Links Between Literacy and Numeracy Skills and Labour Market Outcomes

This Productivity Commission staff working paper (by Anthony Shomos) was released in October 2010. 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. <p>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. <p>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. <p>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. <p>The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.