. Australia will squander the demonstrated and ongoing economic
benefits generated by our investments in TAFE institutes, and unduly limit our
post-COVID reconstruction opportunities, if we do not act quickly to reinstate
the funding and critical role that TAFE plays in Australia’s society and
economy.
The fully referenced report ‘An Investment in
Productivity and Inclusion: The
Economic and Social Benefits of the TAFE System’ by Alison Pennington, Centre
for Future Work at the Australia Institute can be found at https://www.futurework.org.au/.
By Alison Pennington, Senior
economist, Centre for Future Work at the Australia Institute
This articles was origionally published in The Australian TAFE Teacher, Spring 2020 11 November 2020