Numeracy, Literacy and Earnings: Evidence from the National Longitudinal Survey of Youth
The analysis is concerned with the contributions of numeracy and literacy to earnings, for three reasons: first, no clear pattern emerges from existing findings relating to the contributions of different types of ability, and numeracy and literacy appear to be a natural basic starting point; second, measures to improve numeracy and literacy are often given priority in policies intended to help those with lowest educational attainment; and third, with the growth of the knowledge-based economy, and the increasing importance of digital technology, it is of interest to compare the levels and rates of change of the contributions of numeracy and literacy as reflected in earnings. The results suggest that numeracy has a highly significant effect on earnings, mostly through its effect on college attainment, but also directly, controlling for attainment, and interactively with attainment, and its effect is subject to increasing returns. While the magnitude of the effect is small in absolute terms, it is substantial when compared with other effects, and it appears to be increasing at a rate of 6 percent per year. Literacy also has a highly significant effect on earnings, but it would appear to be indirectly through its effect on attainment. There is no evidence of a direct effect, an interactive effect with attainment, nonlinearity, or change through time.
November 2000 Paper Number CEPDP0478