Summary

Education is associated with long-term improvements in economic performance. The link between education and economic performance can be conceived of in three broad ways:

• improving the overall knowledge and skills of the population
• providing capacity for innovation
• transfer of new knowledge and ideas.

Research indicates that improved school-level education leads to improved economic performance (more so than the other way around). However, it is the quality of learning, rather than the amount of time spent in education, that is most important. The direction of the relationship for tertiary education is less clear.

New Zealand is well educated compared with other developed countries. It has a high, and increasing, proportion of people with tertiary qualifications and a reasonably high proportion with good literacy and numeracy skills. However, New Zealand’s labour productivity has been low relative to the level of educational attainment. Reasons for the recent low labour productivity in New Zealand include:

• the rapid expansion of the workforce from 1999 to 2007, which brought in lower skilled workers
• a high reliance on skilled migrants, many of whom have English as an additional language, and take time to adjust to the New Zealand workforce
• a relatively high proportion of the workforce in low value-added industries and low capital intensity
• small size and distance from major economic centres.

There is little evidence of general qualifications shortages in New Zealand, although there are shortages in some specialist areas. Both demand for and supply of qualifications is increasing, with demand staying slightly ahead of supply. The key issue is the quality of education people receive, whether it equips them with the skills they need and is relevant to their future life and work.

While the tertiary education system does have a direct link to business innovation, the indirect links are more widespread. These include dissemination of knowledge through publications and conferences and the knowledge and skills graduates bring to their jobs. The major barrier to innovation for firms is resources and skills, rather than a lack of information. Therefore, one of the major contributions tertiary education can make to innovation is in the preparation and training of graduates.Overall, tertiary education provides a small, but important, contribution to driving economic growth. The quality of the skills graduates bring to their work is more important than simply the number of people in the workforce holding qualifications. These skills are most productive where businesses have the capital, management skills, scale and links to international markets to support innovation and productivity gains.