Experimental estimates of multifactor productivity for the education and training industry

Labour input in this analysis is measured using the number of hours worked by people employed in the education industry. This is consistent with the approach taken when measuring labour productivity and MFP for market sector industries.

Estimates of total hours worked are sourced from the Labour Account. This source also provides information on filled jobs by industry and sector, including a public sector and private sector split. Several approaches were considered for allocating labour input between the market and non-market segments of the education industry. However, a split based on the existing public sector and private sector classifications in the Labour Account was determined to be the most practical option. The estimates presented in this article are based on data from the 2024–25 edition of the Australian System of National Accounts.

Using a private sector/public sector segmentation as a proxy for a market/non-market segmentation is not conceptually ideal. In particular:

• hours worked in public corporations contribute to the public sector estimates, even though public corporations are market producers; and
• hours worked in NPISHs contribute to the private sector estimates, even though NPISHs are non-market producers.

Analysis using business register data suggests that this conceptual mismatch is negligible for the education industry, impacting less than 1 per cent of total activity.

 The Labour Account does not compile hours worked separately for the public and private sectors at the industry level. To derive these estimates, it is assumed that the average number of hours worked per filled job is the same in both sectors. No adjustment has been made for changes in labour quality over time, such as changes in workforce skills, qualifications or experience.

Capital input in this analysis is measured using capital services, which represent the productive services provided by fixed assets used in the education industry. Capital services are expressed as volume indexes and are the standard measure of capital input used in productivity analysis.

For each asset, the capital services provided in a period are directly proportional to the asset's productive capital stock in the period. As assets age and become less efficient, their capital services decline.

For market sector activity, the value of capital services is equal to the gross returns (or rentals) to owners of capital; that is, the sum of consumption of fixed capital (e.g. depreciation) during the period and the economic return on the net capital stock of assets. For non-market producers, achieving a commercial rate of return is generally not the key driver when making capital investment decisions. 

Experimental capital service indexes provided to the education industry were first published by the ABS in 2021. In that analysis, an exogenous approach was used to calculate returns to capital because the education industry was treated as a non-market industry. The approach reflected the fact that investment decisions in non-market activities are not typically driven by profit-maximising behaviour.

The market and non-market segmentation developed for this analysis allows an endogenous approach to be applied to the market segment of the education industry. This is consistent with the methodology used elsewhere in the market sector part of the economy. The estimates are derived using capital stock data from the 2024–25 edition of the Australian System of National Accounts.

A conceptual limitation arises from the treatment of NPISHs in the Australian national accounts. Because NPISHs are not yet fully identified as a separate institutional sector within the capital stock estimates, their capital assets are not separately identifiable from those of market producers. As a result, capital stock associated with NPISHs is included in the market segment rather than the non-market segment. Additional research suggests that the effect of this limitation on the resulting productivity estimates is likely to be negligible.

No adjustment has been made for changes in the intensity and idleness of capital usage through time. For instance, school buildings and other education assets are assumed to provide the same volume of capital services regardless of variations in usage. This limitation is not unique to the education industry and applies more broadly to capital services measures used in productivity analysis.

GVA estimates are derived from the supply-use (SU) framework within the national accounts. While much of the source data for the SU tables is available by institutional sector, which would support a market/non-market dissection, the tables are subsequently balanced according to product and industry classifications. As a result, institutional sector detail is not retained in the final balanced tables.

To derive separate estimates for the market and non-market segments of the education industry, institutional sector information from source data is used to construct allocation weights. These weights are applied to the balanced current price estimates of output and intermediate use, with GVA in current prices calculated as a residual. These variables were then deflated and chained to create institutional sector splits in volume terms. 

The market and non-market GVA estimates presented in this article are consistent, in aggregate, with the education industry estimates published in the 2024–25 edition of the Australian System of National Accounts, which are based on the 2023–24  Supply Use Tables.

This method, however, comes with some limitations:

• The same approach is taken to measure the growth in output volumes of all schools. Even though market schools charge economically significant prices for their output, the ABS does not take these price signals into account when measuring volume growth. A complete explanation of the method used to estimate the volume of school output can be found in School output measures in the Australian National Accounts: experimental estimates, 2007-08 to 2017-18. Output volume is based on a quantity measure - the number of students enrolled, on a full-time equivalent basis – with average cost weights applied to primary and secondary enrolments.[4] This means various factors that might be important to parents and students (e.g. the quantity and quality of facilities or the types of extracurricular activities on offer) are not accounted for in this analysis.
• Similarly, price signals are not used when measuring the growth in output volumes of teaching services provided by all universities. In addition, there is no accounting for variation across faculties or disciplines and no attempt to weight tertiary qualifications by metrics such as expected future lifetime earnings. The method is described in University output measures in the Australian National Accounts: experimental estimates, 2008 to 2017.
• The same deflators are used for deflating output and intermediate use for the market and non-market segments. The deflator chosen is the annual implicit price deflator for the entire education industry that is derived from tables balanced in current price and tables balanced in prices of the previous year. This assumes that year-on-year price change is the same in both the market and non-market segments. 

In addition, no explicit adjustment is made to account for changes in the quality of education services over time, such as changes in standardised test scores or high school completion rates, beyond those already incorporated in the national accounts. As a result, measured GVA and productivity may not fully capture all changes in the quality of services provided.

Over the period from 2010-11 to 2023-24, there was a marked difference in hours worked growth between the market and non-market segments of the industry, as can be seen in Graph 1.

Hours worked in the market segment of the education industry grew by a cumulative 63.6 per cent over the timespan, compared to a 16.2 per cent cumulative increase in the non-market segment.

Capital services in the market segment of the industry grew by a cumulative 81.5 per cent from 2010-11 to 2023-24, compared to a 41.5 per cent increase in the non-market segment, as can be seen in Graph 2. The difference in growth was driven by the contribution of non-dwelling construction to the market segment, which was nearly two and a half times stronger than the non-market segment contribution. Contribution to capital services from computer software and road vehicles was also noticeably stronger in the market segment.

Capital and labour inputs are combined into a total input series, using income shares as weights. Since the education industry is labour intensive, the labour input carries more weight in aggregation than the capital input. Additionally, because no net return to capital employed in non-market production is permissible in the national accounts, this has the effect of downgrading the contribution of capital even further for that segment.

Income shares for the market and non-market segments are shown in Graphs 3 and 4.

Labour and capital inputs are then combined into a measure of total primary inputs via Törnqvist aggregation, using the factor income shares above as weights. 

The combined primary inputs index is driven by the labour input index, due to the industry’s high labour income share. This reflects the fact that education is labour intensive.

In current price terms, the non-market segment accounted for around two-thirds of total industry GVA over the period examined, as shown in Graph 6. This reflects the significant role of public schools and government-owned universities in delivering education services in Australia.

In chain volume terms, growth rates for the market and non-market segments of the industry tracked closely through the timespan, diverging in 2021-22. This divergence is driven by strong student enrolment growth in market (non-government) primary and secondary schools throughout this period, while non-market (government) schools saw much weaker enrolments. This can be seen in Graph 7.

The combination of high income shares for the labour input (reflecting the fact that education is labour-intensive), similar GVA growth rates in the underlying market and non-market segments, and the uptick in hours worked in the market segment imply a weaker productivity performance for the market segment of the industry. This can be seen in Graph 8.