Relationship Between Literacy and Labour Productivity and GDP

Here is some interesting information from a C.D. Howe study from October 2005 entitled Public Investment in Skills: Are Canadian Governments Doing Enough? The authors make a strong link between raising literacy levels and increases in a country’s labour productivity and GDP. They also posit that there is a greater bang for the buck in training that is directed to workers at the lower end of the skills spectrum.

Click to access commentary_217.pdf

Economists have had difficulty establishing a strong empirical link between educational attainment and economic growth at the cross- country level. However, recent research shows that using direct measures of skills — such as those provided by the International Adult Literacy Survey — rather than educational attainment produces a clear relationship between investments in human capital and both long-run economic growth and long-run labour productivity. Specifically, a country’s literacy scores rising by one percent relative to the international average is associated with an eventual 2.5 percent relative rise in labour productivity and a 1.5 percent rise in GDP per head. These effects are three times as great as for investment in physical capital. Moreover, the results indicate that raising literacy and numeracy for people at the bottom of the skills distribution is more important to economic growth than producing more highly skilled graduates.

(Authors: Serge Coulombe and Jean-François Tremblay)

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