Transcript Education, Skills, and Labour Market Outcomes: Exploring

Education, Skills, and Labour
Market Outcomes: Exploring
the Linkages in Canada
W. Craig Riddell
Department of Economics
University of British Columbia
and Team for Advanced Research on Globalization,
Education and Technology (TARGET)
TARGET website: www.econ.ubc.ca/ine
Presentation to Association of Professional Economists of
B.C.
October 2004
1
Education, Skills, and Labour
Market Outcomes
• Objective is to assess recent evidence on the
relationship between the resources devoted to education
and skill formation, and the labour market consequences
of those expenditures.
• The widespread tendency to associate advances in
technology and other sources of economic change with
the need for greater emphasis on student achievement
presumes that there are clear linkages between what
students learn in school and their subsequent economic
success.
• This presentation will examine recent research on the
nature of these linkages, and will assess the implications
of this research.
2
The presentation is organized as
follows:
1. Canadian educational expenditures and educational outcomes are
compared to those of other countries. Several educational
outcomes are discussed: educational attainment, student
achievement, and the literacy skills of the adult population. This
comparative examination of educational “inputs” and “outcomes”
provides a basis for assessing whether Canada obtains good value
from its public and private investments in education.
2. I then examine the labour market consequences of education. The
question of how best to interpret the strong positive correlation
between education and economic success has long been a subject
of debate and controversy. Substantial recent progress has been
made on this issue.
3. The third part discusses a new area of research opened up by
advances in data collection: the linkages between education and
literacy skills, and the labour market consequences of such skills.
3
Motivation and background
•
Education, training and skill formation have
become prominent public policy issues.
• Several factors account for the increased
attention being paid to the knowledge, skills
and competencies of the population:
1. Technological change -- especially advances in
information and computer technologies -- has
resulted in growing demand for highly skilled
workers and changes in the nature of skills
needed in the workplace.
4
Motivation and background cont.
2. Growing concern about future skills shortages,
in part due to the fact that the leading cohorts
of the well-educated "baby boom" generation
are now approaching retirement age and are
being replaced by much smaller (though even
better-educated) cohorts.
3. Resurgence of interest in the determinants of
long-term growth in living standards. "New
growth theory" emphasizes the importance of
human capital in the creation of new
knowledge and in the growth of living
standards.
5
•
As economic activity becomes more
knowledge-based, human capital is also
increasingly being viewed as a central
component of social policy:
1. Major reassessment of the “welfare state”
programs that emerged in the post war period.
Governments are moving away from "passive"
income maintenance programs toward "active"
labour market and social policies that facilitate
adjustment to change, assist the jobless to find
work, and encourage labour force participation.
6
2. Greater emphasis on individual responsibility
and on providing those in need of assistance
with the opportunity to improve their economic
situation -- providing a "hand up" rather than a
"handout". As stated by Paul Martin, “Providing
security and opportunity for Canadians in the
future means investing in their skills, in their
knowledge and capacity to learn....good skills
are an essential part of the social safety net of
the future."
7
3. Education and training may ameliorate
pressures for widening inequality in economic
and social outcomes.
4. Education is also often regarded as a
mechanism for promoting equality of
opportunity and social mobility. From the
perspective of social policy, equality of
opportunity may contribute to social cohesion
and a belief in common interests among
citizens.
8
Differing perspectives
• Commenting on this emergence of a common emphasis
on human capital formation in both economic and social
policy, Courchene (2001) states that we are presented
"... with an historically unprecedented window of
opportunity...[in which]... a societal commitment to a
human capital future is emerging as the principal avenue
by which to promote both economic competitiveness and
social cohesion.”
• However, some observers disagree with the emphasis
being placed on education and skill formation. Examples
include:
• David Livingstone, The Education Jobs Gap 1999
• Gordon Lafer, The Job Training Charade 2002
9
Canadian Investment in
Education
• Education systems vary substantially across
countries, making international comparisons of
educational inputs and outcomes difficult
• Relative to other developed countries, Canada
invests a substantial amount on education. Most
of this expenditure is publicly financed.
• Canadian expenditure per student on
elementary and secondary is near the top of the
OECD and second highest (after the U.S.)
among the G-7
10
Canadian Investment in
Education cont.
• Expenditure on post-secondary is also
among the highest in the OECD and G-7,
but substantially below the U.S.
• Relative to other countries, Canadian
expenditure is especially high at nonuniversity post-secondary level
11
Educational Expenditures in Canada
and G-7 Countries, 1995
Expenditure per student from public and private sources by level of
education, in U.S. dollars converted using purchasing power parity
(PPP) exchange rates
Canada
France
Germany
Italy
Japan
U.K.
U.S
OECD
Average
Elementary
&
Secondary
5,401
5,041
4,690
5,099 4,282
3,810 6,281
Postsecondary
11,471
6,569
8,897
5,013 8,768
7,225 16,262 8,134
All levels
of
Education
6,396
5,001
6,057
5,157 4,991
4,222 7,905
4,162
4,717
Source: Council of Ministers of Education, Canada and Statistics
Canada (2000)
12
Expenditure relative to GDP
• Expenditure on education as a percentage of GDP is highest in the
G-7 countries and among the highest in the OECD
• Canada's relatively high percentage of GDP spent on education
reflects both the substantial per-student expenditures on education
at all levels, and Canadian's comparatively high participation rates in
education, especially at the non-university post-secondary level.
• At post-secondary level, Canada and US have similar expenditures,
both substantially above other G-7 and OECD countries
• However, dramatic difference in composition of PSE expenditure
between Canada and US. Canada spends much less on university
sector and much more on non-university PSE sector
13
Educational expenditure from public and private sources for
educational institutions as a percentage of GDP, by level of education,
Canada and G-7 countries, 1995
Canada
France
Germany
Italy
Japan
U.K.
U.S
OECD
Average
Elementary
&
Secondary
4.3
4.4
3.8
3.2
3.1
---
3.9
3.7
Postsecondary
2.5
1.1
1.1
0.8
1.0
1.0
2.4
1.3
All levels of
Education
7.0
6.3
5.8
4.7
4.7
---
6.7
5.6
Source: Council of Ministers of Education, Canada and Statistics Canada (2000)
14
Differences across provinces
• There are also moderately large
differences in expenditure per student
across Canadian provinces, especially at
the elementary and secondary level.
• For example, Ontario -- the province with
the highest per student expenditure -spends about 50% more than low
spending provinces such as Nova Scotia,
New Brunswick and Prince Edward Island.
15
Expenditure per student by province in Canadian
dollars, 1995
Nfld
PEI
NS
NB
Que
Ont
Elementary
&
Secondary
5,516
4,761
5,394
5,120
7,063
7.617
Postsecondary
12,724
13,770 13,463
12,532
12,687
13,122
6,327
6,623
8,406
7,963
All levels of 7,079
Education
6,975
16
Expenditure per student by province in Canadian
dollars, 1995 cont.
Man
Sask
Alta
BC
Canada
Elementary & Secondary
6,660
5,507
5,520
6,399
6,677
Post-secondary
15,615
15,051
12,994
14,738
14,182
All levels of Education
7,689
7,032
6,931
8,162
7,907
Source: Council of Ministers of Education, Canada and Statistics Canada
(2000)
17
Outcomes of Educational
Expenditures
• By various measures, Canadian
educational attainment is high by
international standards
• 80% of Canada's adult population has
completed high school, versus OECD
average of 64%
– Similar to that of Germany, Japan, and the
U.K.
– Substantially below the U.S. (87%)
18
Outcomes of Educational
Expenditures cont.
• Canada stands out in terms of the fraction
of the adult population with completed
post-secondary education
– Canada's proportion (52%) is more than
double the OECD average of 25%, and
highest in the OECD countries
– Also substantially higher than the U.S., the
country ranked second (where 35% have
completed post-secondary education).
19
Outcomes of Educational
Expenditures cont.
• Canada's extremely high ranking on this
dimension arises principally because of the very
substantial fraction of the population with nonuniversity post-secondary education—at 33%,
triple the OECD average and more than double
any other G-7 country.
• At the university level, Canada (19%) is above
the OECD average (14%) and similar to Japan
and the U.K., but substantially below the U.S.
where 27% have graduated from university
20
Educational Attainment in Canada and G-7 Countries
Proportion of the population aged 25-64 years by highest level of
educational attainment, 1999
Canada
France
Germany
Italy
Japan
U.K.
U.S
OECD
Average
Less than
upper
secondary
20
38
19
57
19
18
13
36
Upper
secondary
graduate
28
41
53
30
49
57
51
40
Nonuniversity
postsecondary
33
10
15
4
13
8
8
11
University
graduate
19
11
13
9
18
17
27
41
Source: OECD (2001)
21
Average completed years of
schooling of the population aged 2564 years, 1995
Canada
France
Germany
Italy
Japan
U.K.
U.S.
OECD
Average
13.2
11.2
13.4
10.0
---
12.1
13.5
11.9
22
Average completed years of schooling
of the population aged 25-64 years,
1995
Canada
France
Germany
Italy
Japan
U.K.
U.S.
OECD
Average
13.2
11.2
13.4
10.0
---
12.1
13.5
11.9
Source: OECD (1998)
23
Canadian distribution of
educational attainment
• The distribution of the educational attainment of
Canadians has unique features.
• At the bottom and top of the distribution—specifically,
those with less than completed high school and those
with a university degree—Canadian educational
attainment is similar to that of several other OECD
countries and significantly lower than that of the U.S.
• However, in the middle of the distribution the proportion
of Canadians with a community college diploma or trade
school certificate is unusually high and the proportion of
high school graduates relatively low.
24
Canadian distribution of
educational attainment cont.
• However, this “non-university post-secondary” group is
heterogeneous. There are various routes to a community
college diploma or trade school certificate.
• More than one-quarter of the “non-university postsecondary” group have not graduated from secondary
school, and their average years of completed schooling
is not much different from those whose highest
educational attainment is high school completion.
• Quebec’s CEGEP system also results in some
overstatement of importance of non-university PSE in
Canada relative to other countries
25
High School Completion
• Although the overall educational attainment of
Canadians is impressive, high school completion
has been a weak spot for many years.
• For example, the Canadian secondary school
graduation rate is near the bottom of the G-7
countries and only marginally above that of the
U.S., the bottom dweller on this dimension
• As of the mid-1990s, approximately 25% of 18
years olds had not graduated from high school.
This non-completion rate is much higher among
males (30%) than females (20%).
26
High School Completion cont.
• Some of these dropouts graduate after the
“normal age” of 18; e.g. the high school
graduation rate is 81% by age 19-20 and
87% by age 25-29
• In addition a significant number of high
school dropouts obtain a college diploma
or trade certificate.
• Nonetheless, Canada's high school
dropout rate is a concern.
27
Ratio of Upper Secondary Graduates
to Population at a Typical Age of
Graduation, 1996
Canada
France
Germany
Italy Japan
U.K.
U.S
Both
sexes
75
85
86
79
99
---
72
Males
70
85
86
76
96
---
69
Females
81
86
86
82
102
---
76
Source: Council of Ministers of Education, Canada and Statistics
Canada (2000)
28
Outcomes of Educational
Expenditures
Student achievement
• We know a good deal more about student achievement
than we did even a decade ago.
• Canada did not participate in the early rounds of
international mathematics and science tests carried out
in the 1960s and 1970s. However, some provinces took
part in the Second International Mathematics and
Science Studies carried out in the 1980s, and all
Canadian jurisdictions except P.E.I. participated in the
third round—the Third International Mathematics and
Science Study or TIMSS—carried out in the 1990s.
29
Outcomes of Educational
Expenditures cont.
• In addition, the decade of the 1990s saw the
introduction of the Canadian School
Achievement Indicators Program, which has now
completed several rounds of testing.
• Canadian secondary school students
participated in the recent Program of
International Student Assessment (PISA) tests
carried out in several OECD countries
30
Results from the 1990s TIMSS
tests
• These data have the advantage of providing information
on student performance on a common set of curriculumbased tests.
• One disadvantage is that the set of countries is very
diverse. The set of countries participating in each test
also varies, so the international average needs to be
interpreted cautiously.
• According to these recent international tests, Canadian
student achievement in mathematics is average or
somewhat above average among a diverse set of
countries. Within the G-7, Canada generally ranks in the
middle of the participating countries.
31
Results from the 1990s TIMSS
tests cont.
• In science, Canadian student performance is
above average among the full set of countries
that took the tests but about average among the
G-7 participants—above France and Italy but
below Japan and similar to England, Germany
and the U.S.
• Overall, these results indicate that Canadian
student achievement is satisfactory but not as
good as one might expect given Canada’s
relatively high expenditure on elementary and
secondary schooling.
32
S tu d e n t A c h ie v e m e n t in M a th e m a tic s a n d S c ie n c e in C a n a d a a n d G -7 C o u n trie s ,
1995 and 1999
M e a n va lu e o f p e rc e n t c o rre c t
C a n a d a F ra n c e
Japan
U .S .
E n g la n d
G e rm a n y
Ita ly
In te rn a tio n a l
m ean
59
G ra d e 4
60
--74+
63
57----m a th 9 5
G ra d e 8
59*
61
73+
535354--55
m a th 9 5
G ra d e 8
53*
--58+
5050--4849
m a th 9 9
G ra d e 4
64*
--70+
66+
63
----59
s c ie n c e
95
G ra d e 8
59*
54*
65+
58
61+
58
--56
s c ie n c e
95
G ra d e 8
53*
--55+
5254
--4949
s c ie n c e
99
N o te s: + d e n o te s sta tistica lly sig n ifica n tly a b o ve C a n a d a
- d e n o te s sta tistica lly sig n ifica n tly b e lo w C a n a d a
* d e n o te s C a n a d ia n a ve ra g e is sig n ifica n tly d iffe re n t th a n th e in te rn a tio n a l a ve ra g e
S o u rce s: R o b ita ille , T a ylo r a n d O rp w o o d (1 9 9 6 , 1 9 9 7 ), C o u n cil o f M in iste rs o f E d u ca tio n ,
C a n a d a a n d S ta tistics C a n a d a (2 0 0 0 ) a n d R o b ita ille a n d T a ylo r (2 0 0 0 )
33
Differences across provinces
• Substantial provincial variation is evident.
• In mathematics, Quebec student achievement is
substantially above the Canadian average and
high by international standards, albeit still
significantly below the top-ranked countries
(Korea, Singapore, Hong Kong, and Japan).
• Ontario's student performance tends to be below
the national average, although the differences
are not always statistically significant.
34
Differences across provinces
cont.
• Alberta student performance is impressive in science. At
both Grade 4 and Grade 8 Alberta's students rank
among the best in the world, exceeded only by Korea
and Japan.
• Although overall national levels of Canadian student
performance in mathematics and science are not
outstanding, some provinces—such as Quebec in
mathematics and Alberta in science—are able to obtain
very high levels of achievement within the existing
Canadian social, cultural, and fiscal framework.
• In other provinces, especially the Atlantic provinces,
student achievement generally falls below the Canadian
average and is relatively low by international standards.
35
S tu d e n t A c h ie v e m e n t in M a th e m a tic s a n d S c ie n c e in C a n a d ia n J u ris d ic tio n s ,
1995 and 1999
M e a n va lu e o f p e rc e n t c o rre c t
N fld
NB
Q ue
Ont
A lta
BC
(E n g lis h )
G ra d e 4
58
58
69+
57
65
59
m a th 9 5
G ra d e 8
56
5468+
5461
63+
m a th 9 5
G ra d e 8
50--57+
52
53
52
m a th 9 9
G ra d e 4
62
61
65
62
68+
64
s c ie n c e
95
G ra d e 8
59
57
59
5665+
62
s c ie n c e
95
G ra d e 8
51--54
52
56
54
s c ie n c e
99
N o te s: + d e n o te s sta tistica lly sig n ifica n tly a b o ve th e C a n a d ia n m e a n
- d e n o te s sta tistica lly sig n ifica n tly b e lo w th e C a n a d ia n m e a n
C a n a d ia n
m ean
60
59
53
64
59
53
S o u rce s: R o b ita ille , T a ylo r a n d O rp w o o d (1 9 9 6 , 1 9 9 7 ), C o u n cil o f M in iste rs o f
E d u ca tio n , C a n a d a a n d S ta tistics C a n a d a (2 0 0 0 ) a n d R o b ita ille a n d T a ylo r (2 0 0 0 )
36
Program of International Student
Assessment (PISA) tests
• These tests assessed the skills of 15-year-old students
in reading, mathematics and science in over 30 (mainly
OECD) countries.
• Whereas TIMSS is curriculum-based and assesses
students' knowledge of the subject matter, PISA
assesses the ability of 15-year-ols to apply their
knowledge to real world issues and challenges.
• In contrast to the TIMSS results, the performance of
Canadian secondary school students in the PISA tests
was excellent. Across the three assessed subjects,
Canada, Japan and the U.K. are the top three countries,
followed by France and the U.S. in the middle and
Germany and Italy at the bottom.
37
Program of International Student
Assessment (PISA) tests cont.
• Consistent with the TIMSS findings, Canadian student
achievement was below that of Japan in math and
science. However, the PISA results paint a more
favourable picture than do earlier international
assessments. The gap between Canada and the bottom
four G-7 countries (France, U.S., Germany and Italy) is
large in all three of the subject areas, and in reading
Canadian students were the top performers among the
G-7 countries.
• Canadian student achievement was equally impressive
among the larger group of OECD countries.
38
A c h ie ve m e n t o f 1 5 -Y e a r-O ld s in R e a d in g , M a th e m a tic s a n d S c ie n c e , 2 0 0 0
P IS A R e s u lts fo r C a n a d a a n d G -7 C o u n trie s
R e a d in g
M a th e m a tic s
S c ie n c e
Canada
5 3 4 (3 .1 )
Japan
5 5 7 (1 0 .9 )
Japan
5 5 0 (1 0 .9 )
U .K .
5 2 3 (5 .1 )
Canada
5 3 3 (2 .8 )
U .K .
5 3 2 (5 .3 )
Japan
5 2 2 (1 0 .4 )
U .K .
5 2 9 (5 .0 )
Canada
5 2 9 (3 .1 )
F ra n c e
5 0 5 (5 .4 )
F ra n c e
5 1 7 (5 .4 )
F ra n c e
500
U .S .
5 0 4 (1 4 .0 )
U .S .
4 9 3 (1 5 .2 )
U .S .
4 9 9 (1 4 .6 )
Ita ly
4 8 7 (5 .8 )
G e rm a n y
4 9 0 (5 .0 )
G e rm a n y
4 8 7 (4 .8 )
G e rm a n y
4 8 4 (4 .9 )
Ita ly
4 5 7 (5 .8 )
Ita ly
4 7 8 (6 .1 )
(6 .3 )
N o te s : n u m b e rs in p a re n th e s e s a re 9 5 % c o n fid e n c e in te rva ls .
S o u rc e : H u m a n R e s o u rc e s D e ve lo p m e n t C a n a d a , S ta tis tic s C a n a d a , a n d
C o u n c il o f M in is te rs o f E d u c a tio n , C a n a d a (2 0 0 1 ).
39
Provincial results in PISA
• Variation in student achievement across
provinces is similar to that observed in TIMSS,
with Alberta, Quebec and B.C. students being in
the top group and students in the four Atlantic
provinces being at the bottom.
• Quebec students continue to achieve the highest
scores in math and Alberta students perform
best in science (as well as in reading). Ontario,
Manitoba and Saskatchewan tend to have
scores close to the national average.
40
P IS A R e s u lts fo r C a n a d ia n P ro vin c e s
R e a d in g
M a th e m a tic s
S c ie n c e
A lb e rta
5 5 0 (6 .5 )
Q uebec
5 5 0 (5 .4 )
A lb e rta
5 4 6 (6 .9 )
B .C .
5 3 8 (5 .7 )
A lb e rta
5 4 7 (6 .6 )
Q uebec
5 4 1 (6 .7 )
Q uebec
5 3 6 (6 .0 )
B .C .
5 3 4 (5 .6 )
B .C .
5 3 3 (6 .4 )
O n ta rio
5 3 3 (6 .5 )
M a n ito b a
5 3 3 (7 .3 )
M a n ito b a
5 2 7 (7 .1 )
M a n ito b a
5 2 9 (7 .0 )
Sask.
5 2 5 (5 .8 )
O n ta rio
5 2 2 (6 .8 )
Sask.
5 2 9 (5 .3 )
O n ta rio
5 2 4 (5 .8 )
Sask.
5 2 2 (5 .9 )
N .S .
5 2 1 (4 .5 )
N .S .
5 1 3 (5 .6 )
N fld .
5 1 6 (6 .7 )
P .E .I.
5 1 7 (4 .8 )
P .E .I.
5 1 2 (7 .4 )
N .S .
5 1 6 (6 .0 )
N fld .
5 1 7 (5 .6 )
N fld .
5 0 9 (5 .9 )
P .E .I.
5 0 8 (5 .4 )
N .B .
5 0 1 (3 .5 )
N .B .
5 0 6 (4 .4 )
N .B .
4 9 7 (4 .5 )
N o te s : n u m b e rs in p a re n th e s e s a re 9 5 % c o n fid e n c e in te rva ls .
S o u rc e : H u m a n R e s o u rc e s D e ve lo p m e n t C a n a d a , S ta tis tic s C a n a d a , a n d
C o u n c il o f M in is te rs o f E d u c a tio n , C a n a d a (2 0 0 1 ).
41
Summary of evidence on student
achievement
• Caution is appropriate in interpreting these summary
statistics on student performance in reading,
mathematics and science. Many factors, in addition to
the resources devoted to the school system, influence
student achievement.
• For example, Canada has a high proportion of immigrant
children (for whom English or French is often a second
language) in its schools.
• Furthermore, countries may differ in the extent to which
they aim to raise average performance or to principally
improve achievement among those who would otherwise
perform poorly.
42
Summary of evidence on student
achievement cont.
• Nonetheless, these measures of student achievement -especially the PISA results -- suggest that Canada
appears to obtain reasonably good "value for money"
from the elementary and secondary school system.
• Canada ranks at or near the top of the G-7 countries in
terms of expenditure per student on elementary and
secondary schooling and --according to the PISA
findings -- places in the top three of the G-7 countries in
terms of student performance.
• However the TIMSS results lead to a somewhat less
favourable assessment. According to these tests,
Canada is in the middle or upper middle of the pack in
student achievement in math and science.
43
Provincial variation in student
achievement
• Although overall national levels of Canadian
student performance in mathematics and
science are not outstanding, some provinces—
such as Quebec in mathematics and Alberta in
science—are able to obtain very high levels of
achievement.
• In other provinces, especially the Atlantic
provinces, student achievement generally falls
below the Canadian average and is relatively
low by international standards.
44
Provincial variation in student
achievement cont.
• There is a positive relationship between expenditure per
student and student achievement as measured by
TIMSS and PISA. However, the relationship between
expenditure and test scores is relatively weak, with
Ontario having the greatest expenditure per student but
student achievement that is typically about average.
• Similarly, Alberta combines frugality in its expenditure on
elementary and secondary education with very high
levels of student achievement.
• The source of these provincial variations is an important
subject for future research.
45
Outcomes of Educational
Expenditures
Literacy skills of the adult population
• Student achievement tests provide
information on the skills of those who will be
entering the labour force in the future -- that
is, the flow of new entrants.
• Until recently, however, no nationally
representative measures of the skills and
knowledge of the existing stock—the adult
population—were available.
46
Outcomes of Educational
Expenditures cont.
• The International Adult Literacy Survey (IALS), which
was carried out in over 20 countries during the 1994–98
period, represents a breakthrough in international data
collection, providing for the first time measures of the
literacy and numeracy skills of the adult population that
are comparable across countries and language groups.
• The survey provided three measures of literacy: prose,
document, and quantitative literacy (or numeracy).
These measures correspond to information-processing
skills needed to perform everyday tasks at home, at
work, and in the community.
47
Key findings from the IALS
• Results are reported for Canada and other
participating G-7 countries (Germany, U.K., and
U.S.) The top panel shows the mean score and
the score at the 25th and 75th percentiles of the
literacy distribution.
• The average scores rank Germany at the top
(with the exception of the prose scale, on which
Canada ranks first), followed by Canada, the
U.S., and the U.K. at the bottom.
48
Key findings from the IALS cont.
• Although the differences in mean scores may
not appear large, they are non-trivial. For
example, on the document scale, the mean
score in Germany, the top-ranked country, is
285, while that in the U.K., the bottom-ranked
country, is 268. An individual with a score of 268
is in the middle of the distribution in the U.K. but
would be at approximately the 33rd percentile of
the distribution in Germany—that is, about twothirds of the adult population would have
superior document literacy skills.
49
Literacy Skills in Canada and G-7 Countries,
1994-98
Mean scores and scores at the 25th and 75th
percentiles of the prose, document and
quantitative literacy scales
Literacy
scale
Canada
Germany
25th
mean
75th
25th
mean
75th
Prose
243
279
322
245
276
308
Document
243
279
326
256
285
318
Quantitative
247
281
323
265
293
324
Sources: OECD (1998) and OECD and Statistics Canada (2000).
50
Literacy Skills in Canada and G-7 Countries,
1994-98 cont.
Mean scores and scores at the 25th and 75th
percentiles of the prose, document and quantitative
literacy scales
U.K.
U.S.
Literacy
scale
25th
mean
75th
25th
mean
75th
Prose
233
267
311
237
274
320
Document
230
268
314
230
268
316
Quantitative
231
268
314
237
275
322
Sources: OECD (1998) and OECD and Statistics Canada (2000).
51
Distribution of literacy skills
• Compared with many countries participating in
the IALS survey, especially continental
European countries, Canada, the U.K., and the
U.S. display substantial variation in the literacy
skills of the adult population.
• This phenomenon is evident from a comparison
of the lower and upper tails of the literacy
distributions for Canada and Germany.
• At the 25th percentile, the German score
exceeds that of Canada on all three literacy
scales, with the differential being especially large
for document and quantitative literacy.
52
Distribution of literacy skills
cont.
• However, at the 75th percentile the Canadian
score exceeds that of Germany in both prose
and document literacy and is approximately
equal to that of Germany in quantitative literacy.
• In general, individuals in the top 25 percent of
the Canadian literacy distribution have higher
literacy skills than their German counterparts,
while individuals in the bottom one-quarter of the
Canadian literacy distribution have lower skills
than their German counterparts.
53
Incidence of low literacy
• Next table shows the percent of adults with low
literacy skills (level 1 or level 2) by broad age
groups.
• For the adult population as a whole, the ranking
is the same as before: Germany has the lowest
percent of adults with low literacy (the exception
being the prose scale, on which Canada ranks
at the top), followed by Canada, the U.S., and
the U.K.
54
Incidence of low literacy cont.
• However, important differences in the country
rankings are evident among age groups. Among
young adults (16-25 years of age), Canadians
perform best, followed closely by Germans.
• In the U.K., and especially in the U.S., the
incidence of low literacy skills among young
adults is much higher.
• In contrast, Canada has the highest incidence of
low literacy skills among those 46-55 years of
age, exceeding even the U.K. on this dimension
and substantially above Germany.
55
Percent of adults with low
literacy skills
Age
group
Literacy scale
Canada
Germany
U.K.
U.S.
16-65
Prose
42
49
52
47
16-65
Document
43
42
50
50
16-65
Quantitative
43
33
51
46
16-25
Document
33
34
44
56
46-55
Document
54
42
53
50
16-65
Document
43
42
50
50
Sources: OECD (1998) and OECD and Statistics Canada (2000).
56
Education and literacy
• Among those with less than a completed secondary
school education, literacy skills of Canadians are very
poor, substantially below the U.K. and Germany but
above the U.S.
• However, average literacy scores improve substantially
with educational attainment, and this gradient is steepest
in Canada.
• Canadian high school graduates rank second (after
Germany) among this group of countries, and postsecondary graduates rank at the top, despite the very
large fraction of the Canadian population with completed
post-secondary education.
57
Mean document literacy score and
educational attainment
Education
Canada
Germany
U.K.
U.S.
Less than high
school
227
276
247
200
High school
graduate
288
295
286
266
Postsecondary
graduate
318
315
312
3
03
All adults
279
285
268
268
Sources: OECD (1998) and OECD and Statistics Canada (2000).
58
Summary comments on adult
literacy
• Canadian literacy skills are reasonably good by
international standards, especially among
younger cohorts and post-secondary graduates.
• However, the literacy skills of older Canadians
and those with less than a high school education
are relatively poor.
• In all of these countries, a disturbingly large
fraction of the population has low levels of prose,
document, and quantitative literacy.
59
Summary comments on adult
literacy cont.
• Nonetheless, to the extent that these
information-processing skills used in daily
activities are an outcome of the education
system, the IALS data suggests that Canada's
education system may be doing a reasonably
good job of enhancing literacy skills.
• This favourable assessment is similar to that
resulting from the recent PISA tests of student
achievement, which also assessed the ability to
apply knowledge to challenges that arise in daily
activities.
60
Education and labour market
outcomes
• Education is one of the best predictors of “who
gets ahead”
• Better-educated workers earn higher wages,
have greater earnings progression over their
lifetimes, experience less unemployment, and
work longer.
• Higher education is also associated with longer
life expectancy, better health, and reduced
participation in crime
• The strong positive association between
education and earnings is one of the most well
established relationships in social science
61
Education and labour market
outcomes cont.
• Many social scientists have, however, been
reluctant to interpret this correlation as evidence
that education exerts a causal effect on earnings
• The positive relationship between earnings and
schooling may arise because both education
and earnings are correlated with unobserved
factors such as ability, perseverance, and
ambition
• In these circumstances, standard estimates of
the return to schooling are likely to be biased
upwards because they do not take into account
unobserved “ability”
62
Education and labour market
outcomes cont.
• Assessing the question of whether education exerts a
causal influence on earnings has been the subject of
much recent research in labour economics
• The answer to this question is crucial not only for how to
interpret the relationship between education and
earnings, but also for economic and social policy relating
to education
• To the extent that estimates of the return to schooling are
biased upwards because of unobserved factors,
estimated average rates of return to education may
substantially over-predict the economic benefits that a
less-educated person would receive if he/she acquired
additional schooling.
63
Education and labour market
outcomes cont.
• The estimated average rates of return in the population
reflect both the causal effect of schooling on productivity
and earnings and the average return to the unobserved
ability of the well-educated.
• If those with low levels of education are also, on
average, those with low ability or ambition, they can only
expect to receive from any additional schooling the
return associated with the causal effect of schooling on
earnings.
• The marginal return—the impact of additional schooling
for someone with low levels of education—may be
substantially below the average return.
64
Education and labour market
outcomes cont.
• In these circumstances, education may not be very
effective in improving the employment or earnings
prospects of relatively disadvantaged groups.
• Estimates of the causal effect of education on earnings
are thus important for economic and social policy. How
can such estimates be obtained?
• The most reliable method would be to conduct an
experiment. Individuals randomly assigned to the
treatment group would receive a larger “dose” of
education than those assigned to the control group.
65
Education and labour market
outcomes cont.
• By following the two groups through time we could
observe their subsequent earnings and obtain an
unbiased estimate of the impact of schooling on labour
market success.
• Random assignment would ensure that, on average,
treatment and control groups would be equally
represented by “high ability” and “low ability” individuals.
• In the absence of experimental evidence, labour
economists have studied quasi-experiments or “natural
experiments” that isolate the influence of education from
the possible effects of unobserved ability.
66
Education and labour market
outcomes cont.
• A large number of such studies have now been
carried out, using data on identical twins or on
sources of variation in education such as those
implied by compulsory schooling laws or
proximity to a college or university.
• A consistent result of these studies is that
conventional OLS estimates of the return to
schooling tend, if anything, to under-estimate
rather than over-estimate the causal impact of
education on earnings.
67
OLS and IV Estimates of the Return
to Education
Study
Country,
Instrument
Returns to Schooling
OLS
IV
Angrist &
US compulsory
Kreuger (1991) schooling laws
0.070
0.063
0.052
0.101
0.060
0.078
Staiger &
Stock (1977)
US compulsory
schooling laws
0.063
0.052
0.098
0.088
Harmon &
Walker (1995)
UK compulsory
schooling laws
0.061
0.153
Kane & Rouse
(1993)
Tuition, distance
to college, US
0.080
0.063
0.091
0.094
Card (1995)
US, distance to
nearest college
0.073
0.132
0.097
68
OLS and IV Estimates of the Return
to Education cont.
Study
Country,
Instrument
Returns to Schooling
OLS
IV
Conneely &
Uusitalo
(1997)
Finland, living in
university town
0.085
0.083
0.110
0.098
Lemieux &
Card (2001)
Canada, WWII
veterans rehab
act, Ont/Que
0.070
0.062
0.164
0.076
Meghir &
Palme (2000)
Sweden
education
reforms
0.028
0.036
Sweetman
(2000)
Canada, Nfld
education reform
females
males
0.146
0.108
0.170
0.221
69
• Why do conventional estimates generally understate the true return
to schooling, when the presence of “omitted ability bias” should
cause these estimates to be upward biased?
• The reason appears to be that there are two additional sources of
bias that operate in the opposite direction.
• First, is the presence of measurement error in educational
attainment (especially years of completed schooling). Measurement
error in an explanatory variable causes the estimated coefficient to
be biased toward zero. The downward bias due to measurement
error thus acts in the opposite direction to any upward bias
associated with unobserved ability.
• Second, is what is sometimes referred to as “discount rate bias.”
The returns to schooling are not the same for all individuals in the
population; rather, there is a distribution of such returns.
70
• Consider the case of individuals with high potential
returns to education who do not pursue higher
education—perhaps because of low family income,
limited ability to borrow in order to finance human capital
formation, or a family background in which the
importance of education is not emphasized.
• For these “high potential return” individuals, a policy
intervention that results in increased educational
attainment would have a substantial payoff. Indeed, the
marginal return to the investment may exceed the
average return in the population.
71
• Two recent Canadian studies have pursued this “natural
experiment” approach.
• Lemieux and Card (2001) study the impact of the
Veterans Rehabilitation Act—the Canadian “G.I. Bill”. In
order to ease the return of World War II veterans into the
labour market, the federal government provided strong
financial incentives for veterans to attend university or
other sorts of educational programs.
• Because many more young men from Ontario than
Quebec had served as soldiers, those from Ontario were
significantly more likely to be eligible for these benefits.
72
• Lemieux and Card estimate that the VRA
increased the education of the veteran cohort of
Ontario men by 0.2 to 0.4 years.
• Further, they estimate the rate of return to
schooling to be 14 to 16 percent, substantially
higher than the OLS estimate with their data of 7
percent.
• Sweetman (2000) investigates the impact on
education and earnings of the education policy
change in Newfoundland that raised the number
of years of schooling required for high school
graduation from 11 to 12.
73
• He estimates that this intervention increased educational
attainment of affected Newfoundland cohorts by 0.8 to
0.9 years.
• Estimated rates of return to the additional schooling are
substantial: 17.0% for females (versus an OLS estimate
of 14.6%) and 11.8% for males (compared to an OLS
estimate of 10.8%).
• As with this growing body of research, these Canadian
studies conclude that conventional OLS estimates of the
return to schooling are likely, if anything, to be biased
downwards, as opposed to being inflated by unobserved
ability.
74
• Two principal conclusions follow from this body of
research.
• First, rates of return to investments in education are
high. Typical OLS estimates produce real rates of return
in Canada in the order of 6-9% for males and 8-10% for
females. Such estimates compare favourably with rates
of return on physical capital investments.
• Second, the payoff to marginal investments in education
may exceed the average return in the population. There
is no evidence that investments in higher education are
experiencing diminishing returns because they require
society to “reach lower into the ability barrel”.
75
• Policy interventions that result in additional
schooling being acquired by individuals
from disadvantaged backgrounds or those
who face other barriers to acquiring
human capital, may yield a substantial
return in the form of enhanced
employability and earnings, in addition to
contributing to equity objectives.
76
Education, skills and labour
market outcomes
• Most research on the determinants of labour
market success uses only relatively crude
indicators of human capital such as educational
attainment and years of work experience.
• Individuals with the same educational attainment
and years of experience may have substantially
different skills, depending on numerous other
factors.
• More generally, education and experience are
"inputs" into the production of human capital, not
direct measures of the "outcomes" -- a set of
skills, competencies and knowledge.
77
Education, skills and labour
market outcomes cont.
• Although the relationships between inputs such
as education and experience and outcomes
such as employment and earnings have been
extensively investigated, relatively little is known
about the relationship between direct measures
of skills and labour market outcomes.
• Green and Riddell (2003) use the Canadian
component of the International Adult Literacy
Survey (IALS) to investigate the relationship
between education, skills and labour market
earnings.
78
Education, skills and labour
market outcomes cont.
• Conventional estimates of the return to
schooling and to experience confound two
effects.
• The first is the impact of education and
experience on skill production -- the relationship
between human capital inputs such as education
and experience and outputs such as literacy
skills or problem-solving skills.
• The second is the value placed on various skills
in the labour market -- the relationship between
literacy or problem-solving skills and market
earnings.
79
Education, skills and labour
market outcomes cont.
• When skills are not directly observed, the best
researchers can do is to analyse the relationship
between human capital inputs and labour market
outcomes.
• However, the availability of directly observed
skills in data sets that also contain information
on labour force behaviour allows researchers to
"unpack" these two effects to some extent -- to
obtain estimates of both the skill production
effect and the market valuation effect.
80
Education, skills and labour
market outcomes cont.
• Green and Riddell find that formal education
exerts a substantial effect on the production of
literacy skills in Canada.
• However, they conclude that labour market
experience has essentially no net effect on
literacy production.
• These results suggest that policies aimed at
improving cognitive skills such as literacy should
focus on formal schooling. Policies designed to
increase work experience can lead to earnings
growth but they appear unlikely to enhance the
cognitive skills of the workforce.
81
Education, skills and labour
market outcomes cont.
• Another important result is that the
Canadian labour market places a high
value on literacy skills.
• A 20-point increase in the literacy score -equivalent to 1/3rd of a standard deviation
of the literacy score distribution -produces an increase in earnings equal to
that associated with an extra year of
formal schooling.
82
Education, skills and labour
market outcomes cont.
• Together these results imply that a significant
amount of the "return to education" as
conventionally measured represents the
combined effects of the contribution of schooling
to producing literacy skills and the value placed
on literacy in the labour market.
• Indeed, Green and Riddell estimate that about
one-quarter to one-third of the "return to
education" is associated with these effects. The
remainder reflects the impact of education on
the production of other (unobserved) skills that
are valued in the labour market.
83
Summary and Conclusions
• Canada invests heavily in education. Relative to other G7 or OECD countries, Canada ranks near the top in
terms of expenditure per student or the fraction of GDP
devoted to elementary, secondary, and post-secondary
education.
• Within Canada there are large differences across
provinces in expenditure per student, especially at the
elementary and secondary level.
• One consequence of this substantial expenditure is a
population that is well educated by international
standards. Canada compares favourably with other G-7
and OECD countries in terms of most measures of
educational attainment.
84
Summary and Conclusions cont.
• Compared to the U.S., Canada has lower
educational attainment at both the bottom (less
than completed high school) and top (university
degree) of the education distribution. Where
Canada stands out is in the middle of the
distribution—those who have completed high
school or a non-university secondary program.
• The proportion of Canada's population with a
non-university post-secondary education is
much higher than that of any other OECD
country.
85
Summary and Conclusions cont.
• Recent international data on Canadian student
achievement paint a mixed picture. Results from TIMSS,
curriculum-based tests of achievement in mathematics
and science, indicate that Canadian student
achievement is satisfactory but not as good as one might
expect given Canada's relatively high expenditure on
elementary and secondary schooling.
• In contrast, the performance of 15-year-old Canadian
students in the recent PISA tests, which assessed the
ability to apply knowledge in reading, mathematics and
science, was excellent.
86
Summary and Conclusions cont.
• The PISA results suggest that Canada appears to obtain
reasonably good "value for money" from the elementary
and secondary school system. However the TIMSS
results lead to a somewhat less favourable assessment.
• There are substantial variations in student achievement
across Canadian provinces. Some provinces—such as
Quebec in mathematics and Alberta in science—are able
to obtain very high levels of achievement within the
existing Canadian social, cultural, and fiscal framework.
In other provinces, especially the Atlantic provinces,
student achievement generally falls below the Canadian
average and is relatively low by international standards.
87
Summary and Conclusions cont.
• The literacy skills of the adult population are above
average among the G-7 countries that participated in the
IALS survey. Canada, like the U.S. and U.K., has a high
variance across the population in its literacy skills
compared to European countries such as Germany.
• By international standards, older and less well-educated
Canadians have relatively poor literacy skills, whereas
younger and well-educated Canadians have relatively
good literacy skills compared to their counterparts in
other G-7 countries. The IALS data thus suggest that
Canada's education system is doing a reasonably good
job of enhancing literacy skills.
88
Summary and Conclusions cont.
• Canadian studies using conventional methods to
analyse the relationship between education and
earnings obtain estimates of the “return to
schooling” that are similar to those obtained in
many studies carried out in other developed
countries: real rates of return of approximately 810%.
• Such estimates compare favourably with rates of
return on physical capital investments.
89
Summary and Conclusions cont.
• Important recent advances have taken place in our
understanding of the relationship between education and
labour market success. Conventional estimates of the
return to schooling appear, if anything, to be biased
downward—so the causal effect of education on
earnings appears to be higher than previously believed.
• Further, the marginal return to incremental investments
in education may exceed the average return from
previous investments. There is no evidence that
investments in schooling are running into diminishing
returns.
90
Summary and Conclusions cont.
• Conventional estimates of the return to
schooling and to work experience confound two
effects: the impact of education and experience
on skill production and the value placed on skills
in the labour market. The availability of data on
directly observed skills allows researchers to
"unpack" these two effects.
• Recent evidence indicates that formal education
exerts a substantial effect on the production of
literacy skills in Canada. However, work
experience has no net effect on literacy
production.
91
Summary and Conclusions cont.
• Canada's labour market places a high value on literacy
skills. A 20-point increase in the literacy score -equivalent to 1/3rd of a standard deviation of the literacy
score distribution -- produces an increase in earnings
equal to that associated with an extra year of formal
schooling.
• A substantial fraction -- one-quarter to one-third -- of the
"return to education" as conventionally measured
represents the combined effects of the contribution of
schooling to producing literacy skills and the value
placed on literacy in the labour market.
92