Boosting growth through better foundation skills

by Andreas Schleicher
Director, Directorate for Education and Skills

The links between income inequality and economic growth are fairly well established: If income inequality becomes too high, large numbers of people no longer have the means to participate in the economy and economic growth suffers, nor will people be able to invest in their skills to climb up the social ladder. If income inequality is too low, no one goes to work and growth suffers too. A conventional way to move between these two undesirables is to redistribute income, e.g. through taxes. But wouldn't it be much smarter if, instead of dealing with the consequences of income inequality, we could address the root of the problem and moderate the sources of income inequality? Then things would not be a zero-sum game but everyone would win.

One such source of inequality in wages is inequality in the skills of people. Our parents told us that we should study hard to get a good job and a decent salary. And that wisdom has never been more true than today. As you can track with our annual publication, Education at a Glance, the highly educated never had better life chances than they enjoy today, while those without baseline qualifications have never faced a greater risk of social and economic exclusion than today. And the rapid rise in knowledge workers in advanced economies has not led to a decline in their pay, which is what happened at the low end of the skills distribution.

Data from OECD’s Survey of Adult Skills, which measures not just the formal qualifications people have attained, but also what they actually know and can do, allow us now to study this in new ways. An OECD Working Paper has just done that and found several things. If all adults were simply to complete an additional year of education (which no doubt would be good for each of them, as well as for the overall economic and social well-being of their country) top earners would actually benefit much more than those with lower wages. So wage inequality would rise. The red line in the chart above shows the increase in wages if people would increase the length of their education by one standard deviation for each part of the wage distribution. Essentially, it shows that the more people earn, the more further improvements in their education boosts their earnings. The data* also show that the financial returns to tertiary education would increase more steeply at the top end of the wage scale, while returns to secondary education would actually decline. This may be because higher education is where individuals acquire the specialised knowledge and skills that are more highly rewarded in the labour market. Another explanation is that technological advances mainly benefit the most skilled individuals, boosting their earnings most. In a nutshell, raising overall levels of educational attainment alone could actually increase the wage gap.

There is another angle to this. The data also show that countries were people are more highly skilled, on average, are also those where skills proficiency is spread more evenly across the population*. So better and more equitable skills actually go together.

The most worrisome finding from the paper is that countries with greater inequality in skills are also those where parents’ education has a stronger impact on their children’s skills**. In other words, where skills are less evenly distributed in the population, young adults are less likely to attain better skills than their parents – and thus inequality in both skills and wages become more firmly entrenched

But the data also show that ensuring that more people acquire essential foundation skills, whatever their skills or formal qualifications, can be an effective way to lead to a more equitable increase in earnings. This is shown by the blue dotted line in the chart above. So increasing investment in foundation skills – by raising the quality of basic education across the board – would not only result in higher productivity and greater employability among adults, but would also ensure that the benefits of economic growth are more equally shared across the population.

* Figure 2, page 10 of the OECD Working Paper "Skills and wage inequality: Evidence from PIAAC"
** Figure 3, page 11 of the OECD Working Paper "Skills and wage inequality: Evidence from PIAAC"

Links:
Education at a Glance 2014: OECD Indicators
OECD Skills Outlook 2013
Skills and wage inequality: Evidence from PIAAC
New Approaches to Economic Challenges (NAEC)
Chart source: © OECD

The Great Gatsby Curve: Does it really exist and is education the key?

by John Jerrim
Thomas J. Alexander Fellow, Directorate for Education and Skills

Income inequality is high and rising in a number of developed and developing countries. There are many potential economic, social and political consequences of this. But perhaps none are more worrisome than the possibility that rising income inequality will limit educational and economic opportunity in the next generation.

This supposed relationship between income inequality and intergenerational mobility has become widely known as the ‘Great Gatsby Curve.’ It is commonly shown using this graph with “Economic mobility” (differences in the chances of “making it” in life between individuals from rich and poor backgrounds) tending to be lower in countries that are more economically unequal.

This finding has caught the imagination of important public policymakers worldwide. It has been widely cited by high ranking public policymakers, best-selling authors  and Nobel Prize winning academics. But does this Great Gatsby relationship really exist? I have previously shown how the Great Gatsby Curve is highly sensitive to a number of data issues, and that more robust evidence using more cross-nationally comparable data is needed. Furthermore, if this relationship does exist, what are the mechanisms driving it? Academics have long argued that socio-economic inequality in educational attainment is likely to play a key role in economic mobility. But could this also explain why there is a link between income inequality and intergenerational mobility, and thus the presence of the Great Gatsby Curve?

I am attempting to answer these important policy questions during my OECD Thomas J. Alexander Fellowship. Using the Programme for International Assessment of Adult Competencies (PIAAC) dataset, I am investigating how the link between family background, educational attainment and pay in later life varies across more than 20 OECD countries. These results are then compared to external information on income inequality drawn from the Luxemburg Income Study  to establish whether there is indeed a link between economic inequality, educational attainment and social mobility.

I am currently two months into my fellowship at the OECD offices/headquarters in Paris, and have noted several positive influences that the programme has had upon my career. I have benefitted hugely from developing contacts within the OECD, including the other Thomas J. Alexander fellows. These networks have undoubtedly enhanced this piece of research and are going to be pivotal in my future career as a cross-national comparative researcher. The strong links the OECD has with policymakers worldwide has been another significant advantage of the fellowship, providing the ideal platform to showcase my research internationally. The OECD has also provided the time and expert guidance I have needed to develop this project using their databases. This has stimulated a range of further research ideas, which I am intended to pursue in my application for future research grants. 

Links:
Programme for International Assessment of Adult Competencies (PIAAC)
OECD Thomas J. Alexander Fellowship
Photo credit: Retro style party / @Shutterstock

Poorly skilled adults: a neglected factor in income inequality

by Dirk Van Damme
Head of the Innovation and Measuring Progress division, Directorate for Education and Skills

The rise of income inequality in OECD countries, especially from 1985 onwards, is now a well-documented fact, and a reason for much concern among policy-makers and economists. The Gini coefficient of income inequality in 16 OECD countries with available data has risen from .286 in 1985 to .316 in 2010. The concept of ‘inclusive growth’ suggests that without finding an adequate and effective policy response to increasing inequality future sustainable economic growth might also be jeopardised. However, the causes and underlying mechanisms behind the increase in inequality are less clear. A new paper based on data from the Survey of Adult Skills (PIAAC) hints to the role skills play in the puzzle behind income inequality.

At first sight, this seems a bit enigmatic. In recent decades huge investments have been made to improve the education and training of citizens in OECD countries. Consequently, the skills level of younger generations is higher than for older ones: on the PIAAC numeracy scale the mean score in the participating countries has increased from 259.9 among the 55-65 year-olds to 279.4 among the 25-34 year-olds. More workers with higher skills means more productivity and more income, at least that’s the conventional argument. Despite persistent challenges with regard to equitable access to education and equity in learning outcomes, the benefits of educational expansion have gradually been spread more evenly over the population (the education Gini has improved from .22 to .15 in OECD countries). But apparently that hasn't helped improve income inequality. The missing link is most likely the role played by the unequal distribution of skills among workers.

The proportion of adults at each end of the skills scale is one approach to measure the unequal distribution of skills. As the chart above illustrates, there is a pretty strong correlation of .59 between the share of low-skilled adults and the Gini coefficient. Spain, Italy, Ireland and Poland are, together with the United States, the countries with the highest numbers of low-skilled adults. At the other end of the scale we see a similar relationship: the share of high-skilled adults has a -.54 correlation with the Gini coefficient. As a result, the mean country score is quite strongly related to this measure of income inequality (-.63). Countries with high numbers of poorly skilled adults and low numbers of high-skilled tend to be countries with a high income inequality
Comparing the width of the distribution tells a similar, albeit slightly different story. How large is the skills gap between the highest and lowest quartiles in the skills distribution? The score point difference between the 75th and 25th percentiles ranges from 57 for the Czech Republic to 76 for the United States. But the interesting fact is that the width of the distribution is also related, although to a lesser extent (.40), to income inequality. The four countries which we identified as relatively low-skilled – Spain, Italy, Ireland and Poland – are situated in the middle of the pack, with a distribution width close to the average. The Nordic countries have similar gaps between the highest and lowest skilled 25%, but they have much lower levels of income inequality. A wide distribution of skills is seemingly not harmful in itself. It is noteworthy also that a wide distribution is positively related to national income, as measured by GDP per capita with a .59 correlation.

So, two slightly different patterns emerge: on the one hand, countries such as Spain, Italy, Ireland and Poland have comparatively low mean scores, and many low-skilled and few high-skilled adults; whereas Anglo-Saxon countries, such as the United States, the United Kingdom, Canada and Australia, on the other hand, have a more average mean score, but many low- and many high-skilled adults,  resulting in a large discrepancy between both ends of the distribution. In both groups of countries the skills distribution is related to high social inequality.

A completely different pattern can be seen in the Nordic countries, the Flemish Community in Belgium and the Netherlands: these countries combine low social inequality with a skills distribution profile characterised by an average width, a comparatively high mean, few low-skilled and many high-skilled adults.

At the end of the day what stands out is that a large share of low-skilled adults is associated with a high income inequality. It is not a large skills gap between the low- and high-skilled which seems to be related to high social inequality, but the size of the low-skilled population. The smartest skills strategy a country can develop to improve social inequality is to upgrade the skills of low-skilled adults.

Links:
How closely is the distribution of skills related to countries’ overall level of social inequality and economic prosperity? OECD paper by Dirk Van Damme on New Approaches to Economic Challenges
Survey of Adult Skills (PIAAC)
OECD Skills Outlook 2013: First Results from the Survey of Adult Skills
Chart source: © OECD

Skill up or lose out

by Andreas Schleicher
Deputy Director and Special Advisor on Education Policy to the OECD's Secretary-General

For the first time, the Survey of Adult Skills allows us to directly measure the skills people currently have, not just the qualifications they once obtained. The results show that what people know and what they do with what they know has a major impact on their life chances. On average across countries, the median wage of workers who score at Level 4 or 5 in the literacy test – meaning that they can make complex inferences and evaluate subtle arguments in written texts – is more than 60% higher than the hourly wage of workers who score at or below Level 1 – those who can, at best, read relatively short texts and understand basic vocabulary. Those with poor literacy skills are also more than twice as likely to be unemployed. In short, poor skills severely limit people’s access to better-paying and more-rewarding jobs.

It works the same way for nations: The distribution of skills has significant implications for how the benefits of economic growth are shared within societies. Put simply, where large shares of adults have poor skills, it becomes difficult to introduce productivity-enhancing technologies and new ways of working. And that can stall improvements in living standards.

Proficiency in basic skills affects more than earnings and employment. In all countries, adults with lower literacy proficiency are far more likely than those with better literacy skills to report poor health, to perceive themselves as objects rather than actors in political processes, and to have less trust in others. In other words, we can’t develop fair and inclusive policies and engage with all citizens if a lack of proficiency in basic skills prevents people from fully participating in society.

The case for acquiring and maintaining literacy skills is clear, but people’s proficiency varies widely. Roughly one in five adults in Japan and Finland reads at the highest levels on our test. In contrast, in Italy and Spain just one in twenty adults is proficient at that level, and more than one in three adults perform at or below the baseline level. And even highly literate nations have significant shallow areas in their talent pools. Across the 24 countries that took the test, more than 80 million people do not possess the most basic skills needed to succeed in today’s world. On top of that, in the United States, Poland, Germany, Italy and England, a difficult social background often translates into poor literacy skills.

And yet, the Skills Survey shows that some countries have made impressive progress in equipping more people with better skills. Young Koreans, for example, are outperformed only by their Japanese counterparts, while Korea’s 55 to 64 year-olds are among the three lowest-performing groups of this age across all participating countries. The results from Finland tell a similar story. But young Brits and Americans are entering a much more demanding job market with similar literacy and numeracy skills as their compatriots who are retiring.  The share of these countries in the global talent pool will shrink significantly over the next decades unless urgent action is taken both to improve schooling and to provide adults with better opportunities to develop and maintain their skills.

What our data also show is that actual skill levels often differ markedly from what formal education qualifications suggest. For example, Italy, Spain and the United States rank much higher internationally in the share of young people with tertiary degrees than in the level of literacy or numeracy proficiency among people that age. On average, young Japanese and Dutch high school graduates easily outperform university graduates in some other countries. In fact, in most countries at least a quarter of university graduates do not score higher than Level 2 on our literacy test, and are thus insufficiently equipped for what their jobs demand of them. Conversely, in Australia, Finland, Japan, the Netherlands and Norway, more than one in four adults without a high school degree have made it to Level 3 in literacy, which shows that people can, indeed, recover from poor initial schooling. Surely there are many reasons why skills and qualifications differ; but these data suggest that we may need to update and re-define our education qualifications.

We can’t change the past; but we can do something about our future. The Nordic countries, the Netherlands and Canada, for example, have been much better in providing high-quality lifelong learning opportunities, both in and outside the workplace, than other countries. They’ve developed programmes that are relevant to users and flexible, both in content and in how they are delivered. They’ve made information about adult education opportunities easy to find and understand, and they provide recognition and certification of competencies that encourage adult learners to keep learning. They’ve also made skills everybody’s business, with governments, employers, and individuals all engaged.

All this said, skills are only valuable when they are used effectively, and the Skills Survey shows that some countries are far better than others in making good use of their talent. While the US and England have a limited skills base, they are extracting good value from it. The reverse is true for Japan, where rigid labour-market arrangements prevent many high-skilled individuals, most notably women, from reaping the rewards that should accrue to them. At times, over-reliance on qualifications also makes it harder for those who have the right skills, but who did not have the same access to education as others, to gain entry into jobs where those skills can be put to full use. The data show that this is particularly true among migrant workers. Overall, the Skills Survey suggests that we can – and should – do better in matching the demand and supply of skills.

Figuring out how to get us there will not be easy, but the Skills Survey provides a foundation to build robust policies. It takes away excuses from those who are complacent, and it allows countries to set meaningful goals in terms of what’s achieved by the world’s leading skills systems.

Links:

OECD Skills Outlook 2013: First Results from the Survey of Adult Skills (2013)
Programme for the International Assessment of Adult Competencies (PIAAC) 
For more on skills and skills policies around the world, visit:
http://skills.oecd.org

How can education help tackle rising income inequality?

By Ji Eun Chung
Innovation and Measuring Progress Division, Directorate for Education

See instructions below for how to read the chart

The gap between the rich and poor has widened in OECD countries over the past 30 years. As the latest issue of the OECD’s new brief series Education Indicators in Focus describes, the average income of the richest 10% of people in OECD countries was about nine times greater than the income of the poorest 10% before the onset of the global economic crisis. This ratio was 5 to 1 in the 1980s.

What’s more, existing income inequality may also limit the income prospects of future generations in some countries. In countries with higher income inequality – such as Italy, the United Kingdom, and the United States – a child’s future earnings are likely to be similar to his or her father’s, suggesting that socio-economic background plays a large role in the development of children’s skills and abilities. Meanwhile, in countries with lower income inequality – like Denmark, Finland, and Norway – a child’s future income is not as strongly related to his or her family’s income status. In these countries, the development of children’s skills and abilities has a weaker link with socio-economic factors.

The implications for education policy are clear. Education policies focusing on equity in education may be a particularly useful way for countries to increase earnings mobility between generations and reduce income inequality over time. Countries can work towards this goal by giving equal opportunities to both disadvantaged and advantaged students to achieve strong academic outcomes – laying a pathway for them to continue on to higher levels of education and eventually secure good jobs.

Four top performers on the 2009 PISA reading assessment show the potential of this approach. Canada, Finland, Japan, and Korea all have education systems that put a strong focus on equity – and all have yielded promising results. In each of these countries, relatively few students performed at lower proficiency levels on the PISA reading assessment, and high proportions of students performed better than would be expected, given their socio-economic background.

Yet while each of these countries focuses on equity, they’ve pursued it in different ways. In Japan and Korea, for example, teachers and principals are often reassigned to different schools, fostering more equal distribution of the most capable teachers and school leaders. Finnish schools assign specially-trained teachers to support struggling students who are at risk of dropping out. The teaching profession is a highly selective occupation in Finland, with highly-skilled, well-trained teachers spread throughout the country. In Canada, equal or greater educational resources – such as supplementary classes – are provided to immigrant students, compared to non-immigrant students. This is believed to have boosted immigrant students’ performance.

Income inequality is a challenging issue that demands a wide range of solutions. In a world of growing inequality, focusing on equity in education may be an effective approach to tackle it over the long run.

For more information
On this topic, visit:
Education Indicators in Focus: www.oecd.org/education/indicators
Equity and Quality in Education - Supporting Disadvantaged Students and Schools
On the OECD’s education indicators, visit:
Education at a Glance 2011: OECD Indicators: www.oecd.org/edu/eag2011
Divided we stand: Why inequality keeps rising: www.oecd.org/els/social/inequality
On the OECD’s Indicators of Education Systems (INES) programme, visit:
INES Programme overview brochure

Chart source: Source: D'Addio (2012, forthcoming), “Social Mobility in OECD countries: Evidence and Policy Implications”; OECD (2008), Growing Unequal?, www.oecd.org/els/social/inequality/GU; OECD Income distribution database.


How to read the chart: This chart shows the relationship between earnings mobility between generations of a family, and the prevalence of income inequality in different countries. Overall, countries with higher levels of income inequality tend to have lower earnings mobility between generations, while countries with lower levels of income inequality tend to have higher earnings mobility.

Improving equity in education: a critical challenge

Improving equity in student outcomes remains a critical challenge for every country in the OECD.  Even those countries with the lowest levels of inequity must still be concerned with gaps in outcomes that are not related to students’ motivation and capacity, while in other countries the inequities are so large as to pose a fundamental challenge to ongoing security and prosperity.

The new report, Equity and Quality in Education: Supporting Disadvantaged Students and Schools, provides a cogent analysis and many ideas for addressing these issues.  The report provides a blueprint for any country that wishes to make genuine progress in promoting equity while also improving quality.  These ideas are well grounded in the best available research evidence (though in some cases that evidence is not as strong as one would want, simply due to insufficient research on many important educational issues).

The larger issue is whether countries will have the will and skill to make these changes.  As outlined in my 2008 book, ‘How to Change 5000 Schools’, knowing what to do is important but not enough.  In many cases we already know what to do, but we do not do it.  As a simple example, consider physical exercise and good eating habits.  Everyone knows these are essential to health, yet many people simply do not do them.  How much more difficult to make changes in a large and complex institution like a school system!

There are two aspects to effective implementation of the right changes.  The first is whether the will exists to make the changes.  In many cases the beneficiaries of the status quo will be vocal in opposing anything that they think might diminish the relative advantage of their children.  Less streaming is one good example of this situation, often opposed by parents and teachers who benefit from a streamed system despite the strong evidence that this practice is, overall, a bad one.  There can be very difficult politics around making some of the changes that would actually benefit students.  These conflicts cannot be ignored; they must be faced directly.

Second, and just as important, is whether systems have the capacity to bring real change about.  As the report notes, real improvement requires real changes in classroom practice.  These do not occur through issuing policy statements, developing new curricula, or even through changes in accountability and testing.  Changing people’s daily behavior takes sustained and relentless attention to the way daily work is done.  This attention must extend over time and take into account everything the organization does.  Very few countries have this capacity.  Very few ministries of education have much capacity to lead and support school improvement.  Very few school leaders know how to do this work.

Countries that are serious about greater equity – and greater quality – will need to consider carefully how they can support real and lasting implementation of the necessary changes.  Luckily, the OECD does offer some examples, in its higher performing countries, of the kinds of organizational measures that are needed to achieve these important goals.  We know this can be done; the question is how many countries will make the required effort.

Links:
More information about OECD work on equity in education: www.oecd.org/edu/equity
Executive Summary: Equity and Quality in Education - Supporting Disadvantaged Students and Schools

Photo: School wall mural painting by students, Ontario