Cutting education expenditure

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

Education systems, for the greatest part funded by the public purse, have a symbiotic relationship with economic tides: they blossom in booming years, they suffer in recessions. Educational needs however behave exactly in the opposite way: they expand when the economy shrinks. The recent recession, probably the biggest many of us have seen in our lifetimes, again provides ample evidence for this. And the relationship is now even more pronounced than ever before. Education and skills have moved into the centre of economic life, as economies become increasingly knowledge- and skills-based. Unemployment clearly separates the educational haves and have-nots, with the unskilled paying the price for the recession. As a result, people want to invest more in education, stay longer in schools, and postpone their entry into the labour market, because work doesn’t offer much of an alternative. Also governments promote education and training as a strategy to drive people out of unemployment.

Thus demand increases, but do schools receive the public resources to meet this demand? The latest issue of Education Indicators in Focus builds on the available evidence on public expenditure in education for the first three years of the crisis (2008, 2009 and 2010) to shed light on spending trends and the first clear signs of widespread cuts.

In the first year after the collapse of Lehmann Brothers, which instigated the financial crisis in 2008, not much happened. Probably, this is partly due to the intrinsic slowness of public budgets and of the education system in itself. But in the first year, the financial crisis was not yet a fiscal crisis in most countries. And some governments initiated huge stimulus programmes to avert the social impact of the crisis, and also education often took profit from such initiatives. In other countries the rise in educational expenditure, noticeable during the pre-crisis boom, just continued.

Things changed from 2009 onwards, when in around one third of OECD countries public expenditure on education dropped. The downturn in the real economy triggered a fiscal crisis, aggravated in countries with already huge levels of public debt. From 2010 onwards the fiscal situation further deteriorated in quite a number of countries. Governments were forced to launch austerity and fiscal consolidation policies. Between 2008 and 2010 education budgets continued to increase in constant prices in most countries, but their relative share of total public expenditure started to fall in exactly half of the countries. Education no longer was as high on the priority ranking in public spending as it was in the years 2000-2008.

Of course, education takes a large share of public expenditure: 13.1% of all public expenditure on average across OECD countries in 2005. So, to exempt education from public expenditure cuts takes a lot of political courage. And because of its size relatively even minor measures immediately result in huge nominal savings. So, it is a tempting scenario for any finance minister. Many also share the belief that there is a lot of internal elasticity or even inefficiency in the system, which can be reduced by increasing budgetary pressure.

In any case, the salaries of teachers – by far taking the largest share of public expenditure – were immediately affected: on average across OECD countries, teachers’ salaries decreased by 2% in real terms between 2009 and 2011. After years of salary gains in most countries, this might seem a rather marginal drop. But the value of it is real and, no doubt, the downward trend will continue in the following years. Seen against the higher demand, but also taking into account the political ambitions to improve the quality of education by investing in teachers, this is a significant sign.

For more information
On this topic, visit:
Education Indicators in Focus: www.oecd.org/education/indicators
On the OECD’s education indicators, visit:
Education at a Glance 2013: OECD Indicators: www.oecd.org/edu/eag.htm
Chart source: OECD Education at a Glance 2013: Indicator B4 (www.oecd.org/edu/eag.htm)