More young Australians are completing Year 12 but over a quarter are not in full-time work or study after school, according to a new report.

The Council of Australian Governments (COAG) Reform Council's latest reports on education and skills show that not all young people are making a smooth transition from school to study or employment.

The council's deputy chairman, Professor Greg Craven, says more than 27 per cent of 17- to 24-year-olds were not in full-time study or work in 2011.

"We've found that more than a quarter of young people are still not fully engaged in work or study after they leave school and this is largely due to the fall in full-time employment," Professor Craven said.

The outcomes are worse for people from disadvantaged backgrounds, where more than 40 per cent of young people are not earning or learning.

"Those people may be doing some study but not enough to register," Professor Craven said.

"They may be engaged in some work or a combination of both [or] they may be in gap years but it is of course a concern that that number of people are not participating in the national economy or the education system."

Professor Craven says 85 per cent of young people completed Year 12 in 2011, up from 82.8 per cent in 2006.

"If your parents finished school, there is a much higher likelihood that you yourself will perform better at school," he said.

"If your parents finish school there's a much higher likelihood that they would get further training and education, and therefore you would get further education and training."

The report found that there have also been strong signs of improvement in the early schooling years.

Professor Craven said "governments have worked to give Australian children the best possible start in the early years through COAG's commitment to universal access to preschool".

He said the benefits of the early childhood reforms translate into better results in primary and high schools.

"We can see for example improved results in literacy among the group of children who are now entering years like year three who were the first beneficiaries of those COAG reforms and we can expect further improvements as time goes on," Professor Craven said.

The council says there has been little or no improvement in literacy and numeracy rates in high schools and outcomes for students from disadvantaged backgrounds are still poor.