Education is an investment in human skills. It can thus help to foster economic growth (see Indicator A3) and enhance productivity, contribute to personal and social development, and reduce social inequality. Like any investment, education has both costs and returns. While the returns to education are examined in Chapter E, this chapter provides a comparative examination of cost patterns in OECD countries, focusing on three aspects of educational spending:
the resources that each country invests in education, relative to the number of students enrolled, national income and the size of public budgets;
the ways in which education systems are financed, and the sources from which the funds originate; and
the apportionment of resources between different resource categories.
Effective schools require the right combination of trained and talented personnel, adequate facilities, state-of-the-art equipment and motivated students ready to learn. However, the demand for high-quality education, which can translate into higher costs per student, must be balanced against placing undue burdens on taxpayers. In the absence of absolute standards for the resources per student necessary to ensure optimal returns for either the participant or society as a whole, international comparisons can provide a starting point for discussion by evaluating how countries vary in the extent of their investment in education. Indicator B1 represents direct public and private expenditure on educational institutions in relation to the number of full-time equivalent students enrolled in these institutions. It also reviews how countries apportion expenditure per student between different levels of education.
Indicator B2 examines the proportion of national resources devoted to educational institutions and the levels of education to which they are directed. This indicator needs to be interpreted in the light of various inter-related supply and demand factors, including the demographic structure of the population (Indicator A2), enrolment rates at different levels of education (Indicator C1), income per capita, and national price levels for educational resources. The relative size of the youth population (Indicator A1), for example, shapes the potential demand for initial education and training in a country. Similarly, participation rates affect educational expenditure: the higher the enrolment rates (other things being equal), the more financial resources will be required.
Cost-sharing between the participants in education and society as a whole is an issue that is under discussion in many countries. This question is especially relevant at the beginning and ending stages of initial education - pre-primary and tertiary education - where full or nearly full public funding is less common.
With increased participation drawing from new client groups and a wider range of educational opportunities, programmes and providers, governments are forging new partnerships to mobilise the necessary resources to pay for education. New policies are designed to allow the different actors and stakeholders to participate more fully and to share the costs and benefits more equitably. New funding strategies aim also at influencing student behaviour in ways that make education more cost-effective. As a result, public funding is now increasingly seen as providing only a part, although a very substantial part, of the investment in education. Private sources of funds are playing an increasingly important role. To shed light on these issues, Indicator B3 examines the relative proportions of funds for educational institutions that derive from public and private sources, in addition to how these proportions have evolved since 1995.
Public budgets remain the main source of funds for education. However, in the second half of the 1990s most OECD countries made major efforts to consolidate public budgets, and education had to compete for more limited public financial support against a wide range of other areas. Indicator B4 evaluates the change in public spending on education in absolute terms and relative to changes in the size of overall public spending.
Through subsidies to students and their families, governments can help to cover the costs of education and related expenditure, with the aim of increasing access to education and reducing social inequalities. Furthermore, public subsidies play an important role in indirectly funding educational institutions. Channelling funding for institutions through students may help to increase competition among institutions and result in greater efficiency in the funding of education. Since aid for student living costs can also serve as a substitute for work as a financial resource, public subsidies may enhance educational attainment by enabling students to study full-time and to work fewer hours or not at all. Indicator B5 examines public subsidies to households for student living costs and for educational expenses.
How funds are apportioned between categories of expenditure can influence the quality of instruction (through the relative expenditure on teachers' salaries, for example), the condition of educational facilities (through expenditure on school maintenance) and the ability of the education system to adjust to changing demographic and enrolment trends. Comparisons of how countries apportion educational expenditure between the various resource categories can provide some insight into variation in the organisational structure and the operation of educational institutions. Decisions on the allocation of resources made at the system level, both budgetary and structural, eventually feed through to the classroom and affect the nature of teaching and the conditions under which it is provided. The nature of expenditure, in particular the proportion of current expenditure devoted to the compensation of staff (including both salary and non-salary compensation), is examined in Indicator B6.
Educational institutions offer a range of educational services besides instruction. At the primary and secondary levels of education, institutions may offer meals, free transport to and from school or boarding facilities. At the tertiary level, institutions may offer housing and often perform a wide range of research activities. Indicator B6 also examines how funds are allocated to these educational functions.
The OECD indicators framework classifies educational expenditure in three dimensions:
The first dimension - represented by the horizontal axis in the diagram below - relates to the location where spending occurs. Spending on schools and universities, education ministries and other agencies directly involved in providing and supporting education is one component of this dimension. Spending on education outside these institutions is another.
The second dimension - represented by the vertical axis in the diagram below - classifies the goods and services that are purchased. Not all expenditure on educational institutions can be classified as direct educational or instructional expenditure. Educational institutions in many countries not only offer teaching services but also various ancillary services to support students and their families, such as meals, transport, housing, etc. In addition, at the tertiary level spending on research and development can be significant. Not all spending on educational goods and services occurs within educational institutions. For example, families may purchase textbooks and materials themselves or seek private tutoring for their children.
The third dimension - represented by the colours in the diagram below - distinguishes between the sources from which the funds originate. These include the public sector and international agencies (indicated by the light grey colour) and households and other private entities (indicated by the blue colour). Where private expenditure on education is subsidised by public funds, this is indicated by cells in dark grey colour. The diagram is reported at the beginning of each indicator to signal its coverage.