The NZ labour market is among the most flexible in the OECD, and outcomes for its young people have been among the best. However, labour-market opportunities are heavily determined by initial education, where New Zealand’s system is also successful and innovative in many ways. Average PISA results are among the OECD’s highest, but the dispersion of performance is also high, indicating a sizable group of underachievers. Those in disadvantaged groups tend to have poor scholastic outcomes. These initial educational handicaps show up in higher drop-out rates and youth joblessness, greatly limiting these youths’ future life chances. Indeed, intergenerational persistence in educational and employment outcomes appears very high. From both a social and economic point of view, it will be essential to develop more fully the human capital of the fast growing demographic group of ethnic minorities. Better teaching quality is needed, with more attention devoted to diversity of student needs and learning approaches to keep children in school. A related problem is the apparently large divergence between the nature of skills supplied by the education sector and the skills demanded by employers. A greater role for youth apprenticeships could help to raise skill levels while aligning them better to the economy’s needs. All this has an important bearing on the government’s ambition to secure strong and sustainable growth with rising living standards and equal opportunities for all.