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Stats Canada Study - Increasing the Average Canadian's Literacy Rate by 1% will Drive a Sustainable $18.4 Billion Growth in GDP Annually.

Canadian Language and Literacy Research Network Study Summary

FINDINGS:
A new Statistics Canada study (Coulombe & Tremblay and Marchand, Department of Economics, University of Ottawa) demonstrates a compelling need for Canada to evolve its national strategy on literacy. The study highlights the impact of literacy and numeracy skills on long-run levels of economic growth as measured by gross domestic product (GDP) and labour productivity.

Key findings from the study include:

· a 1% gain in the average literacy/numeracy skill level in Canada would create a permanent increase of $18.4 billion per year, in the country's GDP;

· investments in human capital, such as education and skills training, produce three times more economic growth than do investments in physical capital;

· skills training that increased the literacy levels of typical, working Canadians would generate the highest return on investment and widest benefits to our population;

· and contrary to earlier studies, basic skills development drives economic growth – it is not simply a by-product of economic growth.

The findings are based on analyses of data from the International Adult Literacy Survey (IALS) obtained for 14 Organisation for Economic Co-operation and Development (OECD) countries between 1960-1995. This survey measured reading comprehension skills for adults aged 17-25. (See Statistics Canada report below.)

POLICY OPPORTUNITIES:

· The economic reasons for increasing literacy skills in Canada's population are now clearly defined: improvements in literacy levels lead to increases in GDP.

· Policy-makers should view literacy in the same context as other investments to improve productivity. A co-ordinated national literacy strategy is required.

· Reallocating current program funding in support of effective literacy programs would improve the economic returns on government investment.

· Because good language and literacy skills are most easily developed early in life, Canadian preschool and early education programs must become more effective. Such programs must use the best available knowledge about how to develop good language and literacy skills. They must measure the progress of the children in their care in a systematic matter and identify children who are at risk for failure at an early stage. Once identified, effective interventions must be provided, so that more children succeed in obtaining good language and literacy skills.

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Statistics Canada Study: Literacy scores, human capital and growth 1960 to 1995

Investment in human capital, such as education and skills training, is three times as important to economic growth over the long run as investment in physical capital, according to a new study.

The study found that education just isn't the product of economic growth. It shows clearly that education, and the skills it creates, play a role in creating economic growth, and that gains in skills actually lead gains in economic growth.

It attempts to estimate the impact that the level and distribution of literacy and numeracy skills have had on long-run levels of economic growth, as measured by gross domestic product (GDP) and labour productivity.

The analysis was based on data for 14 OECD economies between 1960 and 1995. It uses the estimated literacy and numeracy skills of young adults aged 17 to 25 in each period as a proxy for the quality of educational investment, which is a key determinant of the available stock of human capital. These estimates were derived from the International Adult Literacy Survey (IALS), the world's first multi-country, multi-language direct assessment of adult literacy and numeracy skills.

As defined by the OECD, human capital refers to knowledge, skills, competencies and other attributes embodied in individuals that are relevant to economic activity.

The estimated relationship of skill to GDP growth, based on average test scores of these young adults, indicates that the long-run impact of investment in literacy is much more important—around three times—than investment in physical capital.

Thus, a country that achieves literacy scores 1% higher than the average ends up, in a steady state, with labour productivity 2.5% higher than other countries, and GDP per capita 1.5% higher, on average. These results hold whether literacy is measured by prose, quantitative or document skills.

Investment in the human capital of women appears to have a much stronger impact on subsequent growth than investment in the human capital of men. For both GDP per capita and GDP per worker, and for all measures of human capital investment, the impact of a unit increase in skill is always larger and more statistically significant for the literacy levels of women.

The study suggests that differences in average skill levels among OECD countries explain fully 55% of differences in economic growth since 1960.

This implies that investments in raising the average level of skills might yield large economic returns. If the relationships that have characterized the 35 years surveyed hold into the future, then a 1% increase in average skill could be expected to yield a permanent 1.5% increase in GDP per capita.

The fact that adults with Level 1 skills (the lowest skill level measured by the IALS study) appear to exert a strong negative influence on economic growth suggests that investments in increasing the skill level of this group would, because of the large negative impact their skill has on economic growth, pay for themselves.

Definitions, data sources and methods: survey number 4406.

The study Literacy scores, human capital and growth across 14 OECD countries, no. 11 (89-552-MIE, free; 89-552-MPE, $11) is now available from Statistics Canada. From the Our products and services page, under Browse our Internet publications, choose Free, then Education. http://www.statcan.ca/Daily/English/040622/d040622d.htm

For more information, or to enquire about the concepts, methods or data quality of this release, contact Client Services (telephone: 1 800 307-3382 or 613-951-7608; fax: 613-951-9040; TTY: 1 800 363-7629; educationstats@statcan.ca), or Scott Murray (613-951-9035, scott.murray@statcan.ca) Culture, Tourism and the Centre for Education Statistics.

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LAST MODIFIED: November 04 2004 20:45:35