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Adult literacy and economic growth - WP 04/24

1   Introduction

This paper looks at whether an increase in the basic literacy skills of adults would have a positive effect on the New Zealand economy, through increased productivity and labour force participation. It contributes to a suite of research projects the Treasury is undertaking on specific contributions of human capital – that is, the knowledge, skills, competencies and attributes embodied in individuals – to economic growth in New Zealand.[1]

1.1  The purpose of this paper

Sustained economic growth is a priority for the government. Investments in human capital are seen as making a key contribution to growth. This emphasis on human capital and growth is stated clearly in the most recent Speech from the Throne:

My government sees its most important task as building the conditions for increasing New Zealand's long term sustainable rate of economic growth… Achieving that higher growth will require careful attention and energetic promotion of the key elements of economic transformation: human capital development, investment, innovation, export promotion and business and regional development. Increasing the quality and quantity of our human capital is the highest priority (Clark 2002).

However, while there is good evidence that human capital investments contribute to the level of, or continuing growth in, GDP there is no consensus in the literature on which investments are better than others. One issue is whether investments are better made at the upper reaches of the skills distribution (encouraging more post-graduate study, for example) or at the bottom of the distribution. In New Zealand there has been a persistent concern about the number of poor performers in the ‘tail’ of the skills distribution compared to other countries, and whether this might be restricting our economic performance.

At the same time, there has been an increased interest in adult literacy in New Zealand and a degree of emphasis placed on adult literacy (sometimes included with other ‘foundation skills’) within the education sector. This increased interest, which is also mirrored in other countries,[2] dates from the publication of the International Adult Literacy Survey (IALS) results in the mid- to late-1990s.[3] The government’s Adult Literacy Strategy (Minister of Education 2001) recognises that basic literacy skills are important for New Zealand’s economy and for a well-functioning, inclusive society. It acknowledges that past provision of literacy training for adults has been inadequate.[4]

Adult literacy education has never been well resourced in New Zealand, and past policy has been haphazard. Current provision is heavily focussed in a community-based sector dependent on volunteers. Throughout the adult literacy sector there are inadequate resources to promote provision, train tutors, develop learning resources and provide a flexible range of learning opportunities (p.4).

The Strategy signals a commitment to raise literacy levels in the population through an increase in the number of places in adult literacy programmes,[5] a broader scope of provision, a professional and qualified workforce, a national system of literacy measures or standards and a quality assurance system for adult literacy. Since 2001, significant additional funding has been invested over successive Budgets to implement the Strategy.

This paper brings these two areas of government activity together and asks whether improvements in literacy would have an effect on the level of, or continuing growth in, GDP. Evidence is obtained mostly from the published literature, although some original descriptive work has been undertaken using the New Zealand IALS data. The paper looks only at direct economic benefits, although considerable social benefits might also accrue from an improvement in literacy, particularly amongst people with very low skills.[6]

1.2  Why look at literacy?

A large number of skills and abilities, of different types and levels, are potentially relevant to people’s performance at work. Precise typologies of skills, where they exist, differ from study to study. At a high level, though, it is useful to make a distinction between cognitive skills involving thinking, reasoning and the use of knowledge, and manual skills involving dexterity and control. Most jobs require both of these types of skills, in greater or lesser proportions. These skills can be generic, and used in a large number of different occupations, or they can be specific to certain occupations, industries or firms. Skills are acquired through education and training, but people also possess a wide range of job-relevant abilities, attributes or personality traits such as patience, persistence, self-motivation and reliability.

Literacy skills are among the most important generic cognitive skills. Literacy was once considered to be the ability to read and write: people who couldn’t meet a very basic standard – writing their own name, for example – were considered illiterate. Contemporary definitions of literacy still include reading and writing, but take the concept a considerable step further and include a range of skills used in work, and at home, which are much broader than the term “literacy” at first suggests. Workbase, the New Zealand Centre for Workplace Literacy Development, considers that literacy covers “not just reading and writing, but speaking, listening, creative thinking, problem solving and numeracy” (Workbase 2000). Wider definitions cover even more generic cognitive skills, such as this one from the Scottish Executive (2001): “the ability to read, write and use numeracy (sic), to handle information, to express ideas and opinions, to make decisions and solve problems, as family members, workers, citizens and lifelong learners”. Literacy is also no longer considered to be something a person either does or does not have, but rather to be a continuum upon which every person lies.

Basic literacy skills, as broadly defined above, are at the heart of what studies find to be the “core workplace competencies”, “foundation skills”, “essential skills” or “key competencies” (Kearns 2001; Human Resources Development Canada 2004; Rychen and Salganik 2003; Levy and Murnane 1999).[7] Literacy skills are used in almost all occupations. They are necessary for performing many tasks at work and are the foundation upon which more job-specific knowledge and skills are built. Human Resources Development Canada (2004), for example, shows how, and to what level of complexity, literacy skills (as well as other “essential skills”) are used in over 150 types of jobs, including all those in the Canadian national classification which require secondary education or less.

Since most of the information in this report comes from IALS, or from very similar surveys, the report broadly follows the IALS definition, which is that literacy is “the ability to understand and employ printed information in daily activities: at home, at work and in the community”.[8] As with many other definitions, the IALS definition of literacy also includes quantitative applications, so this report does not refer specifically to numeracy, unless there is a good reason to treat it separately from literacy in general.


  • [1]Other papers in this series are Durbin (2004), Frances (2004) and Moody (2004).
  • [2]The United Kingdom, in particular, has devoted a great deal of attention towards adult literacy (Working Group on Post-School Basic Skills 1999; Department for Education and Skills 2001). McKenna and Fitzpatrick (2004) review adult literacy policy in a number of English-speaking countries.
  • [3]There are three official survey publications, reflecting the three waves of the survey: OECD and Statistics Canada (2000), OECD and Human Resources Development Canada (1997), and OECD and Statistics Canada (1995). An IALS search tool is available on the web at
  • [4]For a history of adult literacy in New Zealand see Johnson (2000).
  • [5]Training Opportunities and Youth Training programmes currently receive the bulk of the government funding for adult literacy training. These are aimed at helping job-seekers with low skills into employment and literacy training is a key part, although not the only part, of the programmes. Government-funded (or part-funded) adult literacy programmes are also provided in workplaces, in the community, and in prisons. The Ministry of Education has commissioned research to determine the number and type of adult ‘foundation skills’ programmes in New Zealand and to determine how many adults are engaged in such learning.
  • [6]Johnston (2004) reviews the literature on the wider benefits of education, with particular regard to New Zealand. Some of these wider benefits, such as increased health, might in turn have effects on economic performance.
  • [7]Other essential skills listed in these reports include working with others, oral communication, computer use, decision making, and planning and organising.
  • [8]Literacy should not, however, be interpreted as being a general measure of innate intelligence, like IQ, although literacy and IQ will no doubt be correlated.
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