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

The Business Case for Investment in Essential Skills in Numbers

Maintaining Canada’s competitive position on global markets, ‎keeping employment, income and health inequalities from growing and getting more out of our tax expenditures relies on reducing the size ‎of occupational literacy skill shortages. The associated economic rationale for investment in literacy skill upgrading is compelling – investment would yield impressive returns. Firms investing in literacy skill upgrading will be more productive, more profitable and more competitive. Governments should adopt measures to ensure that firms invest more in literacy skill upgrading. Governments investing in literacy skill upgrading would also realize impressive returns on investment flowing from increased tax revenue and reductions in income support and health expenditures.

The Business Case for Investment in Essential Skills in Numbers (c) DataAngel Policy Inc 2015

The Business Case for Investment in Essential Skills in Numbers (c) DataAngel Policy Inc 2015

The underlying policy analysis was undertaken by DataAngel Policy Research.

Related documentation: The Case for Government Investment in Essential Skills
Related documentation: 12 Questions to Highlight the Importance of Government Action on Essential Skills
Related report: Smarten Up – It’s Time to Build Essential Skills

You can download pdfs of all our documents here: DataAngel | Resources

12 Questions to Highlight the Importance of Government Action on Essential Skills

Canadians have a collective interest in understanding the determinants of productivity growth and the social and economic processes that generate inequality in the things that we value most: employment, income and health. The available data suggests an urgent need for investment that serves to raise both the economic demand for, and the supply of, language, literacy and numeracy skills.

12 Questions to Highlight the Importance of Government Action on Essential Skills summarizes the logic that supports the case for investment in Essential Skills: the language, literacy and numeracy skills that adults need to apply their technical skills and knowledge to world-class level.

The underlying policy analysis was undertaken by DataAngel Policy Research.

Related documentation: The Case for Government Investment in Essential Skills
Related documentation: The Business Case for Investment in Essential Skills in Numbers
Related report: Smarten Up – It’s Time to Build Essential Skills

You can download pdfs of all our documents here: DataAngel | Resources

The Case for Government Investment in Essential Skills

Canadians want more jobs, to earn more without working more, to be healthier and to have access to the Canada’s rate of productivity growth is below the level needed to drive improvement in our standard of living and to maintain our competitiveness on global markets.

Achieving higher rates of productivity depends on increasing both our level of technical skill and knowledge and our levels of key cognitive skills – language, literacy and numeracy – needed to apply technical skills and knowledge to globally competitive levels. It also requires that employers create jobs that require workers to use their knowledge and skills rich.

Read more in our paper The Case for Government Investment in Essential Skills.

The underlying policy analysis was undertaken by DataAngel Policy Research.

Related documentation: 12 Questions to Highlight the Importance of Government Action on Essential Skills
Related documentation: The Business Case for Investment in Essential Skills in Numbers
Related report: Smarten Up – It’s Time to Build Essential Skills

You can download pdfs of all our documents here: DataAngel | Resources

Level 3 as a Minimum National Literacy Standard

The initial publication of literacy results from the 2011 OECD PIAAC international adult skills assessment abandoned the Level 3 proficiency standard that had been applied in reporting the results of 1987 LSUDA study, the 1994, 1996 and 1998 IALS studies and the 2003 IALSS study. The reason cited by a senior OECD official for the change was quite astounding “Level 3 is too demanding for the Italians, as 70% of their adult population fall below this threshold and that makes them feel bad.” Based on a careful analysis of the impact of skill level on individual, institutional and national success, I believe that there a strong reasons for Canada to maintain Level 3 literacy as a national standard, one that is needed to assure that we can continue to meet our collective social and economic goals.

Key elements of the evidence that supports Level 3 are presented in our paper Level 3 as a Minimum National Literacy Standard.

The underlying policy analysis was undertaken by DataAngel Policy Research.

You can download pdfs of all our documents here: DataAngel | Resources