The Importance of Literacy for Employment and Unemployment Duration

This study evaluates how literacy is related to unemployment and employment duration. We hypothesize that the effect of literacy may vary when other productivity signals are available. Models that allow for heterogeneous effects of literacy are estimated for transitions from employment to unemployment and vice versa using unique survey and register data. The results show that for unemployed workers, literacy is as important as formal education and labour market experience. With respect to employment duration, education and labour market experience has no significant effect, but literacy significantly lowers the hazard rate into unemployment. The effects differ with respect to gender and cohabiting status.