Literacy and labour market outcomes: self-assessment versus test score measures

This paper looks at the determinants of literacy and the relation between literacy and labour market outcomes while focusing on comparisons of self-assessment versus test score measures of literacy. The test score measure performs considerably better than the self-assessments when literacy is treated as an outcome variable in terms of the overall fit of the model and the specific coefficient estimates, with the self-assessments sometimes actually generating wrongly signed parameters. The test score measure also performs much better as an explanatory variable in the employment models, with the self-assessment variable generating significant underestimates of the effects of literacy on the probability of being employed. Finally, the test score is also superior in the income models, although the self-assessment measure is at least a reasonably good performer in this regard, suggesting that the main results reported in much of the existing literature (based on such measures) should perhaps be taken as good representations of the true underlying relationships.