Will the downturn hit private school enrolments?

The Australian this morning suggests that the economic downturn, combined with rising private school fees, will send students back into the public school system:

Having already noticed a drift from the private system to public schools, Kate Cooper, principal of Mosman Public School in the heart of Sydney’s wealthy north shore, told The Australian yesterday that she expected the movement to grow this year, partly as a result of the global financial crisis.

The SMH ran a similar story a couple of months ago.

If this does turn out to be the case, it would be consistent with my general thesis on school funding: that as affluence rises, people want to spend more on education, and that this explains both the long-term growth in private schools and the consistent polling showing that people want more money spent on public education. Correspondingly, in a downturn I would expect these trends to moderate.

However, the underlying trend will remain towards private schools. Despite the particularly intense controversy over private school policy during the Howard years, the actual enrolment shifts were not hugely different from the previous Labor government. On average during the Hawke-Keating years private schools gained .36% of market share per year. Under the Howard government, the average was .39% of market share per year.

However, while I would predict a moderation in the trend during a downturn this does not mean that private school enrolments will decline. Recessions are very uneven in their impact, and for those who keep their jobs they can actually be reasonably good years. So far, many more families with school-age children would have benefited from falling interest rates and other price falls than would have experienced job loss, though concerns about jobs will make some wary of taking on the extra costs of private school education.

The last recession in the early 1990s, which was much more severe than anything yet seen in Australia this time, gives an example of what might happen. Private school enrolments kept growing in absolute terms but their expansion in market share slumped to just .01% for each of 1991 and 1992.

Any stalling of private school enrolments in the next couple of years is similarly likely to be no more than a temporary break in the long-term trend.

21 Responses to “Will the downturn hit private school enrolments?

  • 1
    Winton Bates
    January 2nd, 2009 09:40

    I think your analysis is probably correct, Andrew.

    In general, if there is high income elasticity of demand for a product one would expect demand for the product to decline during a recession. But I imagine most people who send their children to private schools would be reluctant to take them out of private education and send them back into the public system even if their income drops substantially. That seems to be borne out by the figures you quoted for the last recession.

  • 2
    Sinclair Davidson
    January 2nd, 2009 12:46

    There’s all sorts of things that influence these decisions. I’m taking the number one son out of a private school (one of the grammars) due to intense dissatifaction with the service I’ve received while considering placing number two son into a (different grammar) private school in 2010. The downturn etc. is not really playing a role in my thinking.

  • 3
    charles
    January 2nd, 2009 13:04

    If you believe in efficient markets, this might be worth a read.

    I went to a public school but married a private school girl so the kids went to private school (somethings are just not worth the debate). Music training was good, but other than that I don’t think it was value for money.

  • 4
    Andrew Norton
    January 2nd, 2009 13:31

    Charles – There is no link showing. Cut and paste into another comment and I will fix it.

    Sinc – I agree that there will always be significant movement for reasons unrelated to money, both within and between the sectors. But at the margins, I expect a recession will favour the cheaper options.

  • 5
    conrad
    January 2nd, 2009 17:18

    My bet is that if the government publishes school performance norms as seems somewhat likely, then we will see a big drift back to public schools — if money is a concern, then it doesn’t make sense to send your kids to private schools if your local public school performs just as well (and no doubt there will be a fair few hidden gems).

  • 6
    Spiros
    January 2nd, 2009 18:22

    “The downturn etc. is not really playing a role in my thinking.”

    Do you think, Sinclair, that this might be because you’ve got a secure job in the public sector?

  • 7
    Sinclair Davidson
    January 2nd, 2009 19:44

    No. I don’t have tenure. If paying student numbers fall unis will have to cut back. Similarly, the boys’ mothers don’t have secure jobs and the downturn could impact them too.

  • 8
    Sinclair Davidson
    January 2nd, 2009 19:56

    Sorry, should be clearer. Even if I didn’t lose my job in the downturn, I could still lose a lot of income. So the salary loading for market sentive academics* could fall, summer school teaching could be reduced and offshore teaching trips could decline – all this would reduce my income. Similarly the bits and bobs in extra income (invited lectures and the odd commissioned papers etc.) could easily dry up. So a substantial component of my income is at risk.

    * I teach finance related subjects – normally there is a shortage.

  • 9
    Andrew Norton
    January 2nd, 2009 20:14

    Conrad – I doubt it, because academic performance is only one of the reasons behind the shift to private schools, and because I doubt there will be many hidden gems. The good public schools are generally well known.

  • 10
    conrad
    January 2nd, 2009 20:54

    “The good public schools are generally well known”

    I guess we’ll find out. I think the top of the top are well known, but my bet is that there will be a lot of quite decent ones — at least decent enough to compete with a lot of the private market (there must be, unless the distribution is extremely tight, which seems unlikely). That being said, I also think most of the good ones are not surprisingly also going to be in good neighborhoods (and hence things like discipline, which I assume is more important for people that live in worse areas, won’t play such an important role), so the main effect it will have is that relatively well off people will send their kids to relatively decent public schools (hence taking money out of the system overall). An interesting effect it may have is that the not so well known decent public schools may have to start using zoning like the well known ones do now.

  • 11
    Spiros
    January 2nd, 2009 22:21

    “The last recession in the early 1990s, …”

    Yes, but private school fees are much more expensive now than then. They’ve gone up by 8% per cent a year since the last recession It won’t take much of a recession this time around for a lot of people not to be able to afford the $25K per kid that the top schools charge. And that’s after tax.

    As it is, a lot of people get help from the grandparents to pay for the kids’ school fees. But with the stick market down by 50% a lot of grandparents aren’t as flush as they used to be.

    The relentless and ruinously expensive arms race that the private schools have engaged in over the past 15 years may be about to bite them on the arse as their market dries up. There just aren’t enough surgeons and QCs with enough school age kids to keep these schools going in a downturn.

  • 12
    Mitch
    January 3rd, 2009 02:50

    “The relentless and ruinously expensive arms race that the private schools have engaged in over the past 15 years may be about to bite them on the arse as their market dries up. There just aren’t enough surgeons and QCs with enough school age kids to keep these schools going in a downturn.”
    Very true. There does seem to be a bit of a void in cheaper, less elaborate (namely in terms of infrastructure) private schools. I wonder if this would change significantly without the public system basically entrenched in the lower end of the education market- there’s three public primary schools in my suburb alone, for instance.

  • 13
    conrad
    January 3rd, 2009 06:50

    “The relentless and ruinously expensive arms race that the private schools have engaged in”
    .
    Get off the hyperbole Spiros! The fact that fees have gone up is mainly thanks to wages of teachers going up — I’m sure in almost all schools, wage costs are by far the largest amount as a percentage of total costs. That has been good for the system, not bad, since it means that at least some proportion of teachers can expect a wage slightly higher wage than the level set by the government which is so low that it leads to lots of morons entering teaching (just look at the ENTER scores) as well as shortages in areas where there is competition from other industries. If this means parents have to pay more to get the best teachers (as people seem only too happy to do for many consumer goods and services), then bad luck.

  • 14
    Andrew Norton
    January 3rd, 2009 07:10

    And Spiros is, like most people in this debate, focusing on a relatively small number of elite schools which are not typical of private schools generally. In 2006, for example, the average per student private income in independent schools was $7,824, and Catholic schools (still enrolling the majority of private students) had an average per student private income of $2,638. Actual average fees would be lower, because these numbers include fundraising.

    And while fees have increased more quickly than inflation, so have wages, and families have done exceptionally well out of the tax-welfare system over the last decade.

  • 15
    Spiros
    January 3rd, 2009 12:03

    Conrad,

    Teachers’ wages haven’t gone up 8% per year.

    On the other hand, this has to be paid for.

  • 16
    charles
    January 3rd, 2009 19:50

    Sorry Andrew I messed up; I was trying to link to #1 in John Quiggin’s series, #2 has an economist attacking a sacred cow that is even more sacred. Where will it end?

  • 17
    charles
    January 4th, 2009 08:46

    Andrew you might be interested in this, the Melbourne solution in Europe.

  • 18
    Andrew Norton
    January 4th, 2009 09:33

    Charles – An interesting piece, as I had not seen any analysis of demand for Bologna-compliant courses. However, this isn’t really analogous with the Melbourne Model. The overall effect of the Bologna process has been to make European higher education more like the British-Australian system, where most students can exit after a 3 year bachelor degree and get a job using their credentials. Previously, European degrees tended to be very long, with Masters often being the minimum for professional work. In some professions that is still the case, but these are hold-outs from the old system rather than products of the new.

  • 19
    charles
    January 4th, 2009 09:56

    When I went through Australian degrees where 4 years and diplomas 3. I just completed a diploma of financial markets in one ( out of interest). Nothing is fixed, nothing is sacred.

  • 20
    Andrew Norton
    January 4th, 2009 10:25

    Charles – I am not aware that the standard degrees – Arts, Science, Commerce etc have ever been 4 years, though there has usually been an honours year that turns these degrees into 4 year courses. Most of my university history material is in my work office, but a history of Monash shows that they had 3 year degrees from their commencement in the early 1960s, except for engineering and medicine. Nor have I heard of 3 year full-time diplomas, though I am not very familiar with the credentials the CAEs used to deliver.

  • 21
    Rafe Champion
    January 4th, 2009 11:36

    In the 1960s (as I recall) basic degrees were 3 years with the exceptions of Engineering, Medicine and Ag Science (and presumably VetSci).
    Honours was an extra year and then people started a Masters or a PhD. PhDs were just becoming essential for academic careers but some faculties liked to start people on a Masters because it was easier to change up to the Doctorate than to change down to a Masters if the Doctorate became problematic.
    I think the old colleges used to award Certificates and Diplomas, maybe the equivalent of 2 and 3 years fulltime. I should know (but dementia has set in) because I compiled a list of all the Craft courses available Australia-wide in 1973 for the Craft Board of the (then) Australia Council. Maybe it is not dementia, maybe it is just a result of packing down in the front row of the Council’s rugby league team.