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Melbourne Institute News December 2013 ISSN 1442-9500 (print)

ISSN 1442-9519 (online)

Print Post Approved PP381667/01204

Issue 42

2013 PwC Melbourne Institute Asialink Index Launched The 2013 Index was recently launched at the Asialink Chairman’s Dinner, where the Prime Minister Tony Abbott delivered the 2013 Asialink Sir Edward ‘Weary’ Dunlop Lecture.


2014 Economic and Social Outlook Conference Page 2

A Hobby a Day Keeps the Drugs Away Page 3

Westpac – Melbourne Institute Survey of House Price Expectations Page 4

Redesigned Westpac – Melbourne Institute Leading Index Page 4

Australian Student Performance in the PISA Tests Page 5

Report on the U21 Shanghai Symposium Page 6

Forum Puts Spotlight on Journeys Home and Homelessness Page 7

Recent Grant Success Page 7

PhD Student Wins Prize Page 8

The sixth edition of the PwC Melbourne Institute Asialink Index demonstrates the continuing importance of Australia’s economic engagement with Asia. While economic growth outside Asia continued to underperform in 2012, the economies of Asia provided significant ongoing opportunities for economic engagement. Since 1990 Australia’s engagement with Asia as measured by the PwC Melbourne Institute Asialink Index has increased in every year except six (and in one of those six it was unchanged). This is a remarkable achievement. Although Australia’s engagement with Asia fell marginally in 2012, this fall may prove to be a temporary pause in the long-term increasing trend. The major drag on engagement in 2012 came from a fall in engagement with China, which was not unexpected following a spike in 2011 and given big fluctuations in investment engagement, which is known for being volatile. The Index is Australia’s only comprehensive broad-based measure of our engagement in Asia. It includes elements of engagement such as trade, investment, research and business development as well as the less often focused upon sectors of education, tourism, migration and humanitarian assistance. It has become an important resource for policy makers, business leaders and the academic community. Some key findings are listed below. Melbourne Institute of Applied Economic and Social Research - Page 1

2013 PwC Melbourne Institute Asialink Index Launched (continued) PwC Melbourne Institute Asialink Index 1990–2012 500




Rest of the world


350 300 250 200 150 100

50 0 1990



1999 2002 Year




• Australia’s engagement with Asia as measured by the PwC Melbourne Institute Asialink Index fell marginally by 0.4 per cent in 2012. • There was a 32.2 per cent fall in engagement with China in 2012: a sharp slowdown in volatile investment engagement with China (following a spike in 2011) was partly offset by strong growth in tourism and migration engagement with China. • Engagement with Indonesia rose 9.7 per cent in 2012, the biggest recorded increase amongst the major Asian countries. This was driven by a 95.7 per cent increase in investment engagement. • Australia’s engagement with Japan, Australia’s second most important trading partner, fell by 1.1 per cent in 2012. Increases in trade, tourism, education, research

• •

and humanitarian engagement failed to offset a fall in investment engagement. Engagement with the ASEAN group of countries rose marginally by 1.4 per cent in 2012. This year’s Index shows that inbound tourism from Asia increased by more than 12 per cent in 2012, despite the strong Australian dollar, while outbound tourism to Asia rose by nearly 9 per cent. Inbound Chinese tourism rose by 24.4 per cent, its biggest annual jump in the history of the Index. Australia’s trade in goods and services engagement with Asia grew by 3.0 per cent in 2012 driven by a 5.3 per cent rise in imports of goods and services and a 1.6 per cent rise in exports. While investment engagement overall fell in 2012, a strong rise of 16.3 per cent in net inbound investment to Australia from Asia suggests positive perceptions abroad of investment prospects in Australia. Migration from Asia to Australia increased by nearly 17 per cent in 2012, with strong growth in migration from India (40.8 per cent), Japan (16.3 per cent) and China (10.8 per cent). Australia’s education engagement with Asia rose modestly by 2.1 per cent in 2012. Research and business development engagement with Asia increased modestly in 2012.

For the full report go to <>. For more information, contact Anne Leahy < au> or Dr Russell Thomson <>.

2014 Economic and Social Outlook Conference — Pathways to Growth: The Reform Imperative The Melbourne Institute and The Australian are pleased to be hosting the ninth Economic and Social Outlook Conference on 3 and 4 July 2014. A new government has taken over an economy that is under-performing. Employment is growing more slowly than the working-age population; both commonwealth and state budgets are in deficit and the great boom in resource investment is starting to wind down. Globally, both growth and world trade have been disappointing, frustrating the efforts of the industrialised world to close massive budget deficits. There are no simple solutions to either the global or the local problems, but creative thinking about the issues it confronts can give the new government an edge.


The consistent thread running through our previous conferences has been that continued policy reform can enrich Australia’s overall well-being while providing opportunities for all. The format has established itself as the nation’s premiere economic and social public policy conference, providing a unique forum bringing together leading politicians, bureaucrats, academics and non-government organisation representatives. Issues explored by the two-day conference will include budget sustainability, education, infrastructure, trade with Asia, aged care, federalism, the labour market and employment, climate change and energy, social disadvantage and exclusion, and the of the Institute age of entitlement. Page 2 - end Melbourne of Applied Economic and Social Research

A Hobby a Day Keeps the Drugs Away A study by the Melbourne Institute has found that teenagers who participate in hobbies are less likely to engage in risky behaviours such as drinking or drug taking. Specifically the study found that Australian teenagers who compete in sports or practise the arts are less likely to drink, smoke and use marijuana. Using data from the Youth in Focus survey the study revealed interesting differences between those who take up extracurricular activities. Participation in the arts reduces weekly drinking among males and marijuana use among females, whereas participation in non-organised sports reduces regular smoking and marijuana use among males only. Also the study found that there is some evidence that extracurricular activity participation lowers engagement in risky behaviours for low socioeconomic status (SES) females more than it does for high-SES females, yet among males the SES gradient is almost non-existent. Extracurricular activities are a significant part of school life in developed countries. However, being outside the core academic programs, they are among the first candidates to be reduced in times of budget constraints. For example, the study highlights, a recent survey of US school administrators indicates that 24 per cent of schools reduced extracurricular activities in 2010–11,

29 per cent did so in 2011–12, and over 40 per cent considered it for 2012–13. The study, published in the Melbourne Institute’s Working Paper series, also highlights how Australian schools have raised concerns over the potential need to cut back on extracurricular activities, given the forthcoming slash in New South Wales’ state funding of education by $1.7 billion over the next four years, or the expected review in education funding that could see over 3,000 schools lose funding. Melbourne Institute Working Paper No. 35/13, ‘Does Participation in Extracurricular Activities Reduce Engagement in Risky Behaviours?’, by Dr Trinh Le, can be downloaded from our website.

To register your interest to be added to the mailing list for updates regarding the program and confirmed speakers, visit the conference website at <>. This will be the ninth Economic and Social Outlook Conference held jointly by the Melbourne Institute and The Australian at 18-month intervals since the inaugural Towards Opportunity and Prosperity conference in 2002. This was followed by Pursuing Opportunity and Prosperity in 2003, Sustaining Prosperity in 2005, Making the Boom Pay in 2006, New Agenda for Prosperity in 2008, The Road to Recovery in 2009, Growth Challenge in 2011 and Securing the Future in 2012.

Melbourne Institute of Applied Economic and Social Research - Page 3

Westpac – Melbourne Institute Survey of House Price Expectations The Westpac – Melbourne Institute Survey of House Price Expectations examines consumers’ views about expected house prices. Consumers are asked to provide their views on expected house prices. The distribution of responses since July 2009 is shown in Figure 1. Figure 1: Distribution of Survey Responses



In the November survey, increases in the Index were observed in all states except Western Australia. Queensland recorded the largest increase of 8.0 per cent. The Index has been rising since October 2011 (Figure 2), roughly when the Reserve Bank of Australia began its loosening cycle. The official cash rate is currently at a historical low of 2.5 per cent.

80 60 40 20

Figure 2: House Price Expectations Index






160 July Jan. July Jan. July Jan. July Jan. July Nov. 2009 2010 2010 2011 2011 2012 2012 2013 2013 2013 Fall by over 10%

Rise by over 10%

Fall by 0 to 10%

Rise by 0 to 10%

Stay the same

Stay the same

Note: (a) The percentages for the two categories expecting falls in house prices are shown as negative values. The percentage for the category ‘stay the same’ is split equally around the zero line.



House Price Expectations Index (LHS) Growth in Australian Bureau of Statistics House Price Index (RHS)

20 15 10










The Westpac – Melbourne Institute House Price Expectations Index rose by 3.1 per cent to 164.2 in November, following a rise of 9.4 per cent in October and an increase of 4.7 per cent in July. In the 12 months to November, the Index rose by 23.0 per cent. The November increase was due to a significant reduction in the number of respondents expecting house prices to fall.


July Jan. July Jan. July Jan. July Jan. July Nov. 2009 2010 2010 2011 2011 2012 2012 2013 2013 2013

Redesigned Westpac – Melbourne Institute Leading Index Westpac and the Melbourne Institute recently announced significant changes to the Westpac – Melbourne Institute Leading Index of Economic Activity.

many feared the economy was heading into a contraction — most notably following the 1987 share market crash, and the 1997–98 Asian crisis. Our ex post analysis of the new Index shows a similar satisfactory performance.

The changes have three main benefits. First, Index readings will now be published a month earlier, meaning This follows an extensive review and represents a major what is already an early warning indicator will now be improvement. While the redesigned Index retains key even timelier. Second, readings will be significantly features of the existing Index it introduces several less affected by revisions. Because four of the eight changes that will enhance the accuracy, timeliness and components of the existing Index were quarterly data, stability of the measure. there were often significant revisions. It was necessary The Westpac – Melbourne Institute Leading Index has to extrapolate quarterly readings to estimate monthly been published since 1985. The main aim throughout has moves in those components, exposing the Index to been to provide a timely gauge of conditions across the significant shifts when these extrapolations proved to be broader Australian economy with a particular emphasis inaccurate. The new Index is based entirely on monthly on identifying turning points in the business cycle. The data for which there historically have been minimal Index has performed well in this respect, providing a revisions, further improving stability (only three of the reliable early warning indicator heading into the early eight components will ever be subject to revision). Third, 1990s recession and the 2008–09 downturn, but also the new Index has also been shown to have a better lead Page 4clear - Melbourne Institute of Applied during Economic and Social giving ‘non-recession’ readings periods when Research relationship with economic growth cycles.

Australian Student Performance in the PISA Tests The reading, mathematical and scientific achievement levels of 15-year-old Australian school students in the Programme for International Student Assessment (PISA) tests were lower in 2012 than in earlier years. PISA tests are conducted every three years, under the auspices of the Organisation for Economic Cooperation and Development (OECD). Since 2000, the average achievement of Australian students in reading, mathematical and scientific literacy has fallen by 16, 29 and 7 points respectively, the first two representing declines that were statistically significant (see Table 1).

Median values



























OECD 2012 averagea Australia

Note: (a) OECD average values for the three domains changed only marginally from 2000 to 2012.

A recently published article by Associate Professor Chris Ryan of the Melbourne Institute looked at the decline in the performance of Australian students in reading and mathematics between 2003 and 2009 using the PISA data.1 The study found that the declines were widespread in the student population, affecting both males and females. Further, declines occurred across much of the social background distribution. However, the decline in reading literacy occurred throughout much of the achievement distribution, but was slightly more pronounced at the bottom of the distribution, while the decline in mathematical literacy was more pronounced at the top of the distribution (there were fewer highperforming students in 2009 compared with 2003). Since the problems appear to be different, they may require more than one policy response to rectify them. In fact, changes in average student characteristics between the 2003 and later cohorts should have been consistent with improved literacy performance (family social backgrounds, household possessions and parental education levels all increased marginally), yet actual literacy levels fell. With the framework used in the article, this decline in literacy was interpreted as resulting from poorer school performance (or increased school ‘inefficiency’). The declines in both literacy domains were apparent across the entire distribution of school performance, with the falls more apparent in private schools than in the government-run school systems in Australia. While private schools once generated better outcomes than public schools, taking into account the characteristics of their students, this was not the case after 2003. In general, the declines in school performance were not associated Ryan, C. 2013, ‘What is behind the decline in student achievement in Australia?’, Economics of Education Review, vol. 37, pp. 226–39.


Table 1: Australian Student Performance by PISA Literacy Domain: 2000 to 2009

with many other characteristics of schools, including factors like school autonomy, admission practices and resources, which might have been thought likely to be associated with school performance. One possible explanation for the apparent decline in school performance among private schools in Australia is that the rapid expansion of the sector has resulted in far greater heterogeneity in the types of schools now operating in the private system, especially among Independent schools. For example, between 2001 and 2008, the number of Independent schools and students increased by 15 and 35 per cent respectively in Australia. Around 90 per cent of the increase in schools and in students took place in Independent schools that were of lower average socioeconomic status (SES) than the average Independent school in 2001. Hence it is possible that school effects for the ‘Independent’ school system will increasingly reflect some combination of the impact of the more established, socially elite schools with the less certain effect of much lower SES schools. That the decline in school performance occurred in private schools which received substantial increases in public funding following the introduction of the SESbased funding system in 2001 in Australia confirms other work that points to only a weak relationship between increased levels of public expenditure and student performance. While the recent debate in Australia has been around the provision of substantial increases in funding to schools to reverse national achievement declines, the results here are consistent with studies that indicate that the impact of resources on school achievement is, at best, quite modest. Attracting the right people to teaching and school management, training them better, and identifying what works best in what they do seem better avenues for focusing policy attention and improving student performance in the longer term.

Melbourne Institute of Applied Economic and Social Research - Page 5

Report on the U21 Shanghai Symposium The Melbourne Institute undertakes evaluations and rankings of national systems of higher education for the Universitas 21 (U21) group of universities, of which the University of Melbourne is a member. The researchers involved are Professor Ross Williams, Dr Gaétan de Rassenfosse, Professor Paul Jensen and Professor Simon Marginson (University of London). To progress the work and stimulate further interest and discussion U21 sponsored a symposium, ‘National Systems of Higher Education: Criteria for Evaluation’, in Shanghai on 6–7 November. The symposium was attended by around 50 delegates from universities, ministries of higher education, international agencies, higher education planning bodies and students. The symposium followed on from the biennial Conference on World Class Universities (WCU-5) organised by the Center for World Class Universities at Shanghai Jiao Tong University which also managed the local arrangements for the U21 Symposium. There was considerable synergy between the two conferences as several speakers at WCU5 discussed aspects of the U21 rankings of national systems of higher education. Attendees at the symposium expressed strong support for ranking national systems of higher education. The value of national rankings was summed up by Professor Ihron Rensburg, Vice-Chancellor of the University of Johannesburg: they inform choices and decision making, enhance accountability and drive improvement. Dr Jan Sadlak, doyen of ranking and President of the IREG Observatory, commented that “the U21 ranking has now entered the world of rankings” and noted that it was listed as one of the “main global ranking systems” by the Canadian publication University Affairs. Adam Tyson, Head of the Higher Education Unit at the European Commission, said in support of the U21 rankings that “as policy makers this is exactly the type of ranking we have been looking for”. Common themes that arose in the U21 presentations were the need to take levels of economic development into account when looking at the efficacy of national systems and the value of examining relationships between the various indicators used in the U21 rankings. Professor Williams and Professor Christine Ennew, Provost of the University of Nottingham Malaysian Campus, looked at how the output from national systems is related to the input of resources and the national policy settings. In broad terms the U21 data show that both determinants

Ian Marshman, University of Melbourne Senior Vice-Principal, opening the U21 Symposium in Shanghai

matter, although Professor Ennew suggested that other factors such as the school system and the legacy of past investment contribute to the output of research, teaching and training. Professor Williams argued that the unemployment rates of graduates compared with school leavers provide a test of whether higher education is producing graduates that meet national needs. Professor Rensburg explained the important role that higher education institutions play in economic development. But he went on to argue that the existing rankings favour well-established systems of higher education and ignore the competing national development priorities in the Global South and East and the size of the education task in these countries. He argued for rankings which classified countries into groups based on factors such as income levels and system size. Dr John Douglass from the University of California, Berkeley, argued that “flagship universities” should have a profile much wider than the criteria used in the various world rankings of universities. Research performance must be supplemented by excellence in education, regional and international engagement and knowledge transfer. Measures of research cooperation between universities and industry were presented by Professor Robert Tijssen of Leiden University. For U21 universities taken as a group, 6 per cent of research publications had co-authors with a business affiliation. Dr Stamenka Uvalić-Trumbić and Sir John Daniel argued that the ability of institutions to adapt to change was an important attribute that could be measured by, for example, the willingness to move to new teaching and accreditation modes. The symposium presentations and further details about the project are available at < projects/?parentID=152>.

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Melbourne Institute Forum Puts Spotlight on Journeys Home and Homelessness The December Economic Forum was devoted to a consideration of the homelessness policy agenda and the contribution being made by the Journeys Home study. Chaired by Michael Lye from the Department of Social Services, the government agency that funds Journeys Home, the forum began with a presentation by Dr Guy Johnson of RMIT. He set the scene, describing the changing policy environment that saw the emergence of homelessness as an important element of social policy, especially under the former Labor Government. Professor Mark Wooden introduced the Journeys Home study, describing the sample and the sampling procedures. Drawn from Centrelink income support customers, the sample was selected in such a way that the large majority have had recent experiences of housing instability. Indeed, most have at some point in their lives been homeless. The other key feature of the study is that it is longitudinal, interviewing sample members every six months over a three-year window.

Finally, Dr Rosanna Scutella reported on some of the key findings emerging from the data. She emphasised the numbers of persons cycling in and out of homelessness, drawing attention to figures showing that homelessness is much more widespread when measured over the entire survey period than point-in-time estimates would suggest. She also highlighted evidence indicating both a substantial degree of persistence in homelessness for a sub-group of respondents, and an inverse relationship between the duration of homelessness and the probability of exiting homelessness. Research ongoing at the Melbourne Institute is examining whether it is the characteristics of those experiencing homelessness that is driving these results or whether it is driven by the experience of homelessness itself.

Recent Grant Success for the Melbourne Institute Dr Alfons Palangkaraya, Professor Elizabeth Webster and Professor Paul Jensen with Professor Jacques Mairesse (Research Center for Economics and Statistics, Paris) received an ARC Discovery Grant of $420,000 over three years to investigate ‘The Relationship between Firm Innovation and Performance and the Role of the Government’. This project will take advantage of unique access to a dataset provided by the Australian Bureau of Statistics which will enable the researchers to observe the activities of every firm in Australia. Using these data and appropriate econometric techniques, the study will examine the effect of a range of government policies designed to stimulate innovation and productivity growth. Professor Deborah Cobb-Clark received an ARC Discovery Grant of $428,000 over three years to investigate ‘Living on the Margin: The Relationship between Mental Health and Work in Australia’. This project will assess the relationship between Australians’ mental health and their work (for example, employment status, work conditions and hours). The study is the first to exploit the detailed timing of mental health and employment transitions to identify whether poor labour market outcomes lead to poor mental health or whether the reverse is true. Professor Anthony Scott is a Chief Investigator on an NHMRC project led by Associate Professor Michelle Dowsey of the Department of Medicine at St Vincent’s Hospital. They received an NHMRC Project Grant of $448,229 over four years for their project ‘Maximum Acceptable Risk of Complication in Total Knee Arthroplasty (MARKA) Study: Using Discrete Choice Experiments to Elicit Patient and Surgeon Perception of Acceptable Risk in Total Knee Arthroplasty’. The aim of this study is to use discrete choice experiments (DCEs) to compare patients’ and surgeons’ preferences for the benefits and risks of total knee replacement as a treatment option, and to conduct a randomised controlled trial of DCEs as a decision aid to influence patients’ preferences and expectations. Melbourne Institute of Applied Economic and Social Research - Page 7

Recent Melbourne Institute Working Papers 31/13 ‘Making It Real: The Benefits of Workplace Learning in Upper-Secondary VET Courses’ Cain Polidano and Domenico Tabasso 32/13 ‘The Low-Pay No-Pay Cycle: Are There Systematic Differences across Demographic Groups?’ Yin King Fok, Rosanna Scutella and Roger Wilkins 33/13 ‘Understanding Changes in Progressivity and Redistributive Effects: The Role of Tax-Transfer Policies and Labour Supply Decisions’ Nicolas Herault and Francisco Azpitarte 34/13 ‘Early Bird Catches the Worm: The Causal Impact of Pre-school Participation and Teacher Qualifications on Year 3 National NAPLAN Cognitive Tests’ Diana Warren and John P. Haisken-DeNew 35/13 ‘Does Participation in Extracurricular Activities Reduce Engagement in Risky Behaviours?’ Trinh Le 36/13 ‘Is There an Educational Penalty for Being Suspended from School?’ Deborah A. Cobb-Clark, Sonja C. Kassenboehmer, Trinh Le, Duncan McVicar and Rong Zhang 37/13 ‘Science, Technology, Innovation and IP in India: New Directions and Prospects’ Christine Greenhalgh 38/13 ‘“High”-School: The Relationship between Early Marijuana Use and Educational Outcomes’ Deborah A. Cobb-Clark, Sonja C. Kassenboehmer, Trinh Le, Duncan McVicar and Rong Zhang 39/13 ‘Long-Run Effects of Catholic Schooling on Wages’ Nikhil Jha and Cain Polidano 40/13 ‘Public, Private or Both? Analysing Factors Influencing the Labour Supply of Medical Specialists’ Terence Chai Cheng, Guyonne Kalb and Anthony Scott 41/13 ‘Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement’ Diana Warren 42/13 ‘Locus of Control and Savings’ Deborah A. Cobb-Clark, Sonja C. Kassenboehmer and Mathias G. Sinning 43/13 ‘Less Equal and Less Mobile: Evidence of a Decline in Intergenerational Income Mobility in the United States’ Moshe Justman and Anna Krush 44/13 ‘The Measurement of Cognitive Ability in Wave 12 of the HILDA Survey’ Mark Wooden Working Papers can be downloaded for free from <>. If you would like to receive an email notification when new issues become available, contact the Melbourne Institute at <>.

PhD Student Wins Prize Congratulations to Michelle McIsaac who won the ‘Best Presenter’ prize, at the recent 1st Australian Health Economics Doctoral Workshop, for her presentation ‘Mobility and Relocation of Metropolitan General Practitioners’. The research examined the location choices of GPs in metropolitan areas of Australia. In particular, Michelle examined GPs who changed practice and their decisions to locate in low, medium or high socioeconomic status (SES) areas. Of the GPs who moved, most moved ‘up’: from low to medium or medium to high SES areas. Preliminary results suggest that increasing the earnings of GPs in low SES areas will have only a small effect on their decision to locate there, with the effects strongest for employee Michelle McIsaac with her PhD GPs and weakest for practice-owning GPs. Michelle is currently writing up her thesis supervisor, Professor Tony Scott for submission in early 2014. She used longitudinal data from the Medicine in Australia: Balancing Employment and Life (MABEL) panel survey of doctors funded through the NHMRC Centre of Research Excellence in Medical Workforce Dynamics, now in its sixth annual wave. See <> for further details.

Melbourne Institute News Views expressed by the contributors to Melbourne Institute News are not necessarily endorsed or approved by the Melbourne Institute. Neither the Melbourne Institute nor the Editor of Melbourne Institute News accepts any responsibility for the content or accuracy of information contained in this publication. Editor: Rachel Derham tel: (03) 8344 2158, fax: (03) 8344 2111, email: Sub-Editor: Nellie Lentini. Contributors: Professor Deborah Cobb-Clark, Eoin Hahessy, Penelope Hope, Dr Trinh Le, Anne Leahy, Professor Guay Lim, Associate Professor Chris Ryan, Professor Tony Scott, Professor Beth Webster, Professor Ross Williams, Professor Mark Wooden. Photo: image on page 3 from <>.

Level 5, Faculty of Business and Economics Building, The University of Melbourne T: +61 3 8344 2100 F: +61 3 8344 2111

#42 December 2013 - Melbourne Institute News  

Issue 42 - December 2013 - Melbourne Institute News

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