Literacy and the Labour Market: The Generation of Literacy and Its Impact on Earnings for Native-born Canadians

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by David A. Green and W. Craig Riddell, Department of Economics, University of British Columbia


Adult literacy skills are of both fundamental and instrumental importance. Sen (1999) argues that we should aim for a society in which every person has the capability to pursue any reasonable version of what they perceive to be good. To do so requires both access to at least minimal levels of resources and possession of characteristics that Sen calls "functionings". One of the most important of these functionings is literacy. Without literacy, individuals cannot take a full and equal role in social and political discourse: they become less than equal members of society without the basic tools required to pursue their goals (Sen (1999). Thus, in any attempt to build a better society, the distribution and generation of literacy is of fundamental importance. Literacy is also potentially important for instrumental reasons. An individual who improved his or her literacy might plausibly be expected to have better employment opportunities and command higher earnings, leading to a higher level of well being. From a societal point of view, a more literate workforce may be better positioned to adjust to change and to adopt new technologies. Thus, improving literacy for individuals may have spill-over effects on the productivity of the economy as a whole.

In this paper, we first examine the distribution of literacy skills in the Canadian economy and how they are generated. In large part, the generation of those skills must have to do with formal schooling and parental inputs into their children's education. We examine those issues, though not as completely as would be possible with a longitudinal dataset that includes literacy type questions, such as the NLSCY. We also investigate the nature of literacy generation in the years after individuals have left formal schooling and are in the labour market. Once we have established the core facts about literacy in the economy, we turn to examining the impact of increased literacy on individual earnings. We investigate both the causal impact of literacy on earnings and the joint distribution of literacy and income, arguing that the latter provides a more complete measure of Sen's notion of how well an individual is able to function in society. Thus, we discuss literacy's role in Canadian society both in the fundamental and the instrumental sense.

The key to our investigations, of course, is the data. We make use of two versions of a remarkable dataset that combines answers to demographic and labour market questions with literacy test scores. The main data we focus on is from the Canadian component of the 2003 International Adult Literacy and Skills Survey (IALSS). This is a very large survey with over 22,000 respondents, including an over-sample of people with a First Nations background. We examine the latter group in detail in another paper, excluding both them and immigrants from the analysis here. We also make use of the Canadian component of the 1994 International Adult Literacy Survey (IALS) in order to obtain a more complete picture of how literacy changes with age and across birth cohorts. To avoid confusion, we will refer to the 2003 dataset as IALSS 2003 and the 1994 dataset as IALS 1994.

Our investigations of literacy using IALSS 2003 yield several strong results. Literacy increases strongly (though at a decreasing rate) with years of schooling. Parental education levels also have a strong positive impact on literacy, with mother's education being particularly important. On the other hand, parental occupations do not have either an economically substantial or a statistically significant impact on literacy once we control for parents' education. Moreover, whether a respondent's mother worked when the respondent was 16 has no impact on the respondent's literacy level. Perhaps most interestingly, we find little relation between age or labour market experience and literacy. We found the same, strong result in earlier work with IALS 1994 (Green and Riddell (2003)). At first glance, this result appears to imply that individuals acquire their literacy through formal schooling and through the efforts of their parents but that their literacy levels are essentially "locked in" upon leaving school. However, using a combination of IALS 1994 and IALSS 2003, we show that the flatness of literacy relative to age in the cross-sectional datasets actually arises from a combination of offsetting ageing and cohort effects. In particular, individuals from a given birth cohort actually lose literacy skills in the years after they leave school. At the same time, we find strong evidence that more recent birth cohorts have lower levels of literacy. This is particularly true for more highly educated individuals and shows up mainly in a thinner right tail of the literacy distribution (i.e., in fewer people attaining high literacy scores). Thus, a 35 year old in IALSS 2003 has approximately the same average literacy score as a 25 year old in the same survey not because that 25 year old should expect to be at the same literacy level in 10 years but because the 35 year old started from a higher literacy level at age 25 (i.e., comes from a more literate cohort) but lost some of their initial literacy skills during the time since they left school. These results suggest, on the one hand, a tendency for literacy skills to decline over time and on the other that we are doing a poorer and poorer job of educating successive generations. By taking into account use of reading, writing and mathematical skills in the workplace, we also investigate whether literacy skills display a "use it or lose it" feature.

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