The Treasury

Global Navigation

Personal tools


Adult literacy and economic growth - WP 04/24

7  Discussion

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 employment and workplace productivity.

Modern definitions of literacy have at their core the ability to understand and use printed information to solve everyday problems at home and at work. According to the IALS survey, around 1 in 5 working-age New Zealanders has Level 1 literacy skills. People with Level 1 skills differ considerably in their ability to perform particular tasks. Most, however, are able to read, and to locate and use information from a straightforward text, but they cannot consistently perform more difficult or sophisticated tasks, especially those involving unfamiliar types of texts.

International comparisons in IALS are problematic. At face value, however, New Zealand does not stand out amongst OECD countries as having particularly poor literacy skills. The proportion of people in New Zealand with Level 1 skills in IALS is similar to the proportion in other English-speaking countries, and lies in the middle of the range of OECD countries. If the poor literacy skills of the ‘tail’ are restricting growth in New Zealand then they are also restricting growth in most other OECD countries. This does not imply, however, that there is no capacity for significant improvements in adult literacy in New Zealand.

Chapter 2 of this paper describes the characteristics of people with Level 1 skills but this does not mean that all and only those with Level 1 skills have problems with literacy or would benefit from an improvement in skills. Literacy is a continuum, and any cut-off point for the purposes of analysis will be to a large extent arbitrary. One commonly-used cut-off point, however, unnecessarily exaggerates the extent of literacy problems in New Zealand. Based on a comment in the introduction to the official IALS report, it is often asserted that people with Level 1 or 2 skills – almost half the working-age population in New Zealand – do not have the literacy skills to cope with the demands of everyday life and work in a complex, advanced society. This assertion is unreasonable and is not justified in the literature.

In any event, the question which this paper addresses is not whether people’s skills are sufficient to cope with the demands of everyday life and work but whether their employment and workplace productivity would increase by having improved literacy skills. Much of the commonly-discussed research on adult literacy, however, only suggests the possibility of economic benefits and has not been designed, for example, to account for potentially confounding factors. This paper has therefore tried to describe and review the most rigorous studies of the economic benefits of literacy. These are of three types: cross-country growth studies, studies of individual returns to literacy skills, and evaluations of literacy training programmes.

Only one very recent study, Coulombe et al (2004), has incorporated a measure of literacy into a cross-country growth regression. This study finds that literacy, as measured in IALS, is positively and significantly associated with economic growth.[36] The purpose of including IALS scores in this regression, however, is not to isolate the effects of literacy on growth but to test the use of literacy as a proxy for human capital accumulation compared to alternative proxy measures. It may be that other aspects of human capital, correlated with literacy scores, are in fact driving economic performance. In general, the aggregate data on human capital investment used in cross-country growth regressions is necessarily crude and gives little helpful guidance on what areas of human capital to invest in.

Studies of individual returns to literacy skills are far more promising. Literacy appears to be an important job-relevant skill that is rewarded in the labour market. Surveys such as IALS show that people with greater literacy skills are more likely than people with weaker literacy skills to be employed and, when employed, tend to be paid more. This remains the case even after taking account of other job-relevant factors which are recorded in the surveys. These findings suggest that increasing people’s literacy skills would have a positive effect on participation in the workforce. They also suggest that an increase in literacy, from no matter how high a starting base, would lead to people being more productive in their jobs. However, while these are promising results, it may be that at least some of the apparent benefits of greater literacy are due to factors not recorded in IALS-type surveys, such as natural ability, family background and ‘soft’ skills.

While there is a good deal of research on the benefits of higher literacy for individual workers, it is difficult to find convincing evidence on the benefits of literacy training, at least for adults. There have been relatively few rigorous studies of adult literacy training programmes. Those which have been conducted provide good evidence that adult basic skills programmes have increased the attainment of educational qualifications; provide some evidence that programmes have led to increases in earnings; but provide little evidence that programmes have increased people’s literacy skills. Of the eight programmes discussed in Chapter 6 which measure gains in literacy, only two report statistically significant increases in literacy. Notably, however, in one of these programmes, participants who stayed in the programme made considerable literacy gains in a relatively short time. The cost of literacy training is almost never considered in these studies.

It is one thing, therefore, to say that an increase in literacy skills would be beneficial for individuals (or for firms or for the economy), but quite another to say whether this can actually be achieved, what it would take to accomplish it, and how much it would cost. This is not to suggest that adult literacy programmes are ineffective, just that there is little effectiveness information in the literature and what little exists is inconclusive. This might be because adults, especially those with low skills, are difficult to teach: after all, if 10 years of compulsory schooling have failed to develop a person’s literacy skills then we need to be realistic about what a short training course can do. Alternatively, it might be that previous adult literacy programmes have been poorly run, or that successful interventions have not been evaluated. In any event, it should not be surprising that few literacy programmes have been evaluated. Only recently has adult literacy moved towards the mainstream of educational provision. For many years, adult literacy has been a very small-scale field, staffed by voluntary tutors and with a focus on social justice. Funding has generally not been large enough in the past (apart from in the big United States employment-related programmes) to justify a substantial investment in research and evaluation.

However, despite the paucity of information on impacts and costs of programmes, there is a good case for an increased focus on adult literacy provision. Literacy does seem to matter for employment and productivity, and well-run training programmes conducted by qualified tutors provide an opportunity for literacy skills to be improved after, and in many cases well after, the end of compulsory schooling. In particular, workplace literacy programmes have as their explicit aim an increase in productivity and are tailored to individual workplaces and individual jobs. They are therefore more likely than other, more general, types of programmes to benefit the economy. There are good examples of well-run workplace literacy programmes in New Zealand (eg, those described in Workbase 2002).

The lack of evidence on successful adult interventions is a good reason, though, to be cautious about the wholesale expansion of existing programmes. An increase in the provision of publicly-funded adult literacy training needs to happen alongside a series of well-researched pilot programmes, where different types of programmes are tested out and evaluated for effectiveness and for whether or not they constitute good investments. Full-scale experiments which measure labour force outcomes over a number of years, like those conducted in the United States, are probably not practical or affordable in New Zealand. Evaluations should, however, at a minimum, measure people’s literacy skills before and after they take part in a literacy programme, and should test a sample of all participants not just those, as in Brooks et al, who remain in the course.

Finally, the evidence presented in this paper points, at best, to modest gains from modest investments. People typically participate in literacy training programmes for a relatively short duration; a short course can only be expected, at most, to increase literacy by a small amount; and a small increase in literacy will on average have small employment or earnings benefits. In the short term at least, an increase in literacy training, unless delivered on a very large scale, is unlikely to materially affect GDP. It may, however, be a good investment, and a better investment than other types of tertiary training and education – but only good research and evaluation will tell us this.


  • [36]More accurately, it is associated with the steady-state level of GDP and with the rate of convergence to that steady-state level.
Page top