Causes, Effects and Solutions to the Eradicating of Illiteracy

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Is Functional Literacy a Prerequisite for Entering the Labor Market? An Analysis of the Determinants of Adult Literacy and Earnings in Ghana

Niels-Hugo Blunch and Dorte Verner

Working Paper 00-05 April 2000

Published by Centre for Labour Market and Social Research Universitetsparken, Building 350 8000Aarhus C, Denmark

Editor: Peder J. Pedersen Copyrights: Niels-Hugo Blunch and Dorte Verner

ISSN 0908-8962

Is Functional Literacy a Prerequisite for Entering the Labor Market? An Analysis of the Determinants of Adult Literacy and Earnings in Ghana

Niels-Hugo Blunch
The George Washington University and World Bank

Dorte Verner
World Bank

JEL Classifications: I21, J31, O12 Keywords: functional literacy, earnings determinants, Ghana,
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Alternatively, it could suggest that education is not serving as a signaling device in Ghana. Functional literacy affects selection into the labor market. In developing countries, jobs are rationed (that is, demand-side determined). We therefore interpret this result to indicate that functional literacy is a prerequisite for entering the labor market. This interpretation may partly explain the lack of returns to education.

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The policy implications of these results are that greater efforts should be devoted to developing functional literacy skills and basic education. Policymakers should aim to increase both the supply and the quality of basic education and literacy programs. Basic education and literacy programs should target females and poorer households, especially in rural areas. The article is organized as follows. Section 2 describes changes in and determinants of literacy. Section 3 describes the Ghanaian economy. Section 4 presents the economic model and the econometric methodology underlying the analysis. Section 5 presents the data and descriptive statistics, and section 6 presents the regression analysis. Section 7 summarizes the article’s findings and draws policy conclusions. 2. CHANGES IN AND DETERMINANTS OF LITERACY Opinions differ widely over how best to define literacy. Unesco defines a functionally literate person as any person 15 or older who can “read and write a simple statement on his or

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