Education, Skills, and Labour Market Outcomes: Exploring the Linkages in Canada

1. Education, Skills, and Labour Market Outcomes: Exploring the Linkages in Canada W. Craig Riddell Department of Economics University of British Columbia and Team for Advanced Research on Globalization, Education and Technology (TARGET) TARGET website: www.econ.ubc.ca/ine Presentation to Association of Professional Economists of B.C. October 2004

2. Education, Skills, and Labour Market Outcomes • Objective is to assess recent evidence on the relationship between the resources devoted to education and skill formation, and the labour market consequences of those expenditures. • The widespread tendency to associate advances in technology and other sources of economic change with the need for greater emphasis on student achievement presumes that there are clear linkages between what students learn in school and their subsequent economic success. • This presentation will examine recent research on the nature of these linkages, and will assess the implications of this research.

3. The presentation is organized as follows: • Canadian educational expenditures and educational outcomes are compared to those of other countries. Several educational outcomes are discussed: educational attainment, student achievement, and the literacy skills of the adult population. This comparative examination of educational “inputs” and “outcomes” provides a basis for assessing whether Canada obtains good value from its public and private investments in education. • I then examine the labour market consequences of education. The question of how best to interpret the strong positive correlation between education and economic success has long been a subject of debate and controversy. Substantial recent progress has been made on this issue. • The third part discusses a new area of research opened up by advances in data collection: the linkages between education and literacy skills, and the labour market consequences of such skills.

4. Motivation and background • Education, training and skill formation have become prominent public policy issues. • Several factors account for the increased attention being paid to the knowledge, skills and competencies of the population: • Technological change -- especially advances in information and computer technologies -- has resulted in growing demand for highly skilled workers and changes in the nature of skills needed in the workplace.

5. Motivation and background cont. • Growing concern about future skills shortages, in part due to the fact that the leading cohorts of the well-educated "baby boom" generation are now approaching retirement age and are being replaced by much smaller (though even better-educated) cohorts. • Resurgence of interest in the determinants of long-term growth in living standards. "New growth theory" emphasizes the importance of human capital in the creation of new knowledge and in the growth of living standards.

6. As economic activity becomes more knowledge-based, human capital is also increasingly being viewed as a central component of social policy: • Major reassessment of the “welfare state” programs that emerged in the post war period. Governments are moving away from "passive" income maintenance programs toward "active" labour market and social policies that facilitate adjustment to change, assist the jobless to find work, and encourage labour force participation.

7. Greater emphasis on individual responsibility and on providing those in need of assistance with the opportunity to improve their economic situation -- providing a "hand up" rather than a "handout". As stated by Paul Martin, “Providing security and opportunity for Canadians in the future means investing in their skills, in their knowledge and capacity to learn....good skills are an essential part of the social safety net of the future."

8. Education and training may ameliorate pressures for widening inequality in economic and social outcomes. • Education is also often regarded as a mechanism for promoting equality of opportunity and social mobility. From the perspective of social policy, equality of opportunity may contribute to social cohesion and a belief in common interests among citizens.

9. Differing perspectives • Commenting on this emergence of a common emphasis on human capital formation in both economic and social policy, Courchene (2001) states that we are presented "... with an historically unprecedented window of opportunity...[in which]... a societal commitment to a human capital future is emerging as the principal avenue by which to promote both economic competitiveness and social cohesion.” • However, some observers disagree with the emphasis being placed on education and skill formation. Examples include: • David Livingstone, The Education Jobs Gap 1999 • Gordon Lafer, The Job Training Charade 2002

10. Canadian Investment in Education • Education systems vary substantially across countries, making international comparisons of educational inputs and outcomes difficult • Relative to other developed countries, Canada invests a substantial amount on education. Most of this expenditure is publicly financed. • Canadian expenditure per student on elementary and secondary is near the top of the OECD and second highest (after the U.S.) among the G-7

11. Canadian Investment in Educationcont. • Expenditure on post-secondary is also among the highest in the OECD and G-7, but substantially below the U.S. • Relative to other countries, Canadian expenditure is especially high at non-university post-secondary level

12. Educational Expenditures in Canada and G-7 Countries, 1995

13. Expenditure relative to GDP • Expenditure on education as a percentage of GDP is highest in the G-7 countries and among the highest in the OECD • Canada's relatively high percentage of GDP spent on education reflects both the substantial per-student expenditures on education at all levels, and Canadian's comparatively high participation rates in education, especially at the non-university post-secondary level. • At post-secondary level, Canada and US have similar expenditures, both substantially above other G-7 and OECD countries • However, dramatic difference in composition of PSE expenditure between Canada and US. Canada spends much less on university sector and much more on non-university PSE sector

15. Differences across provinces • There are also moderately large differences in expenditure per student across Canadian provinces, especially at the elementary and secondary level. • For example, Ontario -- the province with the highest per student expenditure -- spends about 50% more than low spending provinces such as Nova Scotia, New Brunswick and Prince Edward Island.

18. Outcomes of Educational Expenditures • By various measures, Canadian educational attainment is high by international standards • 80% of Canada's adult population has completed high school, versus OECD average of 64% • Similar to that of Germany, Japan, and the U.K. • Substantially below the U.S. (87%)

19. Outcomes of Educational Expenditurescont. • Canada stands out in terms of the fraction of the adult population with completed post-secondary education • Canada's proportion (52%) is more than double the OECD average of 25%, and highest in the OECD countries • Also substantially higher than the U.S., the country ranked second (where 35% have completed post-secondary education).

20. Outcomes of Educational Expenditurescont. • Canada's extremely high ranking on this dimension arises principally because of the very substantial fraction of the population with non-university post-secondary education—at 33%, triple the OECD average and more than double any other G-7 country. • At the university level, Canada (19%) is above the OECD average (14%) and similar to Japan and the U.K., but substantially below the U.S. where 27% have graduated from university

21. Educational Attainment in Canada and G-7 Countries

22. Average completed years of schooling of the population aged 25-64 years, 1995

23. Average completed years of schooling of the population aged 25-64 years, 1995 Source: OECD (1998)

24. Canadian distribution of educational attainment • The distribution of the educational attainment of Canadians has unique features. • At the bottom and top of the distribution—specifically, those with less than completed high school and those with a university degree—Canadian educational attainment is similar to that of several other OECD countries and significantly lower than that of the U.S. • However, in the middle of the distribution the proportion of Canadians with a community college diploma or trade school certificate is unusually high and the proportion of high school graduates relatively low.

25. Canadian distribution of educational attainmentcont. • However, this “non-university post-secondary” group is heterogeneous. There are various routes to a community college diploma or trade school certificate. • More than one-quarter of the “non-university post-secondary” group have not graduated from secondary school, and their average years of completed schooling is not much different from those whose highest educational attainment is high school completion. • Quebec’s CEGEP system also results in some overstatement of importance of non-university PSE in Canada relative to other countries

26. High School Completion • Although the overall educational attainment of Canadians is impressive, high school completion has been a weak spot for many years. • For example, the Canadian secondary school graduation rate is near the bottom of the G-7 countries and only marginally above that of the U.S., the bottom dweller on this dimension • As of the mid-1990s, approximately 25% of 18 years olds had not graduated from high school. This non-completion rate is much higher among males (30%) than females (20%).

27. High School Completion cont. • Some of these dropouts graduate after the “normal age” of 18; e.g. the high school graduation rate is 81% by age 19-20 and 87% by age 25-29 • In addition a significant number of high school dropouts obtain a college diploma or trade certificate. • Nonetheless, Canada's high school dropout rate is a concern.

29. Outcomes of Educational Expenditures Student achievement • We know a good deal more about student achievement than we did even a decade ago. • Canada did not participate in the early rounds of international mathematics and science tests carried out in the 1960s and 1970s. However, some provinces took part in the Second International Mathematics and Science Studies carried out in the 1980s, and all Canadian jurisdictions except P.E.I. participated in the third round—the Third International Mathematics and Science Study or TIMSS—carried out in the 1990s.

30. Outcomes of Educational Expenditurescont. • In addition, the decade of the 1990s saw the introduction of the Canadian School Achievement Indicators Program, which has now completed several rounds of testing. • Canadian secondary school students participated in the recent Program of International Student Assessment (PISA) tests carried out in several OECD countries

31. Results from the 1990s TIMSS tests • These data have the advantage of providing information on student performance on a common set of curriculum-based tests. • One disadvantage is that the set of countries is very diverse. The set of countries participating in each test also varies, so the international average needs to be interpreted cautiously. • According to these recent international tests, Canadian student achievement in mathematics is average or somewhat above average among a diverse set of countries. Within the G-7, Canada generally ranks in the middle of the participating countries.

32. Results from the 1990s TIMSS tests cont. • In science, Canadian student performance is above average among the full set of countries that took the tests but about average among the G-7 participants—above France and Italy but below Japan and similar to England, Germany and the U.S. • Overall, these results indicate that Canadian student achievement is satisfactory but not as good as one might expect given Canada’s relatively high expenditure on elementary and secondary schooling.

34. Differences across provinces • Substantial provincial variation is evident. • In mathematics, Quebec student achievement is substantially above the Canadian average and high by international standards, albeit still significantly below the top-ranked countries (Korea, Singapore, Hong Kong, and Japan). • Ontario's student performance tends to be below the national average, although the differences are not always statistically significant.

35. Differences across provincescont. • Alberta student performance is impressive in science. At both Grade 4 and Grade 8 Alberta's students rank among the best in the world, exceeded only by Korea and Japan. • Although overall national levels of Canadian student performance in mathematics and science are not outstanding, some provinces—such as Quebec in mathematics and Alberta in science—are able to obtain very high levels of achievement within the existing Canadian social, cultural, and fiscal framework. • In other provinces, especially the Atlantic provinces, student achievement generally falls below the Canadian average and is relatively low by international standards.

37. Program of International Student Assessment (PISA) tests • These tests assessed the skills of 15-year-old students in reading, mathematics and science in over 30 (mainly OECD) countries. • Whereas TIMSS is curriculum-based and assesses students' knowledge of the subject matter, PISA assesses the ability of 15-year-ols to apply their knowledge to real world issues and challenges. • In contrast to the TIMSS results, the performance of Canadian secondary school students in the PISA tests was excellent. Across the three assessed subjects, Canada, Japan and the U.K. are the top three countries, followed by France and the U.S. in the middle and Germany and Italy at the bottom.

38. Program of International Student Assessment (PISA) tests cont. • Consistent with the TIMSS findings, Canadian student achievement was below that of Japan in math and science. However, the PISA results paint a more favourable picture than do earlier international assessments. The gap between Canada and the bottom four G-7 countries (France, U.S., Germany and Italy) is large in all three of the subject areas, and in reading Canadian students were the top performers among the G-7 countries. • Canadian student achievement was equally impressive among the larger group of OECD countries.

40. Provincial results in PISA • Variation in student achievement across provinces is similar to that observed in TIMSS, with Alberta, Quebec and B.C. students being in the top group and students in the four Atlantic provinces being at the bottom. • Quebec students continue to achieve the highest scores in math and Alberta students perform best in science (as well as in reading). Ontario, Manitoba and Saskatchewan tend to have scores close to the national average.

42. Summary of evidence on student achievement • Caution is appropriate in interpreting these summary statistics on student performance in reading, mathematics and science. Many factors, in addition to the resources devoted to the school system, influence student achievement. • For example, Canada has a high proportion of immigrant children (for whom English or French is often a second language) in its schools. • Furthermore, countries may differ in the extent to which they aim to raise average performance or to principally improve achievement among those who would otherwise perform poorly.

43. Summary of evidence on student achievement cont. • Nonetheless, these measures of student achievement -- especially the PISA results -- suggest that Canada appears to obtain reasonably good "value for money" from the elementary and secondary school system. • Canada ranks at or near the top of the G-7 countries in terms of expenditure per student on elementary and secondary schooling and --according to the PISA findings -- places in the top three of the G-7 countries in terms of student performance. • However the TIMSS results lead to a somewhat less favourable assessment. According to these tests, Canada is in the middle or upper middle of the pack in student achievement in math and science.

44. Provincial variation in student achievement • Although overall national levels of Canadian student performance in mathematics and science are not outstanding, some provinces—such as Quebec in mathematics and Alberta in science—are able to obtain very high levels of achievement. • In other provinces, especially the Atlantic provinces, student achievement generally falls below the Canadian average and is relatively low by international standards.

45. Provincial variation in student achievement cont. • There is a positive relationship between expenditure per student and student achievement as measured by TIMSS and PISA. However, the relationship between expenditure and test scores is relatively weak, with Ontario having the greatest expenditure per student but student achievement that is typically about average. • Similarly, Alberta combines frugality in its expenditure on elementary and secondary education with very high levels of student achievement. • The source of these provincial variations is an important subject for future research.

46. Outcomes of Educational Expenditures Literacy skills of the adult population • Student achievement tests provide information on the skills of those who will be entering the labour force in the future -- that is, the flow of new entrants. • Until recently, however, no nationally representative measures of the skills and knowledge of the existing stock—the adult population—were available.

47. Outcomes of Educational Expenditures cont. • The International Adult Literacy Survey (IALS), which was carried out in over 20 countries during the 1994–98 period, represents a breakthrough in international data collection, providing for the first time measures of the literacy and numeracy skills of the adult population that are comparable across countries and language groups. • The survey provided three measures of literacy: prose, document, and quantitative literacy (or numeracy). These measures correspond to information-processing skills needed to perform everyday tasks at home, at work, and in the community.

48. Key findings from the IALS • Results are reported for Canada and other participating G-7 countries (Germany, U.K., and U.S.) The top panel shows the mean score and the score at the 25th and 75th percentiles of the literacy distribution. • The average scores rank Germany at the top (with the exception of the prose scale, on which Canada ranks first), followed by Canada, the U.S., and the U.K. at the bottom.

49. Key findings from the IALScont. • Although the differences in mean scores may not appear large, they are non-trivial. For example, on the document scale, the mean score in Germany, the top-ranked country, is 285, while that in the U.K., the bottom-ranked country, is 268. An individual with a score of 268 is in the middle of the distribution in the U.K. but would be at approximately the 33rd percentile of the distribution in Germany—that is, about two-thirds of the adult population would have superior document literacy skills.

50. Literacy Skills in Canada and G-7 Countries, 1994-98