AMERICA'S LITERACY CHALLENGE Craig Alexander SVP & Chief Economist TD Bank Group April 2015
LITERACY NOT A BINARY OUTCOME Literacy: Ability to understand, evaluate, use and engage with written texts to participate in society, to achieve one s goals, and to develop one s knowledge and potential. Numeracy: Ability to access, use, interpret and communicate mathematical information and ideas in order to engage in and manage the mathematical demands of a range of situations in adult life. Problem solving in technology-rich environments (PS TRE): Ability to use digital technology, communication tools and networks to acquire and evaluate information, communicate with others, and perform practical tasks. 2
5-IN-10 AMERICANS LACK DESIRED LITERACY, 6-IN-10 LACK DESIRED NUMERACY 70 60 50 % of population below desired level (3) 52 64 40 30 20 10 0 Source: PIAAC, 2012. Literacy Numeracy 3
3-IN-10 AT LEVEL 2 AND 2-IN-10 BELOW LEVEL 2 40 35 % of adults at each level of proficiency on the literacy scale 34 36 30 25 20 15 10 14 12 5 4 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 Source: PIAAC, 2012. 4
U.S. SCORES BELOW THE AVERAGE OF ADVANCED ECONOMIES 285 Average score per category, 2012 280 275 United States OECD 270 265 260 255 250 245 240 Literacy Numeracy PS TRE Source: PIAAC, 2012. 5
NO SIGNS OF IMPROVEMENT OVER TIME 280 Average literacy scores 275 270 273 275 268 United States 271 OECD 270 273 265 260 255 250 1994 2003 2012 Source: PIAAC, ALL, IALS (OECD). 6
NUMERACY FELL OVER THE LAST DECADE 270 Average numeracy scores 268 269 United States 265 262 OECD Average 260 255 253 250 2003 2012 Source: PIAAC, ALL (OECD). 7
NUMERACY: NEAR THE BOTTOM INTERNATIONALLY 300 290 Average numeracy scores 288 280 282 280 279 278 278 276 276 275 273 272 270 269 268 265 263 260 260 256 254 253 250 247 246 240 230 220 Source: PIAAC, 2012. 8
US SCORES BELOW OECD AVERAGE IN PROBLEM SOLVING IN TECHNOLOGY- RICH ENVIRONMENTS 285 Average problem solving scores 283 280 277 275 270 265 260 Source: PIAAC, 2012. United States OECD Average 9
PS TRE: NEAR THE BOTTOM OF THE GROUP 300 Average problem solving scores 295 294 290 289 289 288 286 286 285 284 283 283 283 283 283 282 281 280 278 277 277 275 275 270 265 Source: PIAAC, 2012. 10
YOUNG ADULTS SCORED SLIGHTLY BETTER BUT NOT KEEPING UP WITH PEERS INTERNATIONALLY 50 45 % of young adults (16-24) at each level of proficiency on the literacy scale 44 40 U.S. OECD 39 37 35 32 30 25 20 15 10 12 9 10 12 5 2 2 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 Source: PIAAC, 2012. 11
GENDER DIFFERENCES LARGER IN NUMERACY 40 35 30 % of adults at each level of proficiency on the literacy scale Male (49) Female (51) 40 35 30 % of adults at each level of proficiency on the numeracy scale Male (49) Female (51) 25 25 20 20 15 15 10 10 5 5 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 Source: PIAAC, 2012. Source: PIAAC, 2012. 12
RACIAL DIVIDE ON LITERACY 60 50 40 % of population by race/ethnicity in the two lowest levels of the literacy scale* 53 Below Level 1 Level 1 40 30 20 21 25 28 20 10 6 8 0 Black Hispanic White Other Source: PIAAC, 2012. * Black includes African American, and Hispanic includes Latino. Race categories exclude Hispanic origin. 13
FOREIGN-BORN POPULATION LAGS BEHIND IN LITERACY, NUMERACY SKILLS 40 35 30 % of adults at each level of proficiency on the literacy scale Born in U.S. (85%) Foreign-born (15%) 40 35 30 % of adults at each level of proficiency on the numeracy scale Born in U.S. (85%) Foreign-born (15%) 25 25 20 20 15 15 10 10 5 5 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 0 Below level 1 Level 1 Level 2 Level 3 Level 4/5 Source: PIAAC, 2012. Source: PIAAC, 2012. 14
THE GAPS IN PERFORMANCE PERSIST FROM ONE GENERATION TO THE NEXT, MORE SO IN THE U.S. Respondent's education at least upper secondary, neither parent attained upper secondary Respondent's education lower than upper secondary, at least one parent with upper secondary or higher Both respondent and neither parent attained upper secondary 12 Odds ratio*, likelihood of lower literacy proficiency among low-educated adults 10 8 6 4 2 0 Source: PIAAC, 2012. *Adjusted odds ratio of scoring at or below Level 2 in literacy. 15
EDUCATION AND SKILLS ARE LINKED 320 300 Mean proficiency scores on the literacy scale More than high school High school Less than high school 280 260 240 220 200 Source: PIAAC, 2012. 16
PARTICIPATION RATES IN ADULT EDUCATION AND TRAINING ARE HIGHER IN THE U.S. THAN IN MOST COUNTRIES AT ALL SKILLS LEVELS 90 80 70 60 50 40 30 20 10 0 % of adults who participated in adult education and training during year prior to the survey, on the literacy scale Level 4/5 Level 3 Level 2 Level 1 Below Level 1 Source: PIAAC, 2012. 17
" Proficiency in literacy, numeracy and PS TRE is positively independently associated with the probability of participating in the labour market and being employed, and with higher wages. " 18
SKILL LEVEL IS CORRELATED WITH SUCCESS IN THE LABOR MARKET 100 % employed among U.S. adults with only a high schoold degree, on the PIAAC literacy scale 87 80 67 70 81 60 40 20 0 At Level 1 or below Level 2 Level 3 Level 4/5 Source: U.S. Department of Education, National Center for Education Statistics, PIAAC 2012. 19
ADULTS WITH BETTER LITERACY SKILLS TEND TO HAVE HIGHER WAGES 30 25 Percentage change in wages associated with a one-standard-deviation change in years of education and proficiency in literacy Years of education Proficiency (literacy) 20 15 10 5 0 Source: PIAAC, 2012. Coefficients adjusted for age, gender, foreign-born status and tenure. 20
EDUCATION & ESSENTIAL SKILLS TIED TO ECONOMIC WELLBEING Median weekly earnings $1,800 11.0% $1,600 $1,400 $ median weekly earnings % unemployment rate $1,329 $1,714 Unemp. rate 12.0% $1,623 10.0% $1,200 $1,000 $800 $600 $400 $200 $472 $651 7.5% 7.0% 5.4% $727 $777 $1,108 4.0% 3.4% 2.3% 2.2% 8.0% 6.0% 4.0% 2.0% $0 Less than a High school high school diploma diploma Some college, no degree Associate's degree Bachelor's degree Master's degree Professional degree Doctoral degree 0.0% Source: Current Population Survey, Bureau of Labor Statistics, 2013. Data are for persons age 25 and over. 21
ADULTS WITH BETTER NUMERACY SKILLS ALSO TEND TO HAVE HIGHER WAGES 30 25 Percentage change in wages associated with a one-standard-deviation change in years of education and proficiency in numeracy Years of education Proficiency (numeracy) 20 15 10 5 0 Source: PIAAC, 2012. 22
RETURNS TO NUMERACY HIGHEST IN U.S. 30% Increase in hourly wages due to a one-standard-deviation increase in numeracy skills* 28% 25% 20% 18% 15% 10% 5% 0% Source: Returns to Skills Around the World: Evidence from PIAAC, 2013. OECD. Sample of full time employees aged 35-54. 23
WAGE RETURNS TO AN IMPROVEMENT IN SKILLS IS HIGH Increase in hourly wages due to a one-standard-deviation increase in skills* (U.S.) Numeracy 28% Literacy 27% PS TRE 22% 0% 5% 10% 15% 20% 25% 30% Source: Returns to Skills Around the World: Evidence from PIAAC, 2013. *Employees aged 35-54. 24
BENEFITS TO IMPROVED SKILLS SPAN BEYOND ECONOMIC/FINANCIAL (SOCIAL OUTCOMES) Odds ratio showing the likelihood of adults scoring at or below Level 1 in literacy reporting low levels of trust and political efficacy, fair or poor health, or of not participating in volunteer activities (adjusted) Source: PIAAC 2012, Survey of Adult Skills First Results - Country Note. Odds ratios are adjusted for age, gender, educational attainment and immigrant and language background. 25
THE CORRELATION BETWEEN SKILL LEVEL AND HEALTH IS STRONGER IN THE UNITED STATES THAN IN ALMOST ANY OTHER PARTICIPATING COUNTRY 300 Literacy proficiency of U.S. adults by self-reported health status 280 281 281 260 262 244 240 236 220 200 Poor* Fair* Good* Very Good Excellent Source: U.S. Department of Education, National Center for Education Statistics, PIAAC 2012. * p <.05. Average score is significantly different from "Excellent" average. 26
Average INEQUALITY IN SKILLS ASSOCIATED WITH INCOME INEQUALITY Income inequality (Gini coefficient) 0.40 0.38 High income inequality Low skills inequality United States High income inequality High skills inequality 0.36 0.34 0.32 0.30 0.28 0.26 0.24 Japan Slovak Republic Korea Austria Czech Republic Estonia Netherlands Norway Finland Australia Poland Ireland Denmark England/N. Ireland (UK) Italy Germany Canada Sweden Flanders (Belgium) Spain Average 0.22 Low income inequality Low skills inequality Low income inequality High skills inequality 0.20 1.40 1.45 1.50 1.55 1.60 1.65 1.70 Source: PIAAC, 2012, Table A6.16 (L). Literacy skills inequality (9th/1st decile) 27
IMPROVEMENTS IN ESSENTIAL SKILLS OFFER MANY BENEFITS TO BUSINESSES: Increased output and profitability Lower error rates Increased ability to do on-the-job training Better team performance Improved labor relations Increased quality of work Reduced time per task Better health and safety records Better employee and customer retention
ECONOMIC BENEFITS OF HIGHER LITERACY Raising literacy scores of those with poor and weak by one level could create as many as 8.5 million additional jobs just shy of 5 years' worth of average job creation An earlier study found that "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 labor productivity and a 1.5 percent rise in GDP per head." This suggests that a 1% increase in literacy could boost output by as much as $240 billion
AMERICA NEEDS STRONGER LABOR PRODUCTIVITY GROWTH 5 Y/Y % Chg. Labor productivity growth* 4 3 2 1 0.7 0-1 -2 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 Source: BLS, Haver Analytics. *Nonfarm, real output per hour of all persons, 2009 = 100.
ECONOMIC CHANGES REQUIRE A MORE SKILLED WORKFORCE Manufacturing as a share of Real GDP, % Sercices as a share of Real GDP, % 68% 13.0% 67% 67% 12.5% 66% 66% 12.0% Manufacturing (left) 65% 11.5% 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: BEA, Haver Analytics. Service-producing (right) 65% 64%
MANUFACTURING SHIFTING TO MORE HIGH- VALUE ADDED ACTIVITY %, as a share of Real GDP %, as a share of Real GDP 1.4% 3.0% 1.2% 2.5% 1.0% 0.8% 2.0% 0.6% 1.5% 0.4% 0.2% 0.0% 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: BEA, Haver Analytics. Textiles, Clothing, Paper (left) Computer and Electronics, Motor vehicles and parts manufac. (right) 1.0% 0.5%
LABOR PARTICIPATION RATE AT THE LOWEST LEVEL IN ABOUT FOUR DECADES 68 %, Labor force participation rate* 2000 = 67.1 66 64 62 2014 = 62.9 60 58 1950 1958 1966 1974 1982 1990 1998 2006 2014 Source: BLS, Haver Analytics. * 16 years and over.
CONCLUSIONS: Improved skill levels bring sustainable gains to individuals, businesses, economy, society, and democracy Improving literacy, numeracy and PS TRE skills can help alleviate a wide range of socioeconomic problems, such as poverty and inequality It is hard to identify one single issue that can have such a far-ranging impact Businesses need to become champions of essential skills, as it can raise productivity and profitability Crucial to compete in the 21 st century!
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