Literacy & Numeracy Do They Really Matter?

1. Literacy & NumeracyDo They Really Matter? W. Craig Riddell University of British Columbia Ministry of Training, Colleges and Universities Toronto, Ontario December 4, 2008

2. Objective of study • To investigate the factors that influence the literacy and numeracy skills of Ontario residents • To analyse the consequences of literacy and numeracy skills for key labour market outcomes: • participation in the labour force • employment vs unemployment • earnings • Focus is on native-born non-aboriginal adult population in Ontario • Some results for aboriginals and immigrants also provided • Comparisons to other Canadian regions also provided

3. Outline of presentation • Benchmark: how do skills of Ontario adults compare to those in other provinces? • Determinants of skills: what are the key factors that influence cognitive skills? • Consequences of skills: what are impacts of skills on labour market outcomes?

4. Data: IALSS 2003 • Key advantage: direct measures of cognitive skills • Skills assessed: prose literacy, document literacy, numeracy, problem solving • Tests assess ability to apply skills in everyday settings • Skills measured on a scale from 0 to 500 • Rich data on demographic and individual characteristics • Large sample -- allows analysis at regional level • Some groups over-sampled (e.g. aboriginals) • All statistics and estimates use sample survey weights

5. Sample size and restrictions • Main sample: focus on Canadian born, non-aboriginal population • Some results also for Immigrant and Aboriginal samples • Drop those whose main activity is “student” • Worker sample: drop self-employed, unemployed, non-participants, wage outliers • Sample sizes, Canada: NB 14,637; IMM 3,738; ABOR 2,969 • Sample sizes, Ontario: NB 2,977; IMM 1,603; ABOR 130

6. Educational attainment • Information on years of completed schooling and highest level of education • Separate question on high school graduation • Six main categories: • Less than HS • HS graduate • Non-university post-secondary without high school completion • Non-university post-secondary with high school completion • University bachelor’s degree • University postgraduate and professional degree

7. Sample characteristics I • Tables 1a and 1b show composition by province/territory and region • Ontario (34%) and BC (30%) have largest proportions of immigrants • Territories have largest proportions of aboriginals

8. Table 1(a) Sample composition by province and territory

9. Table 1(b) Sample composition by region

10. Sample characteristics II • Table 2 shows summary statistics for NB sample in Canada, Ontario, East, West • Average skills lower in East than in Ontario, but higher in West • Average years of schooling and proportion of university grads highest in Ontario • Most educated parents are in West, least in East • Many second generation immigrants in Ontario and West

11. Table 2 Summary Statistics for the NB Sample

12. Table 2 Summary Statistics for the NB Sample (Continued)

13. Skills of Ontario residents I • Figure 1a shows average skills of other provinces relative to Ontario, using full sample (NB + IMM + ABOR) • Skill measure is average of 4 IALSS skills • Patterns for individual skills are similar • East of Ontario: skills a bit lower (exc NS) • West of Ontario: skills about 10 points higher

14. Figure 1(a) Comparison of mean skills – Ontario vs other provinces Full Sample

15. Skills of Ontario residents II • Fig 1b shows skills of NB population in each province relative to Ontario • East of Ont: skills 10 to 20 points lower • West of Ont: skills 5 to 15 points higher • Skills of NB in Man and Sask about the same

16. Figure 1(b) Comparison of mean skills – Ontario vs other provinces NB Sample

17. Skills of Ontario residents III • Fig 1c shows skills of immigrants in Ontario relative to other provinces • Ontario immigrants have lower skills (except Man) • Differences in immigrant skills are large • Fig 1d shows data for Aboriginals • Most provinces similar to Ont (except Alta)

18. Figure 1(c) Comparison of mean skills – Ontario vs other provinces IMM Sample

19. Figure 1(d) Comparison of mean skills – Ontario vs other provinces ABOR Sample

20. Skills of Ontario residents IV • Overall, Eastern provinces have skill levels similar to Ontario • This results from NB skills that are lower and IMM skills that are higher • Combination of large immigrant population with relatively low skills reduces average skill level in Ontario • In Western provinces both NB and IMM populations have higher skills

21. Determinants of skills I • Strong positive association between skills and formal education (Fig 2a) • Relationship displays diminishing returns • Gradient a bit steeper in Ontario • Average skills and average years of schooling by level of education (Fig 2b) • Note skills and schooling among post-secondary grads without HS • Lower skills in Ont than West despite more years of schooling

22. Figure 2 (a) Cognitive skills by years of schooling

23. Figure 2 (b) Average skill score by average years of schooling

24. Determinants of Skills II • Dependent variable in regressions is log of average skill score • Small gender difference • Essentially no relationship between skills and age in cross-section • Strong relationship with education, but diminishing returns • Impact of extra year of S: Ont @ S = 12 3.6% @ S = 16 2.1% • Impacts similar elsewhere: East @ S = 12 3.1% @ S = 16 2.2% • West @ S = 12 2.9% @ S = 16 2.3% • OLS2 shows results by highest level of education • Relative to HS dropouts, gains largest in East, lowest in West

25. Table 3 Determinants of skills (Ontario)

26. Table 3 Determinants of skills (Ontario) continued

27. Skills generation: possible omitted variables bias • Education and cognitive skills may be correlated with innate ability • Ideal control would be IQ type measure at young age • Proxies for innate ability I: parental education (OLS3) • Proxies for innate ability II: ease of learning mathematics (OLS4) • Parental education below HS has significant and moderately large effects (combined effect about 5%) • Modest decline in coefficient on years of schooling (< 10%) • Ease of learning math also significant and moderately large effects (combined effect about 7%) • Adding both ability proxies: impact of education smaller (15%-20%) but still large

28. Skills and labour market outcomes • Analysis examines impacts of literacy and numeracy skills on key labour market outcomes: • participation in the labour force • employment vs unemployment • earnings • Fig 3 (Canada) and Fig 4 (Ontario) show LF Participation Rate, Employment Rate and Weekly Earnings by quartiles of the skill distribution • Much lower LF participation among low skilled (bottom quartile) • Lower employment rate among low skilled • Among those employed, lower earnings among low skilled

29. Figure 3 (a) % in labour force by quartile of skill distribution (Canada NB)

30. Figure 3 (b) % employed conditional on being labour force participants (Canada NB)

31. Figure 3 (c) Mean wages conditional on being employed by quartile of skill distributions (Canada NB)

32. Figure 4 (a) % in labour force by quartile of skill distribution (Ontario NB)

33. Figure 4 (b) % employed conditional on being labour force participants (Ontario NB)

34. Figure 4 (c) Mean wages conditional on being employed by quartile of skill distributions (Ontario NB)

35. Earnings, education and cognitive skills I • Columns 1 and 2 in Table 4 report log earnings regressions • Economic returns to education highest in Ont, lowest in West • Note importance of distinguishing post-secondary grads with and without HS, large impact of HS grad, large impact of university • Column 3 adds controls for cognitive skills • Returns to education decline by about 20% (9.2% to 7.3%) • Thus about 20% of the returns to education arise from impact of education on skills and impact of skills on earnings • Impact of skills on earnings highest in Ontario (3.1% vs 2.3%/2.4%) • 10 point increase in skills raises earnings by 31%, after controlling for other influences on earnings

36. Table 4 Earnings regressions, worker sample, Ontario

37. Table 4 Earnings regressions, worker sample, Ontario continued

38. Earnings, education and cognitive skills II • Columns 4 and 5 add proxies for innate ability • Little change in impacts of skills on earnings with addition of controls for parental education • Parental education itself has little or no impact on earnings, once we control for own education, experience and skills • Ease of learning math has a large impact on earnings, and reduces return to skills modestly • Impact of skills on earnings remains large -- 28% gain in earnings associated with 10 point increase in skills

39. Summary of main results I • Overall, Eastern provinces have skill levels similar to Ontario • This results from NB skills that are lower and IMM skills that are higher • Combination of large immigrant population with relatively low skills reduces average skill level in Ontario • In Western provinces both NB and IMM populations have higher skills

40. Summary of main results II • Strong relationship between formal education and literacy & numeracy skills • Relationship displays diminishing returns, so largest impact among least educated • Impact of schooling on skills remains large after controlling for innate ability • Little evidence of influence of age on skills • Parental education <HS has a negative impact on literacy and numeracy

41. Summary of main results III • Low skills associated with much lower LF participation, higher unemployment, and much lower earnings among the employed • Impact of education on earnings higher in Ontario than East and West • Impact of skills on earnings also highest in Ontario • 10 point increase in skills raises earnings by about 30%, controlling for other factors • About 20% of the economic return to education arises from its cognitive skill generation effects

42. Appendix • Deciles of NB skill distributions, Ontario and Canada • Skill Distributions by Region and Population • Skills of Immigrants Relative to Native Born, Canada and Ontario

43. Deciles of NB skill distributions, Ontario and Canada

44. Mean Skill distributions: Full Sample

45. Mean skill distributions: NB sample

46. Mean skill distributions: IMM sample

47. Mean skill distributions: ABOR sample

48. Percent of IMM population in each quartile of NB skill distribution (Canada)

49. Percent of IMM population in each quartile of NB skill distribution (Ontario)