Research Note: The Marginal Economic Value of an Additional Point of Literacy Skills on Wage Rates

Not all of DataAngel’s analysis ends up in published reports. Some of this material is nonetheless useful in that it offers unique insights into matters of crucial importance to policy.

The following research note uses data from the OECD’s 2011 PIAAC adult skill assessment for Canada to estimate the marginal value of an additional point of literacy to annual employment income.

Separate estimates of the marginal income return to an additional point of literacy for workers whose skill level falls below, and above, the proficiency level associated with their 4-digit occupation code in ESDC’s Essential Skills Profiles.

The initial pair of estimates are then adjusted to remove the effect of a range of other variables known to influence incomes, including age, gender, educational attainment, Aboriginal status, immigrant status, mother tongue and province of residence. Together, skill and these variables explain most income variation in Canada. Other variables might have an influence on the estimated value of a literacy point but to have any appreciable impact said variable would have to be uncorrelated with both skill and the large number of other variables controlled for in the regression.

The analysis reveals a symmetrical pair of estimates.

The 40% of workers whose literacy skill level is below the minimum level notionally demanded by their occupation lose $61 in earnings per point of literacy that they are below the minimum threshold.

The 30% of workers whose literacy skill level is above the minimum level notionally demanded by their occupation gain $61 in earnings per point of literacy that they are above the minimum threshold.

Given that workers in occupational literacy skill shortage are 26 points below the minimum skill level demanded by their occupation, this implies an average income loss of an estimated $1526 per year, an amount roughly three times the income gained through productivity growth in the current period.

It is worth noting that the estimated impact of literacy skill on wages has fallen from $155 in 2003. This drop in value does not imply that literacy is any less important to economic performance but rather than improvements in the lower half of the literacy skill distribution provide less room for employers to discriminate wages on literacy skill.

So literacy skill is an important economic asset for individuals and a potential source of additional labour income, if a means can be found to reduce the proportion of the adult workforce in literacy skill shortage.

Reducing the proportion of the workforce in occupational literacy skill will not be simple. The most obvious route to reduction is to reduce the proportions of youth leaving the secondary and post-secondary systems. It will take at least a decade for meaningful numbers of higher skilled youth to enter the labour force even if the political will and means are found to improve skill levels.

So reducing the proportions of low skilled workers will require massive amounts of adult skill upgrading in the workplace.

Thanks to research undertaken by the federal government efficient, effective and affordable means are available to upgrade adult literacy skills . Our analysis of multiple assessment cycles for Canada suggests that persuading employers to make the required investments will be difficult. It seems that employers are reducing the actual cognitive skill demands of their jobs in response to high proportions of workers in literacy skill shortage and to avoid having to pay the rapidly rising real wages of workers with higher literacy skill levels that are in short supply. This reduction in the skill demands of jobs is precipitating a massive loss of skill by workers with the notional level of literacy skill demanded by their occupation and an equally large loss of labour income and output.

 

T. Scott Murray is a retired senior manager from Statistics Canada and President, DataAngel Policy Research Incorporated, a global specialist in education, skills and productivity.

T. Scott Murray
DataAngel Policy Research
Email: dataangel@mac.com
Web: http://www.dataangel.ca
Mobile: +1 613 240 8433

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Research Note: The Rate at Which Education Increases Literacy Skill

Not all of DataAngel’s analysis ends up in published reports. Some of this material is nonetheless useful in that it offers unique insights into matters of crucial importance to policy. The following research note highlights the rate at which additional education adds to the stock of literacy skill supply.

Research shows that education is the most important determinant of literacy skill (Desjardins, 2004) and that increases in average literacy scores over time explain 55% of differences in the rates of growth of GDP and labour productivity over the long run (Coulombe, Tremblay and Marchand, 2004). So policy makers have an interest in the rate at which rising levels of education are adding to Canada’s literacy skill supply.

The following chart uses data for the 2011 OECD PIAAC adult skill assessment for Canada to estimate the relationship between years of education and literacy.

The chart below reveals a strong linear relationship between the two variables.

In the 2011 PIAAC file, each additional year of education adds an average of 9.1 points.

This relationship suggests that, on average, it takes roughly 5.5 additional years of education to move up a level on the PIAAC literacy proficiency scale. Thus, even at Canada’s relatively rapid rate of increase in years of education, it will take several decades for the population average literacy skill to rise from the bottom of Level 3, where it currently sits, to the bottom of Level 4. In this sense, adult literacy skill upgrading is significantly more efficient, as it can generate this level of skill gain in as little as 30 hours of focused instruction.

This increase in additional points per year of education is slightly lower than the 10.2 points observed in the 2003 IALSS data for Canada. This finding is likely the joint product of higher levels of skill loss in the 2011 study and of higher proportions of immigrants coming from less efficient education systems.

Readers should also keep several things in mind when interpreting these data.

First, the observed skill level at every education level reflects significant amounts of skill gain and loss that occurs after graduation. Because there has been more skill loss than gain over the past three decades, skills observed at the point at which the highest credential was obtained, and the average literacy skill gain per additional year of education, would be higher.

Second, readers should remember that these average score gain obscure significant variation in scores at every level of education.

Notwithstanding these caveats, these data make it clear that Canada cannot rely on increasing post-secondary education levels to fill the growing shortage of workers with Level 3 and above literacy skill. Significant investments in adult literacy skill upgrading will be needed. At $1000 per learner, the cost of adult literacy skill upgrading is low enough for employers to fund themselves. Given the enormous economic and social  costs of Canada’s growing literacy skill shortages, a case can be made for governments to subsidize the cost of literacy skill upgrading.

 

T. Scott Murray is a retired senior manager from Statistics Canada and President, DataAngel Policy Research Incorporated, a global specialist in education, skills and productivity.

T. Scott Murray
DataAngel Policy Research
Email: dataangel@mac.com
Web: http://www.dataangel.ca
Mobile: +1 613 240 8433

Research Note: Market Failure in Canada’s Skills Market

Not all of DataAngel’s analysis ends up in published reports. Some of this material is nonetheless useful in that it offers unique insights into matters of crucial importance to policy. The following research note highlights a key aspect linked to the fairness of adult literacy and numeracy skill upgrading, specifically the need for the instructional offer to reflect learner’s needs and objectives. Learners deserve and expect instruction that is efficient, effective and that produces consistent results. Sadly, in the majority of programs, this is not the case.

One of the fundamental principles of adult education is that the program offer should reflect the learners learning needs and objectives. In 1924, Vygotski defined a region slightly above learner’s skill level where instruction would be most efficient and effective – the so-called “zone of proximal development”. By extension, instruction outside this zone would lead to disengaged learners and highly variable score gain within any given group of learners.

The simplest way to create classes with homogeneous learning needs is to assess the learners and sort them into classes.

Where volumes or context do not provide for multiple classes to be created, systematic assessment also provides Instructors with a means to adjust the content and pace of instruction to compensate. Research identifies 64 distinct patterns of strength and weakness across proficiency levels in oral fluency, prose literacy, document literacy and numeracy, a level of diversity that even skilled and experienced instructors would be unable to detect.

Systematic assessment of a broad range of skills at the point of program intake is the only answer.

I argue that learners also need to be systematically tested at the end of their instructional program to confirm how much they have learned and to update their learning plan. The same information on skill gain would serve several related purposes:

  • It would provide instructors with the means to reflect on their instructional practice,
  • When aggregated at the program level, it would provide training providers with a way to compare the performance of instructors and funders with a way to compare program efficiency, effectiveness and consistency across programs,
  • When published, it would provide training providers, learners and funders with a way to compare programs, information that is crucial to detecting promising innovations and to driving poor training providers out of business.

There is no excuse for programs not to assess all learners at the point of program entry and exit. Employment and Social Development Canada has funded the development and validation of the TOWES-Prime suite of web-based, fully adaptive tests of prose literacy, document literacy, numeracy and reading components. These low cost tests offer real time results that are reliable at four levels of precision, including one that yields reliable estimates of skill gain when administered pre and post training.

Governments, as the funder of the much of the language, literacy and numeracy instruction offered, need to demand systematic pre- and post-assessment of participant’s skills.

 

T. Scott Murray is a retired senior manager from Statistics Canada and President, DataAngel Policy Research Incorporated, a global specialist in education, skills and productivity.

T. Scott Murray
DataAngel Policy Research
Email: dataangel@mac.com
Web: http://www.dataangel.ca
Mobile: +1 613 240 8433

Commentary on the 2016 Federal Budget | DataAngel.ca

There is much in the recently released 2016 federal budget to laud. Significant new spending has been allocated to helping groups in the population who bear the brunt of social and economic disadvantage, including Aboriginal adults, the unemployed, seniors, low income students and parents.‎ Collectively, these expenditures should simultaneously improve their economic lot and reduce the size of the gap between them and their more advantaged peers.

As laudable as these measures are, the 2016 budget fails to invest in measures that will ensure sufficient productivity growth to pay these expenditures back. Productivity growth depends on our collective ability to compete on global markets. Our analysis suggests a need for two sets of linked measures to release our productivity potential:

  • Measures that encourage Canada’s employers to create enough ‎high wage/high skill jobs to replace the jobs being lost to automation and offshoring, and,
  • Measures that ensure that Canadian workers have the cognitive skills needed to take full advantage of their enormous pool of technical skills and knowledge.

Many of Canada’s employers are obsessed with wringing productivity growth out of cost savings from production efficiencies and reductions in wages and benefits. Firms adopting these strategies may win a temporary reprieve from competition, but the associated dumbing down of jobs results in massive loss of the very skills that will allow us to compete in the future.

A smaller number of firms are adopting an alternative strategy that is focused on increasing the value of their products and services, something that requires higher levels of key cognitive skills.

The federal government needs to act swiftly and decisively to reward firms adopting this latter high wage/high skill/high value approach.

Having done this, the federal government will also need to act swiftly and decisively to ensure that Canadian workers have the skills needed to fill the growing proportion of high skill/high wage/high value added jobs. ‎

In the first instance, this would involve working with the provinces and territories to reduce the proportion of youth leaving the secondary system with literacy and numeracy skills below level 3, the minimum level demanded by high skill/high wage jobs. This proportion currently sits at 50%.

The federal government also needs to work with the provinces and territories to reduce the proportion of youth entering and leaving the post secondary system with literacy and numeracy skills below level 3. These proportions currently sit at 40% and 30% respectively.

It will take some time for these measures to have an impact on the distribution of key cognitive skills. Thus, the federal government needs to introduce incentives for firms to assess and upgrade the literacy and numeracy skills of the current workforce.

A failure to act practically guarantees that Canada’s standard of living will fall.

T. Scott Murray is a retired senior manager from Statistics Canada and President, DataAngel Policy Research Incorporated, a global specialist in education, skills and productivity.

T. Scott Murray
DataAngel Policy Research Inc.
email: dataangel@mac.com
website: www.dataangel.ca

Further reading:

Budget 2016

Credentials are not enough | Policy Options

While we are among the most highly educated countries in the world, many of our workers lag behind their peers in international assessments of cognitive skills, like literacy and numeracy. In the most recent assessment conducted by the Organisation for Economic Co-operation and Development (OECD), Canadian adults aged 16 to 64 ranked in the middle of the class — at the international average score in literacy and below the average score in numeracy.

But research published in November 2015 by the federal Parliamentary Budget Officer (PBO) finds a rising incidence of overqualification among recent university graduates. Taken together, the two reports suggest that despite a substantial increase in educational attainment at the top end, the skill distribution of jobs has not kept pace.

Matching of education and jobs among university graduates ages 25-34, 1991-2014

Read Scott’s blog post here: Credentials are not enough | Policy Options

Time for a Change of Course on Economic Policy | T Scott Murray

Canadian public policy has invested heavily in education on the assumption that a rapidly rising supply of degrees and diplomas would drive rapid enough productivity and GDP growth to maintain our competitiveness on global markets and, by extension, our standard of living. Our analysis suggests that this singular focus on driving up the quantity of technical skills and knowledge generated by these investments needs to be balanced with measures focused on quality, on market efficiency and on fostering skill demand. Our analysis suggests a need for four additional sets of policy measures if we are to maintain our competitiveness on global markets.

First, provincial and territorial governments need ‎to pay much more attention to the quality of their output at the secondary and post-secondary level. More specifically, they need to reduce the proportion of students leaving these systems with language, literacy and numeracy skills below the level needed to apply their technical skills and knowledge to globally competitive levels. Currently, an estimated 30% of college and university graduates fail to meet this standard. It would appear that no one has been minding the store. Affordable and proven instructional technology exists to reduce this percentage, so all that is lacking is political and bureaucratic will.

Second, ‎the federal government should, in partnership with the provinces and territories, create a set of national credentials that certify language, literacy and numeracy levels for employment. Currently 40% of all workers have levels of these skills below the level demanded by their occupation, a degree of misfit that costs the economy an estimated $9 billion in lost earnings per year. Again, our educators have been granting credentials to people who do not have the expected skills. Employers need a reliable means to screen workers at the point of selection. The assessments needed to support such a system have already been developed with federal support and a national distribution network is in place. All that remains is for educational institutions to be forced to apply the certification tests that signal that their graduates are work ready and globally competitive.

Third, the federal, provincial and territorial governments need to introduce measures to increase the level of key cognitive skills demanded by jobs in Canada. Ironically, the current level of skill demand in the majority of jobs is low enough that workers are losing enormous amounts of economically valuable literacy and numeracy skills. These skills cost a lot to create and are key to increasing the share of high value-added goods and services on offer from Canadian producers. Canadian employers are dumbing down their jobs in the mistaken assumption that the associated cost savings will provide a durable productivity advantage. The only way to release the productivity potential of Canadian workers over the longer term, and to reduce the staggering amount of literacy skill loss that is occurring.

Finally, federal, provincial and territorial governments must create incentives for Canadian firms to assess and upgrade the language, literacy and numeracy skills of any worker with the skills below the level needed to satisfy the demands of their occupations. These occupational skill shortages are significant, but if eliminated, offer the prospect of significantly higher productivity growth rates than we have managed over the past decade and healthy returns on skill upgrading investments to workers, their employers and taxpayers.

It is worth noting that a failure to implement these measures, while needed to maintaining our current standard of living, are also needed to get full value out of the federal government’s planned infrastructure investment. Without these measures, taxpayers will never get what they paid for and were promised.

T. Scott Murray is a retired senior manager from Statistics Canada and President, DataAngel Policy Research Incorporated, a global specialist in education, skills and productivity.

T. Scott Murray, 19 McIntosh Way, Kanata, Ontario K2L 2N9
DataAngel Policy Research Inc.
email: dataangel@mac.com
website: www.dataangel.ca

An Open Letter on Literacy to Prime Minister Justin Trudeau


A letter to Canada’s new Prime Minister about the nation’s pressing illiteracy issue.

It’s so refreshing to have a Prime Minister who loves and celebrates books. But think about the huge percentage of people you now lead for whom basic reading and writing is a struggle. And the numbers get progressively worse when we look at things like health literacy; some studies suggest 55% of Canadian adults are unable to understand the information their doctors tell them (88% of seniors are in this position). The lowest rates of literacy are found in impoverished communities, including new Canadians and First Nations.

Mr. Trudeau, I know you’ll agree with me that this just isn’t good enough.

Read the full text of the letter on Bookriot here: An Open Letter on Literacy to Prime Minister Justin Trudeau