Research

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Research

Economic returns to education and training for adults with low numeracy skills

This study examined the economic returns to different levels of education or types of training for adults with low numeracy skills.

Using longitudinal data sets, two discrete analyses have been completed. The first analysis uses Australian data and examines the returns to education (Longitudinal Survey of Australian Youth, 1975 cohort). The second analysis uses United States data and examines the returns to training (National Longitudinal Survey of Youth 1979).

This area of study is particularly complex, as concepts such as literacy, numeracy, basic skills and ability are difficult to define and measure. In addition, training can be defined and measured in many different ways. Years of schooling can exaggerate ability, thereby confusing the link between basic skills or ability and the returns to training. It is suggested, however, that measures of literacy or numeracy are finer indicators of an individual's basic skills, and therefore are more functional and useful for examining the economic returns to education or training.

Previous research has found that individuals with lower levels of educational attainment or lower levels of ability are less likely to receive further education or training. In combination with the impacts of the 'new economy' whereby there are fewer jobs requiring lower skill levels, this creates an environment where there are unequal opportunities with reduced job openings for those with lower skill or education levels. In industrialised countries, many jobs requiring unskilled labour have moved to cheaper labour markets, often offshore. This trend suggests a growing mismatch between the skills required by the labour market and the skill levels of workers with low levels of numeracy or literacy—with obvious impacts on employment opportunities for adults with lower education and fewer skills. Already disadvantaged adults with low skills are least likely to participate in further education or training, and are most likely to be in jobs with minimal opportunities for training programs.

Examining the returns to further education or the types of training for the low literacy or low numeracy groups provides additional insights into how education or training can be effectively targeted to increase skills and therefore wages for these groups. The implication is that public policy can be developed to encourage adults with low literacy or low numeracy skills to invest in higher amounts of education and training, and thus to receive higher rates of return.

The analysis of the Australian data relating to the likelihood of specific groups of workers receiving further education shows that, by comparison with adults with very high numeracy skills, adults in the very low or low numeracy groups are less likely to receive further education. However, with greater job tenure or higher work experience, this group of workers is more likely to receive further education.

In the context of the returns to education for adults, the analysis of the Australian data set shows that there are higher earnings for males and individuals who have greater work experience and higher levels of schooling. When examining the results for the very low numeracy group, there were positive and significant returns for adults in this group when they have greater work experience.

The results of the analysis of the United States data set show that, by comparison with adults with very high numeracy skills, adults with very low or low numeracy skills are less likely to receive training of any type, but adults in this category who have higher levels of formal schooling or who have greater work experience are more likely to receive training.

In its analysis of the returns to training for adults, the United States data set indicates that there are higher wages for individuals who have greater work experience, job tenure or a higher number of jobs. In addition, on-the-job training and apprenticeship training are significant and positive, indicating a positive impact on earnings. When examining the results for the very low numeracy group, on-the-job training is significant, with a positive impact on earnings. Similar to the overall results, greater job tenure, greater work experience and a higher number of jobs are also significant and positive, indicating higher earnings for this group.

The results from both the Australian and United States analyses indicate that adults with very low or low numeracy skills choose lower levels of education.

The two data sets cannot be directly compared, as they relate to different populations and different policy contexts. Moreover, the participants in each survey are at different life stages. Within this context, it is important to be mindful that the interpretation of these results from a public policy perspective should be done cautiously.

Given the caveat noted above, when the likelihood of receiving education or training is examined, both the Australian and the United States data sets have similar results. Individuals in the very low and low numeracy groups are less likely to receive further education or training. While individuals in these groups are the most disadvantaged in terms of skill levels, they are also the least likely to receive any assistance in gaining additional skills. However, when examining the returns to training using the Australian data set, the results indicate that individuals in the very low numeracy group have positive and significant impacts on earnings when they have greater work experience. In this same context, the analysis of the United States data set indicates that individuals in this group, when they participate in on-the-job training programs, experience positive and significant impacts on their earnings.

These results have important public policy implications. When groups are separated according to numeracy skill levels, the type of training is important.

Public policies can be effectively targeted to adults with very low or low numeracy skills, who are most likely to be disadvantaged in terms of participating in further education programs. In addition, policies can be directed towards supporting individuals with very low or low numeracy skills in the workplace, as individuals in these groups have higher earnings when they have greater work experience.