LLN skills generally decreased with age. A higher proportion of people in older age groups attained scores below level 3. The exception to this was the 15–19 years age group, which tended to achieve lower scores than the 20–24 years age group. This could be due to a large proportion of the younger age group still studying and potentially improving their LLN skills. The decline in skill levels with age could reflect labour force withdrawal, differences in the quality of education over time, or higher education levels among younger cohorts (Shomos 2010).

A strong association existed between educational attainment and LLN levels. This held for both the years of formal education completed, and the level of education attained. This association increased at a decreasing rate, indicating that the returns to education in terms of LLN skills developed are relatively higher at lower levels, and less years, of education (Shomos 2010).

Post-school foundation skills training is delivered through the VET and Adult Community Education sectors, and through Australian Government-funded projects. Training delivered through the VET sector can be either stand-alone, where the courses focus solely on foundation skills, or embedded in other vocational training. Box F.2 provides examples of foundation skills-related courses. This analysis will focus on the impacts of reforms that affect engagement in courses that are foundation skills-focused.

Foundation skills delivery appears to comprise a significant proportion of publicly funded VET activity. In 2008, students undertaking general education programs (which include language, literacy and learning programs and school equivalence qualifications for adults) accounted for 12 per cent of students undertaking publicly funded VET studies nationally, ranging from 4 per cent in Tasmania to 21 per cent in Queensland (Roberts and Wignall 2010). However, it is unclear what proportion of this relates specifically to LLN training. In Victoria, foundation level training accounted for about 7 per cent of total government funded VET enrolments in 2010 (Skills Victoria 2011c).

Along with the current VET reform activity in many States and Territories, there are two projects underway that could significantly change foundation skills training delivery: the development of the NFSS and the development of a foundation skills training package.

(2010).

The development of the NFSS is in response to the ALLS finding that a relatively high proportion of the population have poor LLN skills. The Australian Government, working with State and Territory governments, is developing the strategy for implementation in early 2012. It will include a target ‘that by 2022, two thirds of working age Australians will have literacy and numeracy skills at Level 3 or above’ (SCOTESE 2011, p.1).

Innovation and Business Skills Australia has commissioned TAFE NSW and TAFE SA to develop a foundation skills training package containing qualifications at the Australian Qualifications Framework Certificate I and II levels. This is expected to be completed in June 2012 (IBSA 2011).

Improving LLN skills can have a range of benefits, both for the individual and external benefits for others, such as employers. The potential benefits, and whether or not governments should intervene to improve skills, are discussed below.

Higher-level LLN skills are associated with better employment outcomes. Shomos (2010), using ALLS data, estimated that an improvement in literacy and numeracy skills from level 1 to 3 would:

Barrett (2012), using the same data as Shomos (2010), estimated the mean return to an additional year of education to be 6.2 per cent, with almost one third of this possibly being attributable to the acquisition of cognitive skills.

As mentioned in section F.1, LLN skills also appear to be linked to educational attainment.

LLN skills are linked to social inclusion. A study of the social capital outcomes attained from undertaking literacy and numeracy courses found that about one third of participants reported that the training improved their ability to engage or interact with a social network (Balatti, Black and Falk 2006).

Better LLN skills have also been linked with improved health outcomes. Bynner and Parsons (2006) reported a correlation between poor basic skills and poor physical health and mental wellbeing. Poor skills were related to poor health-related practices, such as lack of exercise and smoking. It was also concluded that improving literacy levels might lead to better health literacy.

Improving parents’ LLN skills might significantly impact their children’s outcomes. Canadian research has shown that parents who undertake LLN training become more active in their children’s education (The Conference Board of Canada 2002, 2005, cited in Skills Australia 2010). Studies have also found that students’ test performance is related to their parents’ employment and educational attainment, and that a person’s wage is linked to his or her parents’ wage levels. This relationship could be partly due to LLN skills (DEEWR 2011c).

Improving the LLN skills of employees could also benefit businesses. The Australian Industry Group (2008, 2010) found that a large proportion of employees do not have adequate LLN skills to effectively operate in the workplace. This impacted negatively on productivity, workplace safety and competitiveness.

The relationship between LLN skills and social inclusion has benefits for others. UK studies have found those with poor LLN skills were significantly less interested in politics, less likely to vote and less likely to trust people in their area. Those with good LLN skills were four times more likely to be a member of a social or community organisation (Dugdale and Clark 2008). Studies have also found that people with poor literacy skills are disproportionately represented in prisons (Dawe 2007; KPMG 2006).

Although there are benefits from increasing LLN skills, this is not a sufficient reason for governments to intervene. Governments might intervene for equity reasons, or if a substantial distortion exists (such as a market failure or a distortion due to previous government intervention). To maximise net social welfare, the intervention chosen must address the distortion, have the largest net social benefit of all possible interventions, and the benefits of intervening must outweigh the costs. More information on arguments for government intervention in the VET sector can be found in chapter 2.

There is an equity argument for government intervention in education markets to support LLN skills attainment. People with low LLN skills are more likely to come from disadvantaged backgrounds than those with good skills, and are less likely to be employed (ABS 2008a).

There also appear to be positive externalities associated with increasing LLN skills. As discussed above, increasing foundation skills might confer benefits on children, businesses and other employees, and the broader community.

Incomplete information could be a greater problem for potential LLN students relative to VET students more broadly. People who might benefit from foundation skills courses are likely to have, on average, lower ability than the average VET student. As a result, they might be more vulnerable to misleading information, or have less understanding of the long-term benefits of undertaking LLN training.

Under the Victorian Training Guarantee, access to foundation skills courses is unlimited, regardless of age or previous qualifications (Skills Victoria 2011b). The training guarantee for foundation skills courses was first implemented in January 2010 for students aged 15–24 years, and was extended to all age groups in January 2011.

The tuition fee structure for foundation skills courses changed in July 2009. The Victorian Government contribution increased and now averages 90 per cent of total fees. The minimum and maximum yearly fees were reduced to $50 and $500, respectively (Victorian Government 2008).

Since these reforms have been implemented, the number of people undertaking government-funded foundation skills training has increased. For example, government-subsidised foundation level enrolments increased 67 per cent between the third quarter of 2010 and the third quarter of 2011 (Skills Victoria 2011c).

The reforms to the South Australian VET system that directly influence foundation skills training include:

(Government of South Australia 2011).

These reforms are to be implemented from mid-2012. They are expected to result in 100 000 additional training places over six years. Of these, 11 000 are expected to be at foundation and Certificate I levels (Department of Further Education, Employment, Science and Technology, South Australia, sub. DR-V7).

The LLNP is an Australian Government funded program overseen by DEEWR. The program aims to improve unemployed people’s LLN skills, with the expectation this will help them participate in training and employment. The program provides up to 800 hours (in blocks of 200 hours) of free training for job seekers whose LLN skills are below those considered necessary to participate in employment, education or training (DEEWR 2011a). It is estimated that about 390 000 unemployed people have LLN skills below the level required in the workplace (Skills Australia 2010).

The LLNP is targeted at disadvantaged client groups, such as Indigenous people, young males, people with disabilities, isolated female job seekers and those excluded from the workforce based on their age (NCVER 2011d). Participants must be referred to an LLNP provider by Centrelink, a Job Services Australia provider or a Disability Employment Services provider (DEEWR 2011a). LLNP providers then assess the LLN skills of clients against the Australian Core Skills Framework to determine their needs and suitability for the LLNP (DHS 2011). Training is generally undertaken in certificate-level courses such as those listed in box F.2 (Roberts and Wignall 2010).

As of 2010, the program was assisting about 18 500 jobseekers annually (Roberts and Wignall 2010). Funding for the provision of more LLNP places was provided in the 2010-11 and 2011-12 Australian Government budgets.

The WELL program is an Australian Government funded program overseen by DEEWR. The program aims to assist employers with training workers in English language, literacy and numeracy skills. Funding is allocated on a competitive grants basis (DEEWR 2011e). Businesses are required to contribute at least 25 per cent in the first year, and 50 per cent in the second and third years, to the cost of WELL provision (NCVER 2011d). As of 2010, about 12 000 employees were undertaking the WELL program annually (Roberts and Wignall 2010). Funding for the provision of more WELL program places was provided in the 2010-11 and 2011-12 Australian Government budgets.

The Australian Government announced the development of the NFSS in the 2010-11 Budget (Australian Government 2010a). As discussed in section F.1, this includes a target of two thirds of working age Australians having LLN skills at level 3 or above by 2022 (SCOTESE 2011).

Even without policy initiatives designed to improve foundation skills, the LLN skills profile of the population is expected to improve due to increases in educational attainment (chapter 3). This section presents the skills profile, employment and productivity under the baseline, from which changes resulting from policy initiatives can be measured.

To project the profile of LLN skills in the population over time without reform, it is assumed that changes in LLN skills in the adult population are primarily driven by changes in education, age and gender composition. This approach is supported by the results of the ALLS (section F.1).

These estimates, along with population projections from the Commission’s Modified Demographic and Economic Model (MoDEM 2.0), and the distribution of LLN skills in 2006 by gender, age and educational attainment from the ALLS, are used to project the future LLN skills profiles. The variable used to measure LLN skills is a combination of document literacy, prose literacy and numeracy skills, as used by Shomos (2010). The projected LLN skills profiles are for people aged 25–64 years, which is also consistent with Shomos (2010).

2008 2011 2022 Men Women

Source: Productivity Commission estimates based on ALLS, MoDEM 2.0 and PC (2006).

Results from Shomos (2010) are used to estimate the impact of changes in the LLN skills of 25–64 year olds on employment and productivity. Shomos used ALLS data and multivariate econometric models to estimate the effect of improving literacy and numeracy skills on the probability of labour force participation and on wages.

As mentioned earlier, the LLN variable used by Shomos (2010) is the combination of document literacy, prose literacy and numeracy. Participation in the labour force is measured as those employed or unemployed, and wages are the hourly wage in a person’s main job. Wages are used as a measure of productivity, based on the assumption that workers are paid the value of their marginal product (chapter 2).

Table F.3 presents the marginal effects of increasing literacy and numeracy skills on participation and wages, relative to level 1, as estimated by Shomos (2010). These results suggest, for example, that if the skill level of a man increased from level 1 to level 2, his probability of participating in the workforce would increase by

3.7 percentage points and his wage would increase by 17.9 per cent, on average.