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Literacy and Numeracy Skills and Labour Market Outcomes in Australia

Staff working paper

This paper by Anthony Shomos and Matthew Forbes was released on 29 May 2014. It profiles the literacy and numeracy skills of Australia's adult population and assesses how important they are for two labour market outcomes – employment and wages.

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  • Key points
  • Media release
  • Contents
  • Adult literacy and numeracy skills contribute to wellbeing in many ways. At an individual level, they are central to social and economic participation.
    • Literacy and numeracy skills are a core part of a person's human capital.
    • They also support the development of other forms of human capital, including knowledge, other skills and health.
  • Some Australians have low (level 1 or below) literacy and numeracy skills. In 2011-12:
    • 14 per cent of Australians could, at best, read only relatively short texts from which they were able to locate only a single piece of information.
    • 22 per cent could only carry out one&ndashstep or simple processes such as counting where the mathematical content is explicit with little or no text or distractors.
  • At the other end of the skill distribution, 16 per cent of Australians had high (level 4/5) literacy skills and 12 per cent had high numeracy skills in 2011-12.
    • People with high literacy skills can make complex inferences and evaluate subtle truth claims or arguments in lengthy or multiple texts.
    • People with high numeracy skills can understand a broad range of mathematical information that may be complex, abstract or embedded in unfamiliar contexts.
  • Most Australians have skills somewhere between these levels. Groups with relatively low literacy and numeracy skills include: people with low levels of education; older persons; people not working; and immigrants with a non-English speaking background.
  • Compared with other countries in the OECD, Australia performs above average on literacy but average in numeracy.
  • Higher literacy and numeracy skills are associated with better labour market outcomes (employment and wages). Econometric modelling shows that:
    • an increase in literacy and numeracy by one skill level is associated with an increased likelihood of employment of 2.4 and 4.3 percentage points for men and women, respectively
    • an increase in literacy and numeracy skills is associated with a similar increase in the probability of employment, whether a person had a degree, diploma/certificate or Year 12 education
    • an increase in literacy and numeracy by one skill level is associated with about a 10 per cent increase in wages for both men and women. This positive association is equivalent to that of increasing educational attainment from Year 11 to Year 12 or to a diploma/certificate
    • up to 40 per cent of the association between education and employment is attributable to literacy and numeracy skills. These results are consistent with education providing many other attributes of human capital that are valued in the workplace
    • more than half of the 'penalty' that affects the wages of people with a non-English speaking background is explained by their lower literacy and numeracy skills.

Background information

Patrick Jomini (Assistant Commissioner) 03 9653 2176

Australian adult literacy above OECD average

Australian adults are above the OECD average in literacy but only average in numeracy, according to a staff paper released by the Productivity Commission.

The Staff Working Paper — Literacy and Numeracy Skills and Labour Market Outcomes in Australia, by Anthony Shomos and Matthew Forbes — analyses the profile of adult literacy and numeracy skills in Australia, and how important those skills are for labour market outcomes.

The authors found a strong positive association between skills and labour market outcomes. Modelling results show that a one-level increase in skills, approximately equivalent to the difference between completing Year 12 education and completing Year 11 (or lower), is associated with:

  • an increased probability of employment of about 2 percentage points for men and about 4 percentage points for women
  • an increase in wages of about 10 per cent, for both men and women.

The authors found a high correlation between literacy and numeracy — that is, someone with low literacy skills is also likely to have low numeracy skills.

Much of the positive association between education and employment is attributable to literacy and numeracy skills. However, the results also suggest that improved education provides many other attributes of human capital that are valued in the workplace.

Background information

Patrick Jomini (Assistant Commissioner) 03 9653 2176

Requests for comment / other

Leonora Nicol (Media and Publications) 02 6240 3239 / 0417 665 443

  • Preliminaries
    • Cover, Copyright and publication details, Contents, Acknowledgments, Abbreviations and Key points
  • Chapter 1 Introduction
    • 1.1 Human capital, literacy and numeracy — why the policy interest?
    • 1.2 Framework linking human capital and labour market outcomes
    • 1.3 Previous research
    • 1.4 Outline for the rest of the paper
  • Chapter 2 A profile of literacy and numeracy skills in Australia
    • 2.1 How are literacy and numeracy skills defined and measured?
    • 2.2 A profile of literacy and numeracy skills in Australia
    • 2.3 Literacy and numeracy skills by labour market outcomes
  • Chapter 3 Modelling and results
    • 3.1 Model and variables
    • 3.2 Results
    • 3.3 Conclusion
  • Appendix A Literacy, numeracy and problem solving measures in PIAAC
  • Appendix B Descriptive statistics
  • Appendix C Estimation results
  • References

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