Academic results in Australian schools for foundational skills such as reading, writing and numeracy have been flat for more than a decade despite increased education spending, a report shows.
The Productivity Commission says employment rates for university and skilled training graduates have fallen over the same period as employer satisfaction with the quality of students seeking work decreases.
The national education system needs urgent action to stop the declines and achieve better results, according to an interim report outlining potential opportunities to improve Australia's school and tertiary education systems.
"While overall, education outcomes are relatively good, we are seeing some concerning declines," commission deputy chair Alex Robson said on Tuesday.
"Combined with a shift in the nature of skills demanded by Australian businesses, it is timely to examine where improvements can be made to improve productivity in these productivity-enhancing sectors."
Dr Robson said Australia was a service economy and demand for workers with non-routine skills was at an all-time high.
"This means a strong foundation from schooling is even more important than for past generations," he said.
"We need more innovation, competition and choice in our tertiary education sector."
The report says schools should focus on gathering and spreading evidence to improve the quality of teaching.
Dr Robson said this could include new ideas for freeing up teachers to spend more time in the classroom and adopting proven technology or new ways of schooling to meet the needs of staff and students.
"For (vocational education and and training) and higher education, the question is not just what to teach, but how to teach it," he said.
The commission suggested a review of funding structures that "distort" the choices presented to students in favour of universities over VET.
Dr Robson says the current system limits competition between providers and restricts the number of available student places.
But simply creating more places for students isn't the answer, the commission says.
"There is some urgency in addressing these challenges," Dr Robson said.
The education system needs to provide students with better quality and relevant skills.
"Nobody can predict what some of the specific jobs of the future will look like," Dr Robson said.
"That is why an agile and adaptable education system is so essential for driving future productivity gains."
