Prime Minister Tony Abbott and Industry Minister Ian Macfarlane announced on Tuesday that the government will spend $500,000 on a pilot "technology early college high school" program.

The government also said it would spend $2.5 million to encourage schools to teach computer coding and $7.4 million to fund innovative mathematics programs as part of its industry innovation and competitiveness agenda.

The trial school will be based in an area close to industry but with high youth unemployment.

Although no decision has been made, Fairfax Media understands the Macquarie Park technology hub in north-west Sydney is a possible option for the school.

As well as regular subjects, students will undertake computer programming classes, workplace visits and internships.

There will be paths to employment with the chosen industry partner.

The trial is based on the US P-TECH model, where students are taught a specific jobs-focused curriculum in partnership with big corporations.

Mr Abbott was impressed by IBM's flagship school in New York during a June visit to the US. The Pathways in Technology Early College High School in Brooklyn mixes normal school classes with computer programming subjects and IBM recruits the school's graduates.

"It may well help our science, technology, engineering and mathematics skills base if there is more involvement by particular types of businesses in schools," Mr Abbott said.

"I guess it's simply an elaboration, a further development, on the kind of school-based apprenticeships that we've seen in some states … It's not part of some dramatic new redesign of educational architecture."

Business Council of Australia chief executive Jennifer Westacott, who helped design the plan, said there had been a lack of collaboration between the nation's schools and industry.

"What you want is industry bodies involved in curriculum development," she said.

"How do we get in there and provide support to teachers in teaching some of the curriculum? How do we mentor school principals? There's certainly a role that industry can play at a practical level."

Labor school education spokeswoman Kate Ellis said the government should not have axed existing programs linking schools to industry.

"Of course schools should work with business to give students skills and work experience, but this is very different from privatising and outsourcing our schools," she said.

"Schools aren't sweatshops for churning out entry-level workers."

At the Catholic Regional College in Sydenham, in Melbourne's outer west, school principal Brendan Watson is overseeing a thriving scholastic economy.

Seven businesses – including a bakery, gym, restaurant and beauty salon – are operating on school grounds, all selling services to the public, and all operated entirely by students.

"Without the input of industry, schools don't necessarily understand what it is that industry is looking for," Mr Watson said.

The student businesses are operated in collaboration with private businesses.

John Polesel, an expert in high school vocational training at the University of Melbourne, said Australia's school-industry linkages lag behind the rest of the world.

Germany, Austria, Denmark and the Netherlands all operate systems in which students could undertake paid apprenticeships while still in school, with financial backing from the private sector, he said.

Australian Education Union national president Angelo Gavrielatos said the trial was a "policy experiment" not supported by evidence.