Literacy Skills as an Explanation for Labor Market Imbalances by Occupational Type in Canada: Microsimulation Projections for 2014–2024

In Canada, the immigration selection process gives great importance to education level. However, studies find that given an equivalent level of education, immigrants have significantly lower literacy skills than their Canadian-born counterparts. This research shows the importance of accounting for literacy skills in the analysis of labor supplies. Made possible by survey data from the Programme for the International Assessment of Adult Competencies (PIAAC) and a microsimulation model (LSD-C), the Canadian workforce (labor supply) is projected by many socio-economic variables, including literacy skill proficiency. The projected workforce is then distinguished according to the five major occupational types as defined by the National Occupational Classification (NOC) of Canada. The parameters used for this distribution derive from multinomial logistic regressions stratified by education level and immigration status. These regressions first account for a slough of socio-demographic variables including level of literacy (N = 15,180). The procedure is then repeated omitting literacy. A comparison of the two breakdowns shows that by factoring literacy skills into the analysis, the projected supply of labor (and skills) is more conservative. In analyzing this refined reflection of labor force supply, we show how it is more balanced and how it better matches the labor demand. This paper highlights how traditional projections and analyses of labor supply and demand, which only account for education level, overestimate the number of workers who have a proper skillset for holding professional or managerial positions. Policy implications in terms of immigrants’ selection and economic integration are discussed.