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EDU NAEC Paper Series n° 1.
How closely is the distribution of skills related to countries’ overall
level of social inequality and economic prosperity?
Dirk Van Damme
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Skills distribution, social inequality and economic performance
Skills are critically important for the economic performance of countries. Greater proficiency in key
skills among workers drive productivity and participation in the labour force, thus leading to
increased growth and prosperity. In turn, higher economic output provides individuals, companies
and the state with the resources to improve the opportunities for acquiring and developing skills.
The aftermath of the economic crisis and rapidly rising levels of inequality (OECD, 2011) have raised
concerns about inclusiveness of growth, and placed greater emphasis on models of economic and
social development that combine growth with an equitable sharing of its benefits across the
population. The concept of inclusive growth also suggests that less unequal societies are better able
to mobilise skills and other social resources to foster economic growth. Inequalities in skills can
result in overall social inequality, as less-skilled people find themselves deprived of many of the
resources that secure participation in the labour market, in democratic institutions and in civic life.
Until recently, proficiency in skills was measured by educational attainment or years spent in
education. The Survey of Adult Skills (PIAAC) (OECD, 2013) now provides direct measures for the
proficiency of 16-65 year-olds in literacy, numeracy and problem-solving. These data allow for an
examination of the relationship between skills, economic performance and social inequality in
greater detail and with greater validity. This paper concentrates on numeracy skills.
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Analyses of the relationship between skills and economic and social outcomes are mostly limited to
comparing average skills proficiency among countries. This paper also focuses on the relationship
between the distribution of numeracy skills and social inequality, on the one hand, and economic
performance on the other. It is a two-way relationship. Greater income inequality is likely to lead to
a wider spectrum of proficiency due to the fact that there is a greater variation in the resources that
individuals and families can spend on education, and that more income inequality could motivate
people to invest in upgrading their skills. At the same time, a wider range of proficiency is likely to
lead to greater income inequality if workers are paid wages that reflect their productivity, which, in
turn, is partially determined by their skills proficiency. At the aggregate level, higher national income
is likely to lead to higher average proficiency given that the resources that society (the state,
individuals, families and enterprises) can devote to education and training are greater. At the same
time, higher average proficiency is likely to lead to higher productivity.
The policy relevance of these relationships is clear: it is important for countries to know in which
segment of the skills distribution they should invest in order to achieve greater economic output or a
more equal distribution of income. Should countries invest in skills policies that favour the highly
