Who really bears the cost of education?

by Marie-Hélène Doumet
Senior Analyst, Directorate for Education and Skills

It can be difficult to get your head around education finance. Who actually pays for it, where does the money come from, and how is it spent are all crucial questions to ask if you want to understand how the money flows in education. In many countries, basic education is considered a right, and governments are expected to ensure universal access to it. However, educational attainment has reached unprecedented levels, and more people are participating in education than ever before, leaving governments struggling to meet the demand through public funds alone. The role of private funding has become more significant in the past decade, particularly at the pre-primary and tertiary levels of education. 

But the reality is more complex than a binary public-private model would suggest. Other financing mechanisms, involving the transfer of funds between governments, households and other private entities, are blurring the lines of what is commonly understood as public or private.

Take government-subsidised loans to students. A loan, by definition, needs to be repaid, and so is commonly considered as a private cost to households.  But before that, loans actually come out of the public purse, and so are actually a public cost to governments at the time the loan is issued. The cost, however, shifts to individuals once they enter the labour market and start earning enough to make repayments.  

The latest Education in Focus brief  tries to answer the question “Who really bears the cost of education?” by looking at these transfers as two sides of the same coin.  Separating out transfers from the traditional public-private split of costs also provides more granularity on the sourcing of private expenditure, differentiating what comes in the form of government support from what is truly out-of-pocket costs. 

Consider, for example, two countries well known for their reliance on private expenditure to fund tertiary education: the United Kingdom and Japan. In 2014, both countries relied on private funding to provide around 70% of the cost of tertiary education (when considering the final allocation of funds after transfers). However, two-thirds of that private funding in the United Kingdom comes from government transfers to private non-educational entities, mostly in the form of loans, with advantageous repayment schedules and conditions, to students. This means that while the private sector is ultimately responsible for this expenditure, it is the public sector that bears a significant share of the initial cost, not only of the value of the loan, but also the risk of future default on payments. By contrast, in Japan, only 20% of final private expenditure originated from government transfers, leaving the private sector, a large share of which are households, to fund the rest from their own pockets.  

The chart above shows the extent to which countries balance out public and private funding in tertiary education, and how they compensate for private funding through government transfers to households, students and other non-educational private entities. Interestingly, some countries with the largest share of private funding in education provide the least financial support as a share of total private expenditure. This is the case in Chile, Japan, Korea and the United States. By contrast, countries such as Belgium, the Netherlands and Slovenia cover a large share of private expenditure through public-to-private transfers, and households bear much less of a financial burden. In between the two models, countries such as Australia, New Zealand and the United Kingdom rely on public funds to unlock private ones.  A strong financial support system, mostly structured on publicly subsidised loans, lightens the initial high cost of education for individuals, but allows graduates to repay the loans when they are most able to do so.    

Central to the idea of who should bear the cost of education is the philosophy behind who actually benefits the most from it: the public or the individual. Primary and secondary education are generally considered as a fundamental human right to basic skills that should mostly be provided by governments, which, indeed, is often the case. However, the earnings premium provided to higher education opens the debate as to who benefits the most from higher education and therefore, who should be paying for it. But thinking mainly in terms of public or private spending misses an essential element: what happens behind the scenes in the form of public-to-private transfers. Understanding these financial transfers provides insights as to how the cost of education shifts between the public and private sectors over time, and sheds some light on a sometimes overlooked measure of education finance.  

Links

Education Indicators in Focus No. 56 - Who really bears the cost of education? How the burden of education expenditure shifts from the public to the private sector

Education at a Glance 2017 - OECD Indicators

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Do countries pay their teachers enough?

by Dirk Van Damme
Head of the Innovation and Measuring Progress Division, Directorate for Education and Skills 

Teachers enter the profession for a variety of reasons. Intrinsic motivations that have to do with the nature of the job and the intangible rewards associated with being an effective teacher play an important role. Yet when comparing a teaching career with similarly rewarding professions, the primary and secondary working conditions and material benefits probably come into play as well. To improve the quality of the candidates for teacher-training programmes and to keep them motivated to enter – and stay – in the profession, it is essential to offer competitive pay.

For many years Education at a Glance has been tracking and monitoring the salaries of teachers, comparing them across countries and over time. A new Education Indicators in Focus brief has brought together the available data in order to chart the evolution of teachers’ salaries over the past ten years. The data clearly show that, in several countries, teachers’ salaries have suffered from the impact of the financial and economic crisis that started in 2008, and from austerity policies and fiscal constraints in recent years. In one-third of the countries with available data, mainly European countries, teachers’ statutory salaries decreased in real terms between 2005 and 2014. But in countries with no similar decreases, teachers’ salaries also did not keep up with pay rises in other professions or public services. In countries with severe budgetary difficulties, it was expected that funding for education would be reduced too; but in doing so governments might have put the long-term quality of the teaching profession at risk.

In troubled labour markets teachers might put job stability and security, or secondary benefits and working conditions first, while accepting less-favourable salaries. At the same time, high-potential graduates might look for better opportunities outside the teaching profession. Lowering salaries in the context of economic downturn and increasing unemployment thus might have an impact on the quality of the candidates seeking to enter the teaching profession and those teachers who are deciding whether or not to remain in the profession. And that could have long-term consequences for the education system in general and for students in particular.

The interesting question is how teachers’ salaries now compare with those of similarly educated professionals. The chart above compares the average actual salaries of teachers in different levels of education against the average salary of a tertiary-educated 25-64 year-old professional who works full time. The data is from 2014, when the worst of the economic downturn was over and recovery had kicked off. The data can be influenced by the differences in teachers’ ages, since in most countries teachers’ salaries increase almost automatically with seniority; but they do provide a fairly accurate basis for comparison. 

The conclusion is straightforward: in the large majority of countries actual teachers’ salaries lose out against those of competing professions. On average across OECD countries, pre-primary teachers’ actual salaries amount to only 74% of the earnings of a tertiary-educated worker. Primary teachers are paid 81% of these benchmark earnings, lower secondary teachers 85% and upper secondary teachers 89%. In only five countries do the salaries of the best-paid teachers exceed those of other professionals.

The chart also shows that the differences in teachers’ pay related to which level of education they teach are significant. In many countries teachers in lower levels of education are paid less than those in upper secondary education. This can be partly explained by differences in the length and qualification level of initial teacher-education programmes or differences in how salaries evolve over the different levels of education. And the gaps are large, adding to the lack of competitiveness of the salaries of teachers in lower levels of education. In recent years, the gaps have narrowed, mainly because of increases in teachers’ salaries at these levels of education; but they are still wider than the pay gap between tertiary-educated professionals and upper secondary teachers.  

In many countries, policies that affect teachers have been given high priority in education policy development – and rightly so: governments realise that to achieve high quality, efficiency and equity in education, improving the quality of the profession is key. Countries also want to improve the attractiveness of the teaching profession, and the quality of teacher education and professional development. The definition of “teacher” is slowly evolving too: a teacher is increasingly seen as an autonomous professional capable of making decisions in varied and complex conditions. But it is hard to see how policies that aim to upgrade the teaching profession – essentially, recognising teachers as the professionals they are – can succeed without raising teachers’ pay at the same time. Governments should not expect that prospective and current teachers will remain content with just the intangible incentives and rewards that traditionally come with teaching. Like every other professional, teachers deserve to be paid a salary that is commensurate with their training and experience. The war for talent is also fought with money.

Links 

Education Indicators in Focus No. 53 - How have teachers’ salaries evolved and how do they compare to those of tertiary-educated workers?

Education Indicators in Focus 
Education at a Glance 2016: OECD Indicators

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Chart source: OECD, Table D3.2a. See Annex 3 for notes (http://www.oecd.org/education/education-at-a-glance-19991487.htm)

Are countries ready to invest in early childhood education?

by Dirk Van Damme
Head of the Innovation and Measuring Progress Division, Directorate for Education and Skills 

There is now a widespread consensus that high-quality early childhood education is critically important for children. Research continues to find that early childhood education can compensate for a lack of learning opportunities at home, and can help children begin to develop the social and emotional skills needed for success later in life. Few policy makers would now question the benefits of high-quality early childhood education.

As a result, early childhood education systems have expanded. As documented in Education at a Glance 2016, on average across OECD countries enrolment in pre-primary education among 3-year-olds rose from 54% in 2005 to 69% in 2014, and among 4-year-olds from 73% to 85%. Expansion policies include the extension of compulsory education to younger children, free or universal early childhood education, and the creation of programmes that integrate care with formal pre-primary education.

Yet, the available data show that many countries still have a long way to go. As the chart above illustrates, enrolment rates among 2- to 4-year-olds still fall below 50% in Ireland, Poland, Switzerland, the United States and in OECD partner countries Argentina and Colombia. In some countries that are known for the overall quality of their education, such as Australia, Finland, Japan and the Netherlands, enrolment rates among this age group do not exceed 70%.

Are countries hesitant to translate their acknowledgement of the benefits of early childhood education into adequate funding? A look at how early childhood education is financed suggests they are. The latest Education Indicators in Focus brief looks at how much governments allocate to early childhood education and where the money comes from. The overall picture is disappointing.

As seen in the chart above, overall annual public expenditure on early childhood education per pupil varies enormously, from close to USD 2 000 in Estonia to close to USD 18 000 in Norway. Most countries still spend less than USD 5 000 per pupil per year. In many countries there is still a large gap between public per-student funding in early childhood education and primary education; yet from an educational point of view, there are no valid arguments for being stingy with early childhood education.

The expansion of early childhood education coincided with radical changes in the economy. As more women entered the work force, the demand for childcare and early childhood education grew. But budget constraints, fiscal austerity following the economic crisis, and the increased cost of other levels of education made it difficult to keep up with the demand and with growing policy interest. Thus, many countries turned to various cost-sharing arrangements.

In most countries households continue to assume a large share of the financial burden. The conservative view that early childhood education is a kind of surrogate “family”, rather than an autonomous learning environment in its own right, provided some ideological justification for cost-sharing. The Education Indicators in Focus brief shows that, on average across OECD countries, the private sector finances 31% of expenditure on early childhood educational development programmes and 17% of pre-primary programmes. Another cost-sharing mechanism for early childhood education makes local and regional levels of government responsible for co-funding. On average across OECD countries, local governments provide 48% of total public funding, even before accounting for transfers from regional and central governments.

The overall picture of the economics of early childhood education is thus extremely complicated, with various sources of funding complementing each other, complex systems of transfers between levels of government, and intricate combinations of public and private funding. Different systems of tax credits and fiscal expenditures contribute to the complexity of the funding arrangements. As a result, governance, policy, oversight and accountability arrangements are also often complicated and sometimes even contradictory. Clearly, these are not the most favourable conditions for expanding early childhood education.

Yet, as the chart above illustrates, there are also countries that seem to have committed themselves to allocating adequate resources to early childhood education. It is interesting to see that higher levels of funding also correlate with higher levels of participation. With the exception of Estonia, Israel and Spain, countries that attract over 80% of 2- to 4-year-olds to early childhood education also ensure relatively high per-student funding from public sources.

Early childhood education can no longer be seen as a luxury; it is neither just a welcome add-on to those education systems that can afford it nor dispensable to those that can’t. The evidence of its benefits for both individuals and society as a whole is just too overwhelming to justify the kinds of timid funding policies that are revealed in the data.

Links
Education Indicators in Focus No. 52 -  Who bears the cost of early childhood education and how does it affect enrolment?
Education at a Glance 2016: OECD Indicators
Starting Strong 2017 - Key OECD Indicators on Early Childhood Education and Care
Starting Strong V - Transitions from Early Childhood Education and Care to Primary Education

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Chart source: Semeraro, G. (2017), Who bears the cost of early childhood education and how does it affect enrolment?, Education Indicators in Focus, No. 52, OECD Publishing, Paris, DOI: http://dx.doi.org/10.1787/e1a6c198-en

Investigating the complexities of school funding

by Deborah Nusche
Senior Analyst, Directorate for Education and Skills

Back in 2013, when we launched the OECD's first international review of school resource policies, we may not have been fully prepared for the detective-type work we were getting into. The OECD Review of School Resources covers 18 school systems and aims to shed light on a part of education policy that has been surprisingly left in the dark.

Today, we publish our first thematic report on the funding of school education. The research conducted for this study involved intensive field visits to 10 countries, which made tangible the challenges of reviewing school funding policies.

In several systems, information on the formulas used to calculate funding levels for schools was not readily available. In a range of countries, including Denmark, Iceland and Sweden, school funding policies are a local responsibility and there may be as many different funding formulas as there are local authorities.

But even in more centralised systems, authorities could rarely point us to a single document providing all elements considered in the national funding approach. Several times, we were told that only a handful of people in the system actually understood the funding scheme. Luckily, in most cases we were able to meet these rare funding master minds.

The many actors we spoke to in schools, education administrations and representative organisations also helped us understand the funding mechanisms from their perspective. In one country, we analysed a sample of letters received by schools from the ministry on their funding allocation, and deduced from these the main school funding principles.

The funding approaches we uncovered in countries as diverse as Austria, Belgium, Chile, the Czech Republic and Estonia were of greater or lesser complexity. In some systems, fragmented governance structures are reducing the clarity, co-ordination and transparency of funding flows. In others, the formulas used to calculate per-student funding are so complicated that they effectively prevent those who use them from fully understanding them. Such complexity makes policy discussions difficult, if not impossible.

Moreover, countries typically supplement the main funding streams with additional targeted funds. In Uruguay, there are over 130 different programmes targeted at improving equity in education, which involve the funding of specific groups of students or schools. The use of targeted programmes can help convey policy objectives, promote greater equity and allow better steering of the use of public resources. But a multiplication of such programmes risks generating inefficiencies, greater administrative costs and a lack of long-term sustainability for schools.

Comparing funding approaches across countries adds another layer of complexity. Definitions vary across countries, and describing complex policies in simple comparative tables may betray the logic of individual systems. In close collaboration with its Group of National Experts on School Resources, the OECD study produced a set of country profiles for the participating systems, as well as internationally comparative tables for several aspects of their funding systems. These are analysed based on findings from international research, narrative reports collected from participating countries, and the conclusions of individual country visits.

The resulting synthesis report, which was co-funded by the European Commission, is the first in a series of thematic reports on school resources, which collectively aim to help improve school resource policies across the OECD. Not surprisingly, one of the report's main recommendations is for schools and school systems to be more transparent about their funding policies and how resources are distributed. The presentation of clear criteria that can be scrutinised and negotiated can help stimulate public debate and stakeholder support of a given approach as a fair method of funding.

The report also makes a strong case for school funding policies to be connected to educational objectives. This needs to happen at all levels of a school system. Central and sub-central funding strategies need to make explicit the goals that they aim to achieve, and public reporting should present funding information alongside information on the quality and equity of a school system. At the school level, school leaders with responsibility for resources need to be prepared for strategic budgeting in a framework of learning-centred leadership. They also need support in the more technical aspects of budgeting so that they can focus on the strategic aspects of formulating their school's budget.

The report provides analysis, policy options and examples from around the world on the following aspects of school funding policy:

• Connecting funding strategies to education goals 
• Aligning roles and responsibilities in complex funding systems 
• Building capacity for strategic school funding 
• Developing a stable and publicly known system for funding allocation
• Striking a balance between regular and targeted funding 
• Using adequate indicators to target disadvantage
• Being transparent about the use of funds 
• Bringing together evaluative information on inputs, processes and outcomes 
• Paying particular attention to evaluating the equity outcomes of school funding

Links

The Funding of School Education: Connecting Resources and Learning

OECD Review of School Resources

OECD says countries should rethink school funding policies

Join our OECD Teacher Community on Edmodo

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