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Working Smarter: Driving Productivity Growth Through Skills - TPRP 08/06

What works to improve skills and skills’ contribution to productivity?

Skills development is cumulative – early years matter most

Investing effectively in the development and learning of young children from disadvantaged backgrounds has a big productivity pay-off over the long term

Skills development is a lifelong and dynamic process. The early years are critical. Strategies to lift productivity through skills must therefore be long-term. Some of the most important long-term gains will come through improving outcomes for very young children, and effective public policy programmes in areas such as early childhood education and parenting support have greater benefits for children from disadvantaged backgrounds.

Development and learning experiences in early childhood play a critical role in establishing or limiting children’s lifetime opportunities and learning potential – and hence their potential productivity. Early investments in children’s development improve the return on later investments.

Heckman and Masterov (2007, p.3-6) summarise the evidence:

“Skill begets skill; learning begets learning. Early disadvantage, if left untreated, leads to academic and social difficulties in later years. Advantages accumulate, so do disadvantages.

…dysfunctional and disadvantaged families are major producers of cognitive and behavioural deficits that lead to adverse teenage and adult social and economic outcomes. The effects of disadvantage appear early and persist. Remediating these disadvantages at later ages is costly. Human abilities affect lifetime performance and are shaped early in the life of the child. Early interventions promote cumulative improvements. Enriched interventions targeted towards children in disadvantaged environments are cost-effective remedies for reducing crime and the factors that breed crime, and raising productivity in schools and the workplace.”

This does not mean that the quality of education, health and social services for older children and adults is unimportant – the gains from early learning will dissipate if not followed up with later investment (see, for example, Currie and Thomas, 2000). But investments in early learning development increase the rate of return on investments in later years.

A productivity and growth-oriented policy approach should, like a social equity-oriented policy approach, target resources at children from disadvantaged families who are at greater risk of underachievement.

In the context of early childhood education, this raises a potential trade-off between long-term and shorter-term growth priorities. Broad-based increases in participation in early childhood education can help to raise per-capita GDP by increasing labour market participation by parents. But in the long-term, the greatest productivity gains will come from the impact that high quality early childhood education has on children’s learning – an impact that is greatest for children from disadvantaged home environments.

Demand pressures and supply constraints in the expanding early childhood sector may restrict access for those children who would benefit most

In New Zealand’s early childhood education sector, increases in quality are being pursued (e.g. by increasing teacher qualifications) simultaneously with broad-based subsidies to increase participation. While government funding to build the sector’s capacity has increased significantly, this growth is leading to demand pressures and supply constraints. In this environment, there is a risk that access to high quality services may be compromised for those children who stand to benefit from them the most.

From a long-term skills and productivity perspective, future policy development and investment in early childhood education should prioritise targeted support for children from disadvantaged families over support for broader-based increases in participation and quality.

Shortening our “tail of underachievement” in schools

Many of the core policy settings in New Zealand’s schooling sector reflect “best international practice” and contribute to New Zealand students’ high average performance in the OECD PISA study.

A recent McKinsey & Company report titled “How the World’s Best-Performing School Systems Come Out On Top” (Barber and Mourshed, 2007) looks at the characteristics of high-performing school systems across the world and notes numerous strengths of New Zealand’s schooling system.

These strengths include: devolved management and governance; a flexible qualifications system; independent evaluation and review by the Education Review Office; high-quality assessment tools; an emphasis on professional development; and the supervision and support of new teachers entering the profession.

Improving schooling outcomes depends on the quality of teaching

New Zealand’s “tail” of underachievement in schooling can be addressed without compromising outcomes for higher achievers. Maximising children’s experience of quality teaching is the critical factor. Few schooling policy changes can make a difference to children’s learning and New Zealand’s future skills base unless they contribute to improved teaching and learning in the classroom.

There is no easy formula for increasing the quality of teaching and raising student achievement. There is, however, an increasing evidence base about what works[4]. The most effective investments in schooling include a focus on:

  • high quality teacher training and professional development;
  • effective systems to identify and respond with extra support when students are at risk of falling behind;
  • supporting effective leadership and the development of learning organisations in schools; and
  • outcome measurement and accountability systems that focus on student achievement.
For extra expenditure to improve outcomes, it must be aligned with system improvements

Many expensive attempts around the world to improve schooling have failed to deliver increases in students’ skills. International comparisons show little if any relationship between per-student expenditure and the overall quality of schooling and student achievement. This does not mean that “money doesn’t matter”, but that the amount of funding seems to matter less than the quality of the system into which it is invested.

“Economic growth flows only from reforms that bring actual improvements in cognitive skills”

Hanushek, Jamison, Jamison and Woßmann (2008) p.70.

Commonly tried policy options, such as general class size reductions, are expensive and relatively ineffective because they have little impact on teaching quality or on support for students who are falling behind.[5]

Challenges in New Zealand include how to focus resources and build the capability needed to scale up effective programmes, and ensuring that further investment in schools is delivered in a way that encourages flexibility and responsiveness in meeting the needs of all students.


  • [4]For example, the Ministry of Education’s Best Evidence Synthesis series is producing systematic reviews of evidence about teaching quality, professional development, initial teacher education and school leadership.
  • [5]Hanushek and Woßmann (2007) review the evidence and debates about the relationship between funding and student achievement, and the characteristics of high-performing school systems.
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