Will the Equity Index be an improvement?

In 2023, the Ministry of Education will move from using the decile system to distribute equity funding to primary, intermediate and secondary schools, to using their newly developed Equity Index (EQI). It is worth noting that the equity funding distributed using the decile system in 2020 was $161 million, which comprised 2.5 percent of total school funding (teacher salaries comprised 70 percent of funding, and operational grants comprised 27.5 percent). In 2023, equity funding to be distributed by the EQI will increase to $244.6 million, representing 3.8 percent of total school funding in 2023.

What is the difference between the decile system and the Equity Index, how was the new Equity Index developed, and how will it be used?

The decile system introduced in 1995 was comprised of five indicators. These indicators were derived every five years from the Census for the neighbourhoods surrounding each school, and were meant to reflect the socio-economic barriers faced by local students going to their local school. The indicators used were as follows:

• Percentage of household with income in the lowest 20% nationally
• Percentage of employed parents in the lowest skill level occupational groups
• Household crowding
• Percentage of parents with no educational qualifications
• Percentage of parents receiving income support benefits.

The limitations of the decile system were that it could only be updated using five yearly census data, that it assumed that all students at a school would be coming from the local neighbourhood surrounding the school, and that it grouped all schools into one of 10 decile groups. 

In 2016, the then National Government asked the Ministry of Education to begin development of a risk index, which would use a number of administrative data indicators to identify the most at-risk students, who then could be targeted with additional funding to increase their educational achievements. In 2018, the then Labour Government asked the Ministry of Education to replace the work on the risk index with the newly developed EQI. In total the new EQI will use 37 indicators across the following four headings:

• Parental socio-economic indicators
• Child socio-economic indicators
• National background
• Transience. 

Whilst the full 37 indicators have not yet been released by the Ministry of Education to the public, a released September 2019 cabinet paper reveals an initial set of 26 indicators that comprised the EQI. The 26 initial indicators are as follows: 

• Care and protection family group conference of the child, ever
• Care and protection investigation of the child, ever
• Care and protection notification of the child, ever
• Care and protection placement of the child, ever
• Community service of the father/mother after five years before birth of child of interest
• Father/mother in prison custody after five years before birth of child of interest
• Father’s/mother’s education level
• Mother’s age at her first child
• Mother’s/father’s age at birth of child of interest
• Number of children mother had at birth of child of interest
• Number of home changes, lifetime
• Number of non-structural school changes, lifetime
• Number of school and home changes, lifetime
• Number of structural school changes, lifetime
• NZ-born/not
• Proportion of life on the benefit (child)
• Proportion of life overseas (child)
• Proven charges of the father/mother after five years before birth
• The cumulative mean first-tier-expenditure benefit income of the father/mother
• The cumulative mean salary income of father/mother
• The cumulative mean second-tier-expenditure benefit income of the father/mother
• The cumulative mean self-employed income of father/mother
• Youth justice family group conference, ever
• Youth justice notification, ever
• Youth justice placement, ever.

An essential part of the development of the 37 indicators in the EQI was the Ministry’s Sector Reference Group (SRG). This group, made up of principals from a variety of school backgrounds, was critical in providing feedback and suggestions for how the index should work, and what indicators should be included. 

The EQI has been designed to be updated annually, with each school being provided with their index number prior to the school year, to allocate equity funding to each school. The Ministry of Education has noted that there is effectively a four-step process that they go through each time the index is updated. 

The first step undertaken in building each year’s EQI, is to use anonymised individual level information held in Statistics NZ’s Integrated Data Infrastructure (IDI), for a cohort of individuals who have already completed primary and secondary school. This enables the Ministry of Education to link the 37 indicators being used in the EQI, to actual education achievement at both NCEA level 1 and level 2 (weighted for both type of standard, and level of endorsement) for the cohort being examined. For the 2022 EQI, which is being used for 2023 funding, the Ministry of Education has used a 2000 to 2002 cohort of individuals.

The second step in the process is to take the relationships established between educational achievement and each of the 37 indicators from step one, and apply it to the anonymised individual level information from actual students (held in the IDI) who attended each school over the previous three years. In using the last three years of actual students for each school, rather than just the last year, it enables the index to be more stable over time, as well as use the most up-to-date information on the students who are attending the school.

The third step in the process sees each school assigned an EQI number of between 344 and 569, based on the results from step two of the process. The higher the number the more socio-economic barriers faced by the school students, and the more funding provided to the school. As part of this step the EQI number for each school is extracted from the IDI. This means that only staff directly involved in calculating the EQI in the IDI, will see any individual student data or results, and means that most Ministry staff, as well as the schools, will only see the final EQI number provided to each school.    
Finally, in the fourth step, the Ministry of Education uses an S-shaped curve to determine the distribution of the equity funding to the schools. This S-curve means that effectively the top five percent of schools (those with the lowest EQI) will receive zero equity funding, while for the remaining schools the amount of funding per student gradually increases before the increases start to taper off as it reaches those schools with the highest EQI.   

For further information on the Equity Index, visit the Ministry of Education’s website on the Equity Index  

There are advantages in introducing this new system, but there are also risks. The first advantage is that compared to the previous decile system, the new EQI is a system which makes better use of available administrative data. This has enabled a new system to be created, that is more targeted (through the use of the last three years of actual students), timelier (with annual updates, rather than five yearly updates), and hopefully more equitable through the use of actual past students’ educational achievements and their socio-economic backgrounds.  

Although the use of administrative data is good, having 37 indicators across four headings, does make it broad and a more tighter focused set of targeted indicators could work more effectively. Reviewing the 29 indicators (that we do know about from 2019), there are numerous indicators to cover one socio-demographic area. For example, there are four indicators around care and protection of the child, as well as four around the income and benefit income of the child’s parents. 

Also, the index makes use of a three-year cohort from 20 years ago to judge the relationship between each of the indicators and overall educational achievement. Hopefully, the Ministry of Education will expand the cohort to add more years, and not just keep to a three-year cohort and simply move it forward a year at a time. For example, from 2000 to 2002 for 2022, to 2001 to 2003 for 2023. We will expect that the cohort used to track educational achievement will be updated each year to effectively the most recent three-year cohort available. This will enable changes in educational achievement, based on the 37 selected indicators, to alter over time to reflect actual change that is occurring in the New Zealand education sector.

Lastly, given the widespread use and misuse of the decile system, the EQI will be a big test of the public’s confidence in central government using large amounts of combined administrative data on individuals, and its social license in creating this type of linked socio-economic data, even if it is anonymised. While Statistics New Zealand’s IDI has been used extensively by government Ministries for evidence to help design policy, the EQI is one of the first large scale uses of the IDI that will get large scale public attention.