Human capital and productivity - AWPA

3. Foundation skillsFoundations skills include reading, writing, numeracy and oral communication along withemployability and learning skills. It appears uncontroversial that foundation skills would be critical forenabling both learning and employment.The importance of foundation skills is borne out in the literature. For example, the Moser report (1999)found that many Britons with limited basic skills had serious disadvantages at work and in findingwork. This, the report argued, limited much of what a full life could offer to these individuals.Moreover, the report stated that limited skills restricted the economy, and was one factor underlyingthe UK’s relatively poor productivity compared with much of Europe.In Australia, the Australian Workforce and Productivity Agency (AWPA) (2013) has emphasised theimportance of foundation skills. The report notes the enabling characteristics of such skills and theirimportance to individuals, firms, the economy as well as society through indirect benefits such asenhanced social inclusion.There is much evidence to support the positions put forward by the Moser Report and AWPA (2013).The table below outlines some of the relevant studies relating to foundation skills.Table 6—Foundation skills and productivityStudy Country Key resultsRomer (1990)CrosscountryThe initial level of literacy (but not the change in literacy) helpspredict the subsequent rate of investment, and indirectly, the rate ofgrowth.Wolf (2002) N/A Suggests that it is literacy and numeracy training that most affectslabour market outcomes.Chiswick, Lee andMiller (2002),Coulombe,Tremblay andMarchand (2004)Ananiadou et al.,(2004)AustraliaOECDLiteraturereviewThe estimation of models of labour market outcomes that includevariables for both level of education and literacy and numeracyshows that perhaps as much as one-half of the total effect ofeducation is in fact an indirect effect of education that arises due tothe higher literacy and numeracy skills of the better educated.A 1 per cent increase in adult literacy scores relative to theinternational average is associated with reaching a steady state withlabour productivity and GDP per capita 2.5 per cent and 1.5 per centhigher than other countries, respectively. 49The study found that literacy scores, as a direct measure of humancapital, perform better in growth regressions than indicators ofschooling.The evidence suggests that better numeracy and literacy skills havea strong positive effect on individuals’ earnings and employmentstability, even when other relevant factors, such as qualification levelsare taken into account.Improvement of basic skills levels in adults has very small or even nopositive effect on wages and employment probability.49 The study estimated the relationship between human capital and economic growth using internationallycomparable literacy scores. The literacy results of 17-to-25-year-olds in a given period were then used as proxiesfor investment in human capital during the previous period.Australian Workforce and Productivity Agency | Human capital and productivity literature review 29