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Links Between Literacy and Numeracy Skills and Labour Market Outcomes

Staff working paper

This paper by Anthony Shomos was released on 20 October 2010.

  • Key points
  • Contents
  • Literacy and numeracy skills are key components of human capital, which is an important driver of economic growth.
  • This paper utilises data from a 2006 survey on the literacy and numeracy skills of the Australian adult population. Analysis reveals that literacy and numeracy skills:
    • for nearly half of the population were assessed at either levels 1 (the lowest level) or 2, both of which are below the minimum level deemed necessary to participate in a knowledge-based economy (level 3).
    • vary according to a number of factors, and were generally highest for people who had either undertaken higher levels of education, were born in an English speaking country or were of prime working age (20-44 years old).
  • Models were used to estimate the effect of improved literacy and numeracy skills on the probability of labour force participation and on wages.
  • Results confirm previous research in the human capital literature -- that improving literacy and numeracy skills has a positive, statistically significant effect on labour market outcomes.
  • More specifically, it was estimated that an improvement in literacy and numeracy skills from level 1 to level 3 would:
    • increase the likelihood of labour force participation by about 15 percentage points for women and about 5 percentage points for men
    • increase hourly wage rates by about 25 and 30 per cent for women and men respectively.
  • Improving educational attainment was also estimated to have a positive, statistically significant effect on labour force participation and on wages.
    • However, once literacy and numeracy skills were controlled for, the effect of increasing educational attainment on labour force participation and on wages was reduced. Some of the benefit occurs because more highly educated people tend to have higher literacy and numeracy skills.
  • Literacy and numeracy skills are developed through education, but they can also be enhanced in other ways.
    • Understanding the factors that influence literacy and numeracy skills is important and could be further explored with the data used in this paper.

Background information

Patrick Jomini (Assistant Commissioner) 03 9653 2176

  • Preliminaries
    Cover, Copyright, Contents, Acknowledgments and Abbreviations
  • Key points
  • Chapter 1 Introduction
    1.1 Background and previous research
    1.2 Aim of the paper and analytical approach
  • Chapter 2 Defining and measuring literacy and numeracy
    2.1 Literacy and numeracy as an element of human capital
    2.2 The formal or abstract approach to literacy and numeracy
    2.3 The functional approach to literacy and numeracy
    2.4 Social and cultural approaches to literacy and numeracy
    2.5 The Adult Literacy and Lifeskills Survey (2006)
  • Chapter 3 A profile of literacy and numeracy skills in Australia
    3.1 Australian literacy and numeracy skills compared over time and with other countries
    3.2 How do skills vary across demographic groups?
  • Chapter 4 Literacy and numeracy skills and labour market outcomes
    4.1 Literacy and numeracy skills and labour force participation
    4.2 Literacy and numeracy skills and occupation
    4.3 Literacy and numeracy skills and income
  • Chapter 5 Econometric method and variable construction
    5.1 Econometric models of labour force participation and wages
    5.2 Variables used in the analysis
    5.3 Estimation sample
  • Chapter 6 Modelling results
    6.1 Labour force participation results
    6.2 Wages model results
    6.3 Summary of modelling results
  • Chapter 7 Concluding remarks
    7.1 Summary of findings
    7.2 Future research areas
  • Appendix A Descriptive statistics
  • Appendix B Estimation output
  • References

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