January 2021

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CENTRE FOR THE
STUDY OF LIVING
STANDARDS

Impact of the Model Schools Literacy
Project on Literacy and Fiscal Outcomesin First Nations in Canada

Simon Lapointe
January 2021
CSLS Research Report 2021-01

Prepared for the Martin Family InitiativeImpact of the Model Schools Literacy
Project on Literacy and Fiscal Outcomesin First Nations in Canada
Table of Contents
Table of Contents ........................................................................................................................... 2
Executive Summary ....................................................................................................................... 4
1. The Impact of Literacy on Socio-Economic Outcomes: A Review of the Literature ............ 10
1.1 Literacy and Macro-Economic Performance ............................................................................... 11
1.2 Literacy and Individual Labour Market Outcomes .................................................................... 13
The Impact of Literacy on Labour Market Outcomes of First Nations in Canada ............................................. 16
International Evidence ....................................................................................................................................... 17

1.3 Literacy and Health ........................................................................................................................ 18
1.4 Literacy and Crime ........................................................................................................................ 20
1.5 Literacy and Social Engagement ................................................................................................... 21

2. Quantifying the Impact of Improved Literacy of First Nations on Reserve in Canada........ 22
2.1 Methodology .................................................................................................................................... 22
2.2 Estimations of Benefits by Measure .............................................................................................. 26
Diabetes.............................................................................................................................................................. 26
Incarceration ...................................................................................................................................................... 28
Welfare Payments .............................................................................................................................................. 31
Employment Insurance Payments ...................................................................................................................... 33
Additional Tax Revenues ................................................................................................................................... 35
Costs of Substance Abuse .................................................................................................................................. 362

Teenage Pregnancy ............................................................................................................................................ 41
Adult and Special Education Costs .................................................................................................................... 43

3.3 Total Benefits of the MSLP: Cost Savings and Additional Revenues ........................................ 45
3.4 The Total Costs of the MSLP and Return to Investment ........................................................... 46
3.4 Caveats and Data Gaps .................................................................................................................. 47
Causality between Literacy and Socio-Economic Outcomes ............................................................................. 47
Data Limitations Related to Socio-Economic Measures .................................................................................... 48
Data Limitations Related to the Cost of the MSLP ............................................................................................ 49
Data Limitations Related to the Success Rate of the MSLP .............................................................................. 50

4. Conclusion................................................................................................................................ 50
References .................................................................................................................................... 523

Impact of the Model Schools Literacy
Project on Literacy and Fiscal Outcomesin First Nations in Canada
Executive Summary
In today’s economy, a functional level of literacy is crucial for success on the labour market, andneeded for interactions with social service providers such as doctors. For children, literacy isfundamental to success in school, leading to better labour market outcomes later in life. In
Canada, literacy skills rank about in the average of OECD countries, depending on the survey
considered. According to the Programme of International Assessment of Adult Competencies(PIAAC), more than 40 per cent of Canada’s workforce does not have adequate literacy skills.
Increasing average literacy skills in Canada, then, could lead to significant increases in GDP.
One group in particular suffers from low literacy levels: First Nations in Canada. In light of thisobservation, the Martin Family Initiative developed the Model Schools Literacy Program (MSLP)
in 2009. This program aims at increasing the literacy skills of First Nations children in Canada. It
provides assistance and training to schools and teachers on reserves to foster better literacy skills
among the children from kindergarten to grade 3. The MSLP can also act as an important tool
supporting the federal government’s commitment to reconciliation with Indigenous Peoples.
The results of the MSLP in the first participating schools are promising (O’Sullivan, 2016;
Geddes, 2015). In the two pilot schools, students achieved much better literacy scores, both forwriting and reading. The MSLP is now being expanded to more schools, and the goal is to see
lessons from the program expanded to a greater number of on-reserve school by inspiring others
to put their own programs in place, through a demonstration effect.
If the MSLP or similar literacy-improving programs were expanded to every on-reserve school
in Canada, what could we expect from the ensuing improvement in literacy in terms of longerterm outcomes, both for individuals and Canada as a whole? This report provides an answer tothat question in two parts.
The first part of the report reviews the literature on the relationship between literacy and socioeconomic outcomes. Some authors, such as Coulombe, Tremblay, and Marchand (2004) find that
better average literacy scores are associated with a higher level of GDP per capita and labour
productivity, as well as higher growth rates. Schwerdt and Wiederhold (2018) find similar results
using more recent data. Other authors look at the link at the individual level between literacy andlabour market outcomes. Green and Riddell (2001, 2007, 2015), for example, use Canadian data
to find that better literacy scores are associated with higher earnings. Specifically for the First
Nations in Canada, Arriagado and Hango (2016) find that First Nations off reserve in Canada

4who obtain better literacy skills are more likely to be employed. The report also reviews othercontributions that explore the relationship between better literacy and health, crime, and social
engagement. The general view is that better literacy is associated with better outcomes in thosecategories as well.
The second part of the report is the most substantive and contains an estimation of the impact of
the MSLP or similar programs, if they were expanded to more on-reserve schools in Canada.
Scaling up the MSLP itself to all on-reserve schools would likely be infeasible, but the successof the MSLP can inspire other organizations to run their own similar programs. In ourestimations, we assume that every on-reserve school is participating in a program similar to the
MSLP, and estimate the cost savings and additional revenues for Canadian governments thatwould result from the ensuing increase in literacy. Importantly, the estimation in this reportfocuses on benefits to governments (through cost savings and increased revenues) andcompletely abstracts from personal benefits accruing to the students themselves. In that regard, itis thus an under-estimate of the actual benefits to society as a whole from the increase in literacy.
The methodology in the report comprises four steps:
•
•

•
•
•

We first estimate the number of students in a given cohort (i.e., the group of all students
that started school for the first time in the same year).
Second, we estimate the number of these students that would obtain better literacy skills
as a result of the MSLP or a similar program. We calculate this number using the successrate (56 per cent) of the MSLP in lifting students out of low literacy, which is itself basedon the evaluation of the MSLP in two pilot schools.
Third, we select a number of outcomes which should improve due to better literacy skills,
such as diabetes incidence and incarceration rates, and estimate the number of students ina given cohort that would enjoy better outcomes on each measure.
Finally, we multiply the number of students that would enjoy these better outcomes oneach measure by the per-person cost savings or additional revenues for governments
associated with each measure.
These total annual benefits are then aggregated over the lifetime of the students, using a
discount rate of 2.6 per cent, based on the 10-year average of long-term (30 years) federal
government bonds.

This methodology is similar to the one used in a report by the KPMG Foundation (2009), who
performed a similar evaluation of the Every Child a Reader program in the United Kingdom.
In summary, the analysis shows that fiscal benefits to governments (cost savings and additionaltax revenues) are about $310 million over the lifetime of students in every cohort (i.e., the groupof all students that started school for the first time in the same year) participating in the MSLP orsimilar literacy-improving programs, or $43,448 per student. Over the lifetime of 20 cohorts ofstudents, these cost savings add up to about $4.9 billion.

5Based on the results from the two pilot schools, we estimate the costs of the program at a total of$72.5 million for one cohort, for the four years of elementary school (kindergarten to grade 3).
Therefore, for every dollar invested in running the MSLP or a similar program, governments
would recoup $7.77 in benefits. In other words, expanding the MSLP or similar programs toevery on-reserve schools would generate benefits more than seven times as large as the costs to
run the program. Notably, this rate of return is much greater than one even though the benefits
considered are rather narrow. In particular, it considers only a subset of potential measures forcost savings, due to data limitations, and it completely ignores the broader social benefits fromincreased literacy as well as the private benefits accruing to the students themselves and theirfamily. If we were to include those (assuming data would be available), the rate of return would
be much higher.
We also test the sensitivity of our estimates to the discount rate used. Assuming instead a
discount rate of 0 per cent, total fiscal benefits to governments would reach $722 million, morethan twice the amount found with the base discount rate of 2.6 per cent. These benefits translate
into a return to investment of $17.42 for every dollar invested. Assuming instead a discount rateof 1.7 per cent, the current rate for long-term federal government bond (30 years), the benefits
would be $409 million, or $10.12 for every dollar invested.
Two measures make up most of the benefits of the increase in literacy: reduced welfare
payments, and increased income tax revenues, both due to the better labour market outcomes
associated with better literacy skills. Among the 7,133 students in a cohort, the better literacy
skills resulting from the MSLP or similar programs would reduce the number of welfare
recipients by 775. In turn, that would translate into cost savings for Canadian governments ofabout $147 million over the course of the students’ lifetimes. Since many of the 7,133 students ina cohort would work more or have better jobs due to their better literacy skills, we estimate thatgovernments would receive an additional $78 million annually. We include a third work-related
measure: the incidence of receiving Employment Insurance benefits. We find that 98 fewer
students would be receiving these benefits, resulting in savings of $23.4 million over the students’
lifetimes.
The MSLP would also translate into better health outcomes. In the analysis, we estimate that outof the 7,133 students in a cohort, 512 fewer students would be diagnosed with diabetes later inlife, resulting in savings to governments of about $6.2 million over the course of the students’
lifetimes. The students in the cohort participating in the MSLP would also be less likely to abusedrugs. Combining alcohol, tobacco, cannabis, and other illegal drugs, the cost savings to
Canadian governments would total $23.7 million over the course of the students’ lifetimes.
About half of that amount is related to tobacco smoking.
Better literacy in the early years of education would also lead to lower needs for special
education. We estimate that as a result of the MSLP or similar programs, 1,238 fewer students
out of the 7,133 in a cohort would require special education at school, translating into savings of$27.1 million over the 12 school years of the students. These students would also have lower

6needs for adult literacy remedial classes (571 fewer students), resulting in cost savings of $1.9
million over the students’ lifetimes.
Better literacy is often associated with a lower incidence of crime. In our analysis, we consider
the costs of incarceration, and find that 32 fewer students out of the 7,133 in a cohort would beincarcerated at least once. Under some assumptions on recidivism, we estimate cost savings for
Canadian governments of $2.4 million for one cohort. Finally, we also include abortion costs
related to teenage pregnancies. With 633 fewer female students undergoing this procedure, weestimate cost savings for governments of about $273,000.
The report lists a number of caveats to the analysis, mostly due to data limitations. For example,
the analysis only includes a limited number of outcomes that are associated with better literacy.
With better data, the analysis could consider more measures, such as other health outcomes (e.g.,
depression) or other crime-related measures. Regarding crime in particular, the analysis in thisreport is rather narrow: we do not include the costs to the victims that would be avoided, or thecosts of policing and hiring prosecutors. The analysis also relies on the small dataset of two pilot
schools to determine the success rate of the MSLP and the costs of running the program. A key
assumption is that the results of the pilot study in the two reserve schools apply to every schoolthat will participate in the MSLP in the future. In particular, the study uses the literacy
improvement rate of students in the pilot (56 per cent of students in a given cohort reachappropriate literacy skills while they would not have done so before participating in the MSLP)
and applies it to future cohorts. Since the two pilot schools were not chosen randomly, thesuccess rate for future cohorts could be lower than 56 per cent. However, even a much lower
success rate (even lower than a quarter of the current rate) would translate in a positive rate of
return according to our analysis. In future work, better data could be used to more precisely
estimate both the benefits and costs of the MSLP or similar programs.
Given the youthfulness of the Indigenous youth population, and the increasing share of thatgroup in Canada, investing in the education and skills of Indigenous youth, and of First Nations
children in particular, is a win-win proposition for all Canadians. Since its inception, the MSLP
has shown considerable promise by improving the literacy skills of the participating students.
Improving literacy skills on reserves should lead to higher educational attainment, and eventually
to better labour market outcomes. These improvements could play an important role in thefederal government’s objective of reconciliation with Indigenous Peoples.

7

Impact of the Model Schools Literacy
Project on Literacy and Fiscal Outcomesin First Nations in Canada1
In today’s economy, a functional level of literacy is crucial for success on the labour market, andneeded for interactions with social service providers such as doctors. For children, literacy is also
fundamental to success in school, leading to better labour market outcomes later in life. In
Canada, literacy skills rank about in the average of OECD countries, depending on the survey
considered. Lane and Murray (2018) highlight that according to the Programme of International
Assessment of Adult Competencies (PIAAC), more than 40 per cent of Canada’s workforce does
not have adequate literacy skills. They stress that increasing average literacy skills in Canada
would lead to significant increases in GDP.
One group in particular suffers from low literacy levels: First Nations in Canada. In light of thissituation, the Martin Family Initiative (MFI) developed the Model Schools Literacy Program(MSLP) in 2009. This program aims at increasing the literacy skills of First Nations children in
Canada. Briefly, it provides assistance and training to schools and teachers on First Nations
reserves to foster better literacy skills among the children attending. Box 1 provides more details
on the MSLP and its history. The MSLP can also act as an important tool supporting the federal
government’s commitment to reconciliation with Indigenous Peoples.
While still at an early stage, the results of the MSLP in the first participating schools arepromising (O’Sullivan, 2016; Geddes, 2015). In the two pilot schools, students achieved muchbetter literacy scores, both for writing and reading. The MSLP is now being expanded to more
schools. The ultimate goal is to see the MSLP scaled up to a large number on-reserve school byinspiring other organizations to learn from the MSLP and put their own programs in place. If the
MSLP or similar literacy-improving programs were expanded to every on-reserve school in
Canada, what could we expect from the ensuing improvement in literacy in terms of longer-term
outcomes, both for individuals and Canada as a whole? This report provides an answer to thatquestion in two parts.
First, the report will review the literature on the impact of improved literacy2 on a number ofsocio-economic outcomes: employment, unemployment, wages, crime, health, and social
engagement such as voting behaviour. In addition, the report will also review contributions in theliterature that study the impact of early childhood interventions on these outcomes. Indeed, these1

This report was prepared by Simon Lapointe, economist at the Centre for the Study of Living Standards. The
author thanks Andrew Sharpe, Don Drummond and Julia O’Sullivan for helpful comments and suggestions, and theMartin Family Initiative for funding this project. Email: simon.lapointe@csls.ca.
2
The MSLP defines literacy as reading and writing. This report will follow the same definition.

8

interventions are close to the MSLP in their goals and also target younger children to improvetheir outcomes later in life.
Box 1: The Model Schools Literacy Program

The Model Schools Literacy Program supports the acquisition of reading and writing skills for
Kindergarten to Grade 3 students in First Nations schools. It is administered by the Martin
Family Initiative (MFI). Schools are selected by the MFI, and participate in the program for four
years, followed by two years of support to sustain the progress.
This partnership between the MFI and participating schools includes continuing professional
learning already in place at the school, and enhancing resources for students, school staff, andleaders. Innovative use of technology enables the schools to work together, learning and sharing
their best practices in early literacy education across time, distance, and First Nations.
The program started with a pilot study between 2010 and 2016 in two schools: Hillside School in
Kettle and Stony Point First Nation, and Walpole Island Elementary School (now known as
Bkejwanong Kinomaagewgamig) in Walpole Island First Nation. The pilot study allowed the
MFI and involved researchers to determine the main obstacles to better literacy skills:
absenteeism, lack of opportunity, poorly developed language skills, and issues within the homeenvironment (O’Sullivan, 2016).
The MSLP identified a number of improvements to make within schools:
•
•
•
•
•
•

Participating schools introduced measures to increase attendance (e.g., award prizes forattendance);
Participating schools started scheduling regular 100-minute blocks during the day
dedicated to reading instruction, without interruptions;Classrooms were re-arranged to include a reading space;
The libraries in participating schools were also expanded, and added new books to theircollection including some featuring Indigenous content;
Professional development was provided for teachers, focusing on deepening the teachers’
knowledge of child development;
Protocols were developed to identify children with reading problems, and assign them toadditional reading instruction.

The MSLP made use of technology to support teaching. For example, participating schools hadaccess to specialists through video-conferencing.
In 2016-2017, the MSLP was expanded to six schools across Canada. In 2018, another six
schools joined the program. The current plan is to add another six schools in 2020-2021.

9

Second, the report will evaluate the cost savings and additional revenues for Canadiangovernments that will result from the increased literacy after the introduction of the MSLP orsimilar programs in all on-reserve schools. The methodology is developed in part based on areport by the KPMG Foundation (2009), who performed a similar evaluation of the Every Childa Reader program in the United Kingdom.
In summary, the analysis shows that governments will save about $310 million over the lifetimeof students in every cohort (i.e., the group of all on-reserve students starting school for the firsttime in any given year) participating in the MSLP or similar literacy-improving programs, or$43,448 per student. Over the lifetime of 20 cohorts of students, these cost savings add up to
about $4.9 billion. In addition, for every dollar invested in running the program, governments
would recoup $7.77 in benefits. In other words, expanding the MSLP or similar programs toevery on-reserve schools would generate benefits more than seven times as large as the costs to
run the program. Notably, this rate of return is much greater than one even though the benefits
considered are rather narrow. In particular, it considers only a subset of potential measures forcost savings, due to data limitations, and it completely ignores the broader social benefits fromincreased literacy as well as the private benefits accruing to the students themselves and theirfamily. If we were to include those (assuming data were available), the rate of return would bemuch higher.
The report is organized into four sections. The first major section reviews a selection of the vast
literature on the relationship between literacy and socio-economic outcomes. The second section
discusses results from other literacy interventions in different countries, examining their efficacy
in improving literacy and other outcomes among participating students. The third section, themost important, presents the methodology, assumptions, and estimation results for the impact
and return on investment of the MSLP. The final section concludes.

1. The Impact of Literacy on Socio-Economic Outcomes: A Review of the
Literature
There is a large economics literature studying the link between human capital in general (i.e.,knowledge, formal education, cognitive ability) and social and economic outcomes. The
theoretical economics literature builds mostly on the work of Mincer (1958) and Becker (1964).
The latter’s work, in particular, popularized the use of the term “human capital” in economics,
making an analogy between the physical means of production (capital) and the skills andknowledge of workers. In the empirical literature that followed, human capital is measured
through various proxy variables. Most often, it is captured by the number of years of schooling,or the highest degree obtained. Others measure human capital with literacy and numeracy scores.
Schwerdt and Wiederhold (2018) review some of the main contributions in the literature using
various measures of human capital.
This report focuses on literacy for two reasons. First, the goal of the MSLP is to increase literacy,
so we are mostly interested in the impact of that variable on socio-economic outcomes. Second,
literacy might be a better measure of human capital than schooling (Coulombe, Tremblay, and10Marchand, 2004; Schwerdt and Wiederhold, 2018). More specifically, it measures actual
cognitive ability,3 and is a quality-based measure instead of a quantity-based measure like thenumber of years of education. Indeed, the number of years of education is partly endogenous to
the education system in place, such that virtually all students graduating from high school will
have the same number of years of education, despite having potentially very different cognitive
abilities. The importance of individual cognitive skills compared to educational attainment indetermining socio-economic outcomes is also supported by Hanushek and Woesmann (2008),
who review international evidence on that question.
This section discusses some of the main contributions on the relationship between literacy and anumber of outcomes, using data from various populations. Where possible, we discuss researchusing data on the Indigenous population or population of First Nations on reserve. However, due
to the lack of data on Indigenous populations in Canada and elsewhere, most of the literature
discussed is based on the general population. While socio-economic outcomes as well as literacy
scores are generally worse in the population of First Nations on reserve than in the general
population, we believe that findings on the relationship between these two measures should hold.
Better data and more studies would be needed to confirm it.

1.1 Literacy and Macro-Economic Performance
Differences in literacy matter both for individual and societal outcomes (McCracken and Murray,2010). Indeed, with increases in individual earnings and productivity, and decreases in illness
and criminal activity, aggregate economic activity should increase. In this sub-section, the reportfocuses on the impact of increased literacy on macro-economic performance. The following
sections then focus on the impact of literacy on individual outcomes.
Coulombe, Tremblay, and Marchand (2004) and Coulombe and Tremblay (2006) analyze therelationship between literacy and economic growth in a panel of 14 OECD countries over the
1960-1995 period.4 They use data from the 1994 International Adult Literacy Survey (IALS),
which measure the skills of individuals aged 16 to 65 years old in three categories: prose (i.e.,understanding text), quantitative (i.e., numeracy), and document (i.e., the ability to use
information from documents).
Coulombe, Tremblay, and Marchand (2004) find that the literacy indicators are strongly
associated with a higher level of GDP per capita and labour productivity, as well as higher
growth rates. Notably, the correlation between the literacy measures and growth remain positive
even when including the average years of schooling in the regression equation. This result
suggests that literacy levels are better predictors of economic outcomes than the number of yearsof schooling. In their main estimates, the authors measure literacy as the average level of literacy
3

Literacy could be defined in many ways. The simplest would be a binary variable indicating whether the individual
can read and write. In the literature reviewed in this section, it is measured with tests determining the skills of theindividuals, resulting in a continuous measure of literacy.
4
The data are actually gathered at one point in time only, but on people of various ages. The authors create asynthetic time series based on the age of the participants.

11

in the population. However, improving literacy among top or bottom performers is unlikely tolead to the same improvements in economic outcomes. To explore this possibility, the authors
estimate their regressions using the share of the population that attained proficiency of at leastlevel 4.5 They find much less conclusive results, indicating that the better economic outcomes are
not driven by the top performers reaching higher levels, but by a generally increased level ofliteracy. Notably, this result supports the idea that better literacy improves economic outcomesby making the workforce more productive on average, as opposed to developing a few
individuals who would make disproportionate contributions through, for example, innovation.
Coulombe, Tremblay, and Marchand (2004) also estimate their equations separately based onmale and female literacy. They find that female literacy is more strongly associated with better
economic outcomes than male literacy. The authors suggest some possible explanations for thisresult, but their data did not allow the identification of the true channel. The explanations include:
initial barriers to education for women, such that those that did increase their literacy had aparticularly high innate ability; diminishing marginal returns to the education of men (whoalready have higher levels of literacy on average); women typically work in occupations thatmake a greater use of higher literacy levels; and possible biases resulting from the structure of
the data.
In a more recent paper, Schwerdt and Wiederhold (2018) update the results of Coulombe,
Tremblay, and Marchand (2004) using new data from the Programme for the International
Assessment of Adult Competencies (PIAAC). PIAAC is a survey administered by the OECD. In
each country, at least 5,000 participants were interviewed about their skills in three domains:
literacy, numeracy, and ICT. Schwerdt and Wiederhold (2018) build a panel dataset using themethods of Coulombe, Tremblay, and Marchand (2004), covering 33 developed countries overthe 1970-2010 period. In addition to data from PIAAC, the authors obtain economic data fromthe Penn World Tables.
Schwerdt and Wiederhold (2018) argue that it is important to update the results of Coulombe,
Tremblay, and Marchand (2004), since the significant technical changes of the past twenty years
might have made literacy skills more important in the labour market. This argument was also
made by Dougherty (2003). Using more recent data, Schwerdt and Wiederhold (2018) findresults similar to Coulombe, Tremblay, and Marchand (2004): higher literacy is associated withmore rapid GDP growth. However, their result is greater in magnitude, possibly reflecting thegreater importance of literacy today. Similarly, they find that labour productivity growth isassociated with better literacy scores, and the magnitude of the correlation is greater than thatfound by Coulombe, Tremblay, and Marchand (2004). Finally, Schwerdt and Wiederhold (2018)
also find that literacy is a better predictor of growth than schooling, that female literacy has alarger effect on growth than male literacy, and that underinvestment in human capital (i.e.,
individuals with very low levels of literacy) is more harmful to growth than the development ofhighly talented individuals favours it.

5

Literacy in the IALS is measured on a 5-point scale.

12In an earlier paper, Bishop (1989) made similar observations regarding the relationship between
the skills of the workforce and the productivity of a nation. Using US data, the author argues thatthe decline in SAT scores between 1967 and 1980 was associated with the decline in labour
productivity growth in the 1980s. In his counterfactual analysis, the author claims that the
decline in test scores reduced GNP by 0.9 per cent by 1980 and 1.9 per cent by 1987. These
numbers suggest that quality of schooling plays extremely important role in economic growth.
These numbers might not represent a causal relationship, or could be slightly biased. However,more recent evidence such as the one presented in Hanushek and Kimko (2000) seems toconfirm the relationship between school test performance and productivity, and that therelationship may be causal.

1.2 Literacy and Individual Labour Market Outcomes
At the individual level, researchers have also found a positive impact of literacy on labour
market outcomes. This impact could be a direct effect of literacy, or an indirect effect throughthe better educational outcomes attained with better literacy skills. McCracken and Murray (2010)provide an overview of some of the most important impacts of literacy on individual outcomes.
This section starts by presenting some evidence for Canada, before discussing results specific to
the Indigenous population, and then some international evidence.
A number of studies were conducted using Canadian data. Charette and Meng (1998) wereamong the first to use objective measurements of literacy. Their data come from the Survey of
Literacy Skills Used in Daily Activities (LSUDA) of Statistics Canada, covering Canadians aged
16 to 69 years old, although the authors focus on Canadians aged 25 to 69 years old. This survey
employed face-to-face interviews, and obtained measures of reading ability and numeracy.6
Charette and Meng (1998) estimate regression equations using the reading and numeracy scoresas independent variables, and a number of outcomes as dependent variables. Compared to earlier
studies, the authors are able to include a large number of socio-economic and geographic
controls. For males, they find that literacy (defined in their study as reading ability) decreases thelikelihood of an unemployment spell in the last 12 months, and increases the likelihood ofworking full-time. For females, literacy does not affect these two outcomes. The coefficientswere not statistically significant for employment or labour force participation, for males or
females. The authors do find, however, that literacy increases the number of weeks worked in thepast 12 months. The authors find that for both males and females, increased literacy scores areassociated with higher income.
The authors also include the number of years of schooling in their estimations. They find that the
number of years of schooling positively affected most labour market outcomes, even whencontrolling for literacy scores. However, the effect of schooling on income is affected by theaddition of literacy and numeracy scores in the regression model. Moreover, the sensitivity
analysis is different for men and women. For men, the inclusion of literacy in the regression
6

The authors point out that the survey included a writing component, but that the data did not allow the computationof a measure comparable to the one for the two other categories.

13

model decreases the magnitude of the effect of education on income, while the opposite is true
for women. Generally then, the authors conclude that researchers studying the effects ofeducation should strive to include broader human capital indicators such as literacy. Regarding
the gender differences, the authors argue that choices of fields of study could be a driving factor.
Indeed, at least at the time their paper was written, females tend to choose domains such as artsand humanities, such that the number of years of education would be a less accurate measure ofmarketable human capital.
David Green and W. Craig Riddell published a number of studies in the 2000s looking at therelationship between literacy and labour market outcomes in Canada. Green and Riddell (2001)
use Canadian micro-data from the International Adult Literacy Survey (IALS), arguing, as
highlighted earlier in this report, that literacy is a better measure of human capital (i.e., the set ofskills, competencies, and knowledge) than formal educational attainment. As mentioned earlier
in the report, the IALS has three components: prose literacy, quantitative literacy, and document
literacy. Each component is measured on a 0-500 scale. Green and Riddell (2001) use theaverage of the three scores as their literacy indicator. They find that an increase of 10 points on
the literacy score increases annual earnings by about 3.1 per cent. Using the individual’s
percentile of the literacy score instead, they find that an increase of 10 percentiles (e.g., from themedian to the 60th percentile) is associated with an increase of 5.5 per cent in annual earnings.
Using hourly earnings instead, Green and Riddell (2001) find that a 10-point increase in theliteracy score increases earnings by 1.8 per cent. This result implies that about 60 per cent of theliteracy effect on earnings is due to increased hourly wages, and 40 per cent to an increase inworking hours.
Green and Riddell (2001) also look at the relationship between education, measured either as
years of schooling or highest level obtained, and earnings. Similarly to Charette and Meng
(1998), they find that the coefficient on education is smaller when including literacy, indicatingthat literacy itself is an important determinant of labour market outcomes. For example, whenestimating the impact of education without accounting for literacy, they find that compared toindividuals with only elementary school, high school graduates earn 50 per cent more, anduniversity graduates earn 100 per cent more. When controlling for literacy, high school graduates
earn only 18 per cent more than the base group, while university graduates earn 50 per cent more.
This substantive decrease in the coefficients highlights the importance of literacy in labour
market success. Green and Riddell (2003) find qualitatively similar results with slightly different
methods (i.e., quantile and median regressions). Ferrer, Green and Riddell (2006) also provide
additional evidence using another group of individuals that traditionally fares worse in the labour
market: recent immigrants. They find that literacy increases earnings, and at the same rate for
immigrant and native-born Canadians.
Green and Riddell (2007) revisit their estimates in a more recent paper, using data from the 2003
International Adult Literacy and Skills Survey (IALSS), an updated version of the IALS. Theyfind results similar to the earlier ones: average literacy increases earnings. However, they also14

disaggregate the literacy into its four components,7 and find that the impact of literacy onearnings depends on the type of literacy. In particular, document literacy and numeracy havesignificant impacts on earnings, while prose literacy and problem solving do not.
Green and Riddell (2015) provide a more recent update to their results, again using the Canadianpart of the IALSS. They find that formal schooling is the main determinant of literacy skills.
Notably, while education has a major impact on future earnings, literacy skills themselves have asignificant direct impact on future earnings. In particular, a 25-point increase in literacy andnumeracy skills (half of one standard deviation) is associated with an increase in earnings
equivalent to one additional year of schooling.
Osberg (2000) provides a more critical view of the results from the IALS. His critique also
applies to the more recent PIAAC. According to him, literacy is not readily measurable likeyears of education, or requires more assumptions to measure.8 Moreover, the literacy scores
reported in the datasets are not pure test results. Instead, they were imputed using test results andsocio-economic data, which may bias the results when including the scores in regression
estimations.
Shipley and Gluzynski (2011) instead use results from the Programme for International Student
Achievement (PISA), which includes a score for reading proficiency for 15 year olds. They also
use results from the Youth in Transition Survey (YITS), which followed students who
participated in PISA in 1999 until they were 25 years old. With these data, they are able todescribe the relationship between reading proficiency at 15 years old and labour market
outcomes at 25 years old. They find that individuals with low reading proficiency at 15 years old
are much more likely to have low educational attainment. For example, the share of individuals
that had completed high school at most by age 25 was 54.0 per cent for those with proficiency
below level 3, compared to 22.7 per cent of individuals with proficiency level 4 or 5. At
university level, the gap is even more considerable: 9.4 per cent of individuals with low reading
skills complete university compared to 45.7 per cent of those with high skills. A greater
proportion of low-skilled individuals tend to complete college (29.4 vs 20.6 per cent). These
poorer educational outcomes translate into poorer labour market outcomes. In particular, 14.8 percent of individuals with low skills are not in education or working at age 25, compared to 7.8 percent of those with high reading proficiency.

7

The 2003 version of the IALS adds the Problem Solving category to the three existing ones.
Moreover, the scores reported in IALS or PIAAC data do not have a cardinal interpretation; they only rank
individuals against each other. Osberg (2000) provides a detailed and critical discussion of the methodology used to
impute these scores. Briefly, since tests can take a long time to complete, each individual only answers a subset of
potential questions. Statisticians then use sophisticated tools to “predict” the score of each individual, also using
socio-economic information to do so.
815The Impact of Literacy on Labour Market Outcomes of First Nations in Canada
The 2003 version of the IALS included an over-sampling of First Nations in Canada, which
Green and Riddell (2007) leave out of their study, leaving it for later research. We did not findany research using this sample of First Nations in Canada from the 2003 IALS.
However, Arriagado and Hango (2016) conduct an analysis of the impact of literacy in the
Indigenous population using results from the 2012 Programme for the International Assessmentof Adult Competencies (PIAAC), a more recent survey of individuals aged 16 to 65 years old in
Canada and 23 other countries. The PIAAC measures both literacy and numeracy, with scores on
a 0-500 scale, and classifies individuals on 5 levels of ability. In this survey, literacy is defined as
the ability to understand and use written text in print and electronic format. Generally,
individuals reaching level 3 or higher have better outcomes on the labour market. In Canada, the
PIAAC oversampled Indigenous people living off reserve in Ontario, Manitoba, Saskatchewan,
British Columbia, and the three territories, making this survey particularly relevant for a study on
the outcomes experienced by Indigenous Canadians.
Arriagado and Hango (2016) focus on Indigenous people aged 25 to 65 years old. First, theyshow that First Nations off reserve have much lower levels of literacy than Non-Indigenous
Canadians. Only 35 per cent of First Nations off reserve reach level 3 in literacy, compared to 57
per cent of Non-Indigenous Canadians. The PIAAC also asks respondents to estimate how many
books were in their house when they were 16 years old. The gap in the presence of books during
teenage years could be one explaining factor for the gap in literacy between the two populations.
In a finding particularly relevant for the MSLP, Arriagado and Hango (2016) find that First
Nations off reserve who had more than 100 books in the home at age 16 are about 70 per centmore likely than those with 25 or fewer to reach literacy skills of level 3 or higher.
Comparing Indigenous and Non-Indigenous Canadians among those who had more than 100
books in the home, a literacy gap still exists: the predicted probability of obtaining level 3
literacy skills was 48.7 per cent for First Nations off reserve who have more than 100 books in
the home, compared to 68.3 per cent for Non-indigenous people. This gap of 19.6 percentage
points is only slightly lower than the gap of 21.0 percentage points between First Nations off
reserve and Non-Indigenous Canadians who had 25 or fewer books in the home.
Looking at the relationship between literacy and labour market outcomes, Arriagado and Hango(2016) find that First Nations off reserve who obtain better literacy skills are more likely to be in
employment. Among this group, the probability to be in employment is 75.2 per cent for thosewith level 3 literacy skills or higher, compared to 69.9 per cent for those with level 2 skills or
lower.9 However, the gap between First Nations off reserve and Non-Indigenous Canadiansremains at both skill levels. Indeed, Non-Indigenous Canadians with high literacy (level 3 orhigher) have a 91.2 per cent probability of being employed, compared to 86.7 per cent for thosewith low literacy (level 2 or lower). The data from PIAAC also detail employment in
9These numbers are controlling for education and a number of socio-economic factors.

16

professional and managerial occupation. Interestingly, for that type of job, literacy greatly
reduces the employment gap between First Nations off reserve and Non-Indigenous Canadians.
Among First Nations off reserve, the predicted probability to be in that type of employment is46.2 per cent for those with low literacy skills, compared to 65.8 per cent for those with highliteracy skills. Among Non-Indigenous Canadians, the respective probabilities are 53.4 per centand 69.8 per cent. Notably, this latter probability is not statistically significantly different fromthe 65.8 figure for First Nations off reserve high skill individuals. These numbers suggest thatconditional on being employed, the literacy skills of First Nations off reserve are valued in thelabour market, and people in that group receive benefits from having these higher skills.
International Evidence
The evidence from Canada mostly points in the same direction: higher literacy skills are strongly
associated with higher income and better labour market performance. Evidence from othercountries also support this conclusion.
In the United States, Kirsch et al. (1993) study the results of the National Adult Literacy Survey,
also finding strong correlations between literacy skills and labour market outcomes. Individuals
with poor prose and document literacy skills were more likely to be in poverty (43 per cent forlevel 1 and 23 per cent for level 2, compared to 12, 8 and 4 per cent for levels 3, 4 and 5,
respectively). Individuals with literacy skill levels 1 and 2 were also more likely to receive foodstamps as part of their income, and less likely to report receiving interests from savings accounts.
They were much more likely to be out of the labour force, and received much lower earnings on
average. Kirsch et al. (1993) also break down the population at different skill levels according to
occupation. They find that individuals with low skill levels are more likely to be in craft andservice jobs, or to be labourers, assemblers, fishermen, or farmers. In contrast, individuals withhigher skill levels were more likely to be in managerial or professional positions, while thosewith skills in the middle of the distribution (level 3) were more likely to be in sales or clerical
positions.
Also in the United States, Murnane et al. (1995) show that the importance of basic cognitive
skills might also increase over time. Their paper covers the 1970s and 1980s, and finds that skills
learned before age 8 became more important predictors of post-high school wages in the 1980s
compared to the 1970s. There are a number of more recent papers studying the link between
basic cognitive skills or literacy at the individual level in the United States. The goal of thisreport is not to provide an exhaustive summary of the literature, but many are listed in Hanushek(2002), for example.
A number of studies also find similar results using data from the United Kingdom. These include
Currie and Thomas (1999) and McIntosh and Vignoles (2001), who both find that better basic
literacy skills increase earnings later in life. In Brazil, Rocha and Ponczek (2011) also findsimilar results. Dougherty (2003) provides somewhat contradictory evidence from the United
Kingdom, arguing that numeracy is more important than literacy.

17

1.3 Literacy and HealthLow literacy is also often associated with poor health outcomes and behaviour, such as higher
rates of obesity, smoking, and drinking.10 De Coulon et al. (2010) review the vast literature on
the correlation between education and health outcomes, concluding that there is a robust
empirical association between the two. In one early study, Kirsch et al. (1993) describe results of
the National Adult Literacy Survey in the United States, finding that individuals with low
literacy levels are much more likely to report having physical disabilities, long-term illnesses,
hearing or visual difficulties, or any health impairments. The results from this survey do notindicate a causal relationship between low literacy and health difficulties: healthier people might
be more likely to stay in school, or richer families might invest in both more health and more
schooling. De Coulon et al. (2010) also warn against causal interpretations of most studies.
However, the consistency of results across countries and time periods do highlight theimportance of studying this relationship.
An important channel through which literacy might affect health is the concept of health literacy.
According to this concept, with better literacy skills, individuals have a better access to andunderstanding of health-promoting information (McCracken and Murray, 2010). For example, anindividual with better reading skills can follow medication instructions and self-manage better,leading to better outcomes (Dewalt and Pignone, 2005). This is increasingly important, since
hospitals often discharge patients earlier than in the past, leaving them to take more
responsibility for their health (Canadian Council of Learning, 2008).
The Canadian Council of Learning (2008) describes the relationship between health literacy andhealth outcomes in Canada, using the 2003 IALS survey and the 2003 Canadian Community
Health Survey. They find that the strongest relationship is between health literacy and theprevalence of diabetes. One explanation for this finding is that while genetics play a role in thedevelopment of diabetes, it is strongly influenced by individual behaviour. Moreover, once anindividual starts treatment for diabetes, it requires a fair amount of self-management that can bedifficult for individuals with low literacy skills. Schillinger et al. (2002), for example, find thatamong partients with type 2 diabetes, inadequate health literacy is associated with worse
glycemic control and a higher likelihood of complications from diabetes (measured in this study
by reports of retinopathy). Considering that diabetes is reaching epidemic levels among
Canadian Indigenous people (Reading and Wien, 2009), increasing literacy is particularly
important in these communities.
In the United States, Weiss et al. (1992) study the relationship between literacy and healthoutcomes using a sample of 193 persons. They measure their subjects’ reading skills and healthstatus, and find that those with reading skills below Grade Level 4 have Sickness Impact Profile

10

As earlier noted, the report will focus on the link between literacy and health, instead of education and health.
However, both measures and concepts are related. For the interested reader, Ross and Wu (1995) offer acomprehensive overview of the relationship between education and health, as a complement to the current report.

18

(SIP) scores almost twice as large.11 The relationship remained statistically significant after
controlling for a range of socio-economic variables. Sentell and Halpin (2006) also study the
impact of literacy on health in the United States using results from the National Adult Literacy
Survey (NALS), finding that low literacy is significantly correlated with a higher likelihood of
having a condition keeping the individual from work, as well as having a long-term illness.
Interestingly, with the inclusion of literacy in the regression estimations, the predictive power ofeducation on health disappeared. This result indicates that literacy differences might partly
explain how people with different educational attainment have different health statuses. The
inclusion of literacy also reduced the predictive power of race, but not in the sample of people
aged 65 years old or more. Therefore, while literacy might explain some of the health gap
between races in the United States, the results indicate that race also has a direct effect.
In the United Kingdom, Morrisroe (2014) studies the ability of individuals to understandinformation in a health care context. The author highlights a number of comparisons between
people who have adequate literacy skills and those who do not (based on levels defined in the2006 Leitch Review in the United Kingdom). For example, 95 per cent of adults with adequate
literacy skills know the symptoms of low blood sugar (hypoglycemia), vs. only 50 per cent of
those with low literacy. Individuals with low literacy also have difficulty identifying their
medication or how to take it according to instructions, and are more likely to show up at
emergency departments (especially for manageable conditions such as asthma or obesity-related
health problems). Also in the United Kingdom, De Coulon et al. (2010) study the impact ofliteracy and education on health-risky behaviours, concluding that education is the best predictor
for better behaviour instead of literacy.
Other channels might explain the relationship between literacy and health. Seccombe et al. (2005)
highlight some related possibilities. For example, consent procedures often contain complicatedlegal jargon, which may preclude individuals with low literacy from participating in someprocedures or in research.
Literacy could also affect the utilization of health services. Seccombe et al. (2005) discussresearch that shows that individuals with low literacy are less likely to be screened for breast or
prostate cancer, and thus more likely to be diagnosed at an advanced stage of the disease.
Individuals with higher literacy scores are also more likely to have health insurance and regular
health care providers. While health insurance is not as crucial in Canada as it is in the UnitedStates, some components of health care are not covered even in Canada, most notably
pharmaceuticals. Seccombe et al. (2005) study this issue with a sample of adults participating in
the Longitudinal Study of Adult Learning (LSAL) in the United States (specifically in Portland,
Oregon). From the LSAL, the authors use variables capturing the use of health services, such as
visiting a doctor’s office, staying overnight at a hospital, prescription medicines, emergency
Sickness Impact Profile (SIP) is “a behaviourally-based measure of sickness-related dysfunction” (Weiss et al.,1992). It includes information on 136 items in 12 categories covering a wide range of daily activities: mobility,
alertness, social interactions, sleep, eating, etc. In Weiss et al. (1992), the test was administered orally to avoid
measurement error due to low literacy.
11

19

visits, and telephone contact with nurses or doctors. They also include a variable indicating
whether the individual has health insurance, and measures of health status and literacy skills.
The authors find that 76.9 per cent of low-literacy individuals (level 1) in the sample have ausual provider, compared to 84.7 per cent of high-literacy individuals (levels 4 and 5). Similarly,
63.9 per cent of low-literacy individuals have health insurance, compared to 79.4 per cent ofhigh-literacy individuals. Almost double the share of low-literacy individuals (35.6 per cent)report having difficulties accessing health care, compared to high-literacy individuals (18.8 percent). That being said, low-literacy individuals are more likely to visit a clinic, to contact aphysician or nurse by phone, and to visit an emergency room. In other words, low-literacy
individuals use health services more frequently, but are less likely to have a usual provider.
In addition, individuals with lower literacy are more likely to work in jobs that expose them togreater health and safety risks (De Coulon et al., 2010). In turn, these jobs require a greater levelof health literacy (McCraken and Murray, 2010). This argument is related to the work of Marmot(2004), who finds that social status and health are closely related.

1.4 Literacy and Crime
Better literacy scores are also associated with a lower likelihood to be involved in criminal
activities. In the United States, for example, 85 per cent of juveniles and 60 per cent of adults inthe criminal justice system are functionally illiterate (EveryLibrary Insitute, 2019). In Canada,
offenders are three times as likely as the rest of the population to have low literacy, as defined in
the 2003 IALS, which includes prose and document literacy, as well as numeracy and problemsolving skills (Canadian Association of Chiefs of Police, 2009). More precisely, 65 per cent ofpeople entering correctional facilities have reading skills lower than the equivalent of Grade 8.
However, the relationship between literacy and crime is complicated. For example, a poor social
environment with few opportunities may be the cause behind both low literacy and a life in crime.
Morrisroe (2014) argues, however, that low literacy could exacerbate risk factors associated withcriminal offenses: truancy, poor experience of education, poor employment outcomes, etc. Low
literacy skills, then, make it less likely for an individual to pursue higher education, thus
reducing that individual’s job market prospects. Faced with that reality, some engage in criminal
activities instead of continuing through school. The Canadian Association of Chiefs of Police(2009) provide evidence supporting this: at least 75 per cent of adults in prison were persistentoffenders in their youth.
Once they enter the criminal justice system, offenders with low literacy skills are often facedwith a number of complicated documents to read and decisions to make. The legal system isfilled with jargon, and can be difficult to understand even for a highly skilled individual(Canadian Association of Chiefs of Police, 2009). In turn, the person may enter the wrong plea(e.g., plead guilty to make the problem go away) or be re-arrested if they are released and did notunderstand the conditions.

20

Low literacy could also be associated with a higher probability of recidivism. Steurer (1996;
cited in Vacca, 2008) finds that inmates who underwent correctional education during their stay
in prison were 20 per cent less likely to re-offend compared to the general prison population. In
fact, if literacy is a problem to begin with, we should expect released individuals to re-offend,
since they will still face poor labour market prospects, maybe even poorer than before their first
offense (Hendricks et al., 1996).
The next section will discuss evaluations of literacy-related policy interventions in greater detail,but one result warrants discussion here. Indeed, improving literacy skills early has been shown to
reduce crime. For example, in the United States, Heckman et al. (2010) argue that between 40
and 65 per cent of the benefits of the Perry pre-school program in Chicago were due to reduction
in crime.

1.5 Literacy and Social Engagement
Individuals with better literacy scores tend also to be more engaged within their community. For
example, they are more likely to vote in elections. Indeed, they might have more information on
the voting and registration process, have more time to go vote, and more interest or time ingetting information prior to voting.
Kirsch et al. (1993), in their discussion of the results from the National Adult Literacy Survey in
the United States, find that the proportion of adults reporting having voted in a recent (last five
years) state or national election is strongly correlated with literacy levels. Of those with level 5
prose literacy skills, 89 per cent reported doing so, compared to only 55 per cent of individuals
with level 1 skills.
Social engagement is not only about voting; individuals also stay up-to-date on current events byreading newspapers, watching television, or listening to radio. Kirsch et al. (1993) reports that
low-literacy individuals are only slightly less likely to read newspapers, especially for news andeditorials (92 vs 100 per cent). However, individuals of all skill levels were about as likely to gettheir information on current events from television or radio. Therefore, while low-literacy
individuals are less likely to vote, they do attempt to stay informed on current events.
Kaplan and Venezky (1994) also study the likelihood of voting according to literacy status in the
United States, but do not measure literacy skills directly. Instead, these authors use data from theYoung Adult Literacy Survey (YALS) on reading practices of individuals and on educationlevels. They find that increased educational attainment is associated with a greater propensity tovote, and that individuals who kept up with serious news (i.e., on national, financial, or politicalsubjects, rather than softer general interest news) are more likely to vote. However, their results
are most likely not causal, and the authors make assumptions that might not stand today (e.g.,that it is impossible to obtain serious news on television).
In Canada, Green and Riddell (2007) offer some evidence based on the 2003 IALSS. They findthat low-literacy individuals (level 1) are actually more likely to vote in municipal elections

21

(67.9 per cent) than individuals in the two highest literacy levels (61.7 per cent). However, highliteracy individuals were more likely to vote in federal elections: 84.2 per cent vs. 79.5 per cent.
Green and Riddell (2007) also have data on other types of participation in social life. They findthat low-literacy individuals are less likely to directly participate in political organizations (2.6
per cent vs. 6.7 per cent of high-literacy individuals). Moreover, they were much less likely toparticipate in community or school organizations. Indeed, 11.4 per cent of individuals in the lowliteracy group participated in these organizations, compared to 47.4 per cent of the high-literacy
group. Green and Riddell (2007) are cautious in the interpretation of their results, noting thatthey do not imply a causality from literacy to participation. However, they do argue that theevidence points in favour of Sen’s (1999) point that literacy allows a fuller participation insociety.

2. Quantifying the Impact of Improved Literacy of First Nations on Reserve in
CanadaIn this section, the report will estimate the potential benefits and costs, and return on investment,of the Model Schools Literacy Program or of similar programs it could inspire in the future. For
the purpose of this report, the benefits are limited to fiscal impacts on Canadian governments,
including cost savings on a number of government expenditures and additional tax revenues.
When interpreting the results, it is important to remember that additional personal benefits accrue
to the students participating in the program also. For example, they will be healthier, have greater
incomes, and be less likely to spend time in prison. These improvements in well-being are notbeing captured.
Research on the effectiveness and social impact of educational programs in Canada is rare. To
develop our methodology, we look at a study done in the United Kingdom. In particular, themethodology was developed as an adaptation to the context of First Nations reserves in Canada
of a report by the KPMG Foundation (2009)12 that estimated the potential return on investment
for the Every Child a Reader initiative, a literacy-improving program in the United Kingdom.

2.1 Methodology
The methodology is based on the substantial literature reviewed in the previous sections findingthat increasing literacy will lead to improved outcomes on a number of measures for the students
involved in the program. In turn, that will result in reduced costs or additional revenues forgovernments. For each measure, we estimate the cost savings for governments that result frombetter outcomes due to the improvement in literacy. The measures included in this study are notcomprehensive. They are: diabetes; incarceration; welfare and employment insurance payments;
foregone taxes; substance abuse; teenage pregnancies; and additional special education costs andadult literacy classes.

12

The 2009 publication is the second edition of the report, first published in 2006.

22

To summarize the methodology we use to calculate the cost savings to governments (i.e., thebenefits from the MSLP), we first find the number of additional students in a cohort that willobtain high literacy skills as a result of the MSLP. Then, we multiply that number of students by
the annual per-student cost savings for each measure to obtain aggregate cost. For costs that are
repeated in time, such as welfare payments or diabetes treatment costs, we then use the aggregateannual savings for each measure to calculate the discounted total benefits over the lifetime of thestudents in the cohort. Finally, we sum the costs savings or additional revenues on all measures
to obtain the total benefits of the program.
The method requires four steps. First, the target population must be defined. In this case, thetarget population is a one-year cohort of students in on-reserve schools. For the purpose of theanalysis, a cohort is defined as the group of students who start school at the same time, in any
given year (e.g., all the on-reserve students starting school for the first time in September 2020).
This assumes that the program will expand, or be scaled up to every school, either directly withan investment in every on-reserve school, or indirectly through a “demonstration effect.” In otherwords, the MSLP itself could be expanded to other schools, or other organizations could take theinsights from the program and apply them to other schools. Moreover, schools themselves could
learn from the MSLP and start their own program.
This report estimates that the target population is 7,133 students in a cohort in on-reserve schools.
This number is calculated based on an estimate of 71,325 First Nations children aged 5 to 14
living on reserves from the 2016 Census (Statistics Canada, 2018), divided by the 10 grades
covered in this age group. This might be an over-estimation of the target population, as some ofthe students attend provincial schools off-reserve. However, most of the on-reserve students
attending provincial schools are at the secondary school level, which is not relevant for the
MSLP. Moreover, some aspects of the program could be expanded to provincial schools, thus
covering some of these students as well.
Second, we need an estimation of the success rate of the intervention. From the population of
students in a cohort in which the MSLP was implemented, how many will actually reach higher
levels of literacy? In this report, we assume the success rate based on the pilot study started by
the Martin Family Initiative in 2010. O’Sullivan (2016) and Geddes (2015) state that five years
after the pilot study took place, 67 per cent of participating Grade 3 students met or exceeded theprovincial reading standard (up from 13 per cent), and 91 per cent met or exceeded the writing
standard (up from 33 per cent).13 Therefore, the share of students meeting the reading standards
increased by 54 percentage points, and the share meeting writing standards increased by 58
percentage points. The report will take the average of these two improvements (56 percentage
points) as the success rate. In other words, we assume that 56 per cent of students in a givencohort reach appropriate literacy skills while they would not have done so before participating in
These numbers are based on tests administered to students that participated in a pilot study. Ontario’s provincial
assessment of reading and writing (EQAO) were administered to the students in the pilot schools. The EQAO
assigns scores from Level 1 to Level 4. The provincial standard is Level 3. It is therefore different from the tests
administered in the IALS or PIAAC studies, which assign a score from Level 1 to Level 5, and on which moststudies are based. We assume that Level 3 of the EQAO corresponds to the Level 3 of IALS.
13

23

the MSLP.14 This success rate is lower than the one used by the KPMG Foundation in theirreport (79 per cent).
Third, the methodology requires an estimate of the incidence of the “bad” outcomes related toeach measure at different literacy skill levels. For example, the report estimates that about 26.9
per cent of Indigenous individuals with low literacy skills are diagnosed with diabetes, compared
to about 13.2 per cent of those with high literacy skills.15 With these two incidences, we calculate
how many students in a cohort will usually be affected by the bad outcome on each measure, andthe counterfactual number of students in that cohort that would be affected if literacy skill levels
were higher. Returning to the example of diabetes (26.9 vs. 13.2 per cent), the differential
incidence rate is equal to 13.7 percentage points. Applying that differential rate to the target
population (7,133 students), we obtain a total of 642 fewer students per cohort who would be
diagnosed with diabetes in their lifetime due to higher literacy after the introduction of the MSLP.
In practical terms, we are not always able to obtain incidence data specific to the First Nations on
reserve. When it is not available, we use data for the general Indigenous population if available,or for the general population if more specific data are not available. While the incidence levels
are thus not exactly representative of the First Nations on reserve, these figures are the best
estimates available. In addition, we do not rely on incidence levels, but on the gap between theincidences at lower and higher levels of literacy. The assumption that increasing literacy leads tothe same improvement in outcome (albeit from different levels) is at least more realistic.
Finally, the fourth step required an estimation of the unit cost savings for governments associatedwith improvements in outcomes for each measure. It is equal to the government spending perperson that is affected by the bad outcome for each measure. For example, the report finds thatthe cost for diabetes includes treatment costs, visits to hospitals and clinics, and is estimated at$1,173 (2020 dollars) annually per person diagnosed with diabetes (Canadian Diabetes
Association, 2011) . The methodology focuses on government expenditures, so it does notinclude out-of-pocket expenses made by individuals. Each unit cost is also accompanied by afrequency and duration assumption, to calculate the cost over an individual’s lifetime. For
example, the unit cost associated with diabetes is repeated annually from the year of diagnosis
until death. We obtain data on unit cost savings from a variety of sources, so the estimatesobtained for unit cost savings associated with different measures are obtained for different years.
We convert all unit cost savings to 2020 dollars assuming a 2 per cent annual inflation rate.

14

Since the two pilot schools were not chosen randomly, the success rate for future cohorts could be lower than 56
per cent. However, as seen later in the report, even a much lower success rate (even lower than a quarter of thecurrent rate) would translate in a positive rate of return according to our analysis.
15
For most of the measures, we define “low literacy” as skills corresponding to Levels 1 and 2 as defined in the
IALS, while we define “high literacy” as skills corresponding to Level 3. As explained in a report of the Conference
Board of Canada by Campbell and Gagnon (2006), Level 3 skills are the minimum required to cope with everyday
life and work, and is the level that should be required to complete high school and enter college. In addition, theselevels correspond approximately to the goals of the MSLP (level 3 of the EQAO). However, data limitations meanthat estimates for high literacy sometimes correspond to Levels 3, 4, and 5 of the IALS instead.

24

These components are used to calculate the cost savings for governments for each measure j
using the following equation:
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 𝑇𝑎𝑟𝑔𝑒𝑡 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 × 56% × ∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒𝑗 ×

𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡
𝑃𝑒𝑟𝑠𝑜𝑛In this equation, ∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒𝑗 represents the differential incidence of the bad outcome formeasure j. In other words, it is the difference between the incidence of that outcome in the lowliteracy population and the incidence in the high-literacy population.
From this equation, we obtain annual cost savings. We are interested in the total cost savings
over these students’ lifetimes after they leave school. For one-time cost savings, we assume thatthey occur in the first year. For cost savings that are repeated annually, we calculate annual
discounted benefits in constant 2020 dollars for every year from the end of schooling until theretirement age of 65 years old (for employment-related outcomes) or until the life expectancy(for other outcomes), assuming a life expectancy of 76 years among the First Nations in Canada(Statistics Canada, 2010).16
The KPMG Foundation report used a discount rate of 3.5 per cent for the first 30 years, and 3.0
per cent thereafter. In Canada, the Treasury Board (2007), in their guidelines for cost-benefit
analysis, recommend a discount rate of 8 per cent, but note that in many circumstances, a lower“social discount rate” might be more appropriate. The guidelines suggest a rate around 3 per cent.
In this study, we follow Seens (2015) and use the average over the past ten years of the interest
rate on long-term federal government bonds. Between September 2009 and October 2019, theaverage yield on Government of Canada benchmark bonds (long term, or 30 years) was 2.6 percent. For comparison purposes, the rate was 1.7 per cent in November 2019. We use the ten-year
average as the discount rate for the whole period in the study. For comparison purposes, we also
provide non-discounted estimates in the final section, as well as an estimate using the current rate
as the discount rate (1.7 per cent).
The total benefits to government from improving outcomes for measure j are therefore calculated
as such (with T the total number of years relevant to the measure):
𝑇

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗,𝑇 = ∑𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡(1 + 0.0261)𝑡
𝑡=0

16

Statistics Canada (2010) provides a projection to 2017 of the life expectancy at birth of First Nations for males(73.3 years) and females (78.4 years). We take the average of the two, and round it to the closest integer. Ideally, thereport would use life expectancy at a later age, but First Nations data were unavailable for that indicator.

25

2.2 Estimations of Benefits by Measure
The report now turns to the application of the methodology described above to each of themeasures chosen. For each measure, we describe the assumptions used to determine theincidence rates and unit costs, and then calculate the cost savings and discuss them.
Diabetes
The first section of this report highlighted the importance of literacy as a determinant of healthstatus. In Indigenous communities, and especially among First Nations on reserves, diabetes is
one of the main health problems. As argued earlier, it is also one that can be exacerbated by low
literacy, since the treatment requires some self-management. According to a document publishedby the Canadian Diabetes Association (2011), diabetes is predicted to cost about $3.8 billion(2009 dollars) in direct costs linked to medical treatment and about $12.1 billion (2009 dollars)
in indirect costs (long-term disability, premature mortality, loss of economic output, etc.) in 2020
in Canada. The same document states that also by 2020, 4.2 million Canadians will be affected(about 10.8 per cent of Canadians). Focusing on direct costs only, since they are more relevant togovernments, these numbers translate to a total cost of $910 per person afflicted with diabetes.
Converted to 2020 dollars, this amounts to $1,131. In the context of First Nations reserves, thisnumber might be under-estimated since the treatment costs could be higher in remote regions.
In terms of incidence, the Assembly of First Nations (2011) states that about 20 per cent of First
Nations in Canada suffer from diabetes. For First Nations on reserve, the actual incidence ofdiabetes is likely higher, thus introducing a downward bias to our estimates. The data on theincidence of diabetes are also not available by literacy level, whether for the First Nations on
reserve or the overall Canadian population. A report by the Canadian Institute for Health
Information (2015), however, do break down obesity rates by income levels: the prevalence ofdiabetes in the low-income Canadian population (bottom quintile) is 10.0 per cent and theprevalence of diabetes in the high-income Canadian population (top quintile) is 4.9 per cent.
Since literacy skills are correlated with income, we use this information to estimate the incidenceof diabetes at different literacy skill levels.
We also know that 60 per cent of the Indigenous population has low literacy skills (Gulati,2013).17 Then, we can estimate the diabetes rate by literacy level by decomposing the overall
First Nations diabetes rate (i.e., 20 per cent) as a weighted average of the diabetes rates among
the First Nations population with the two literacy levels:
20% = (𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿 ∗ 60%) + (𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐻 ∗ 40%)
where 𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿 is the diabetes rate of the low-literacy First Nations population, and𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐻 the diabetes rate of the high-literacy First Nations population. Assuming that the17

Gulati (2013) relies on data from the IALSS, and defines low literacy in that case as skills lower than Level 3, as
discussed before in this report.

26

ratio of the diabetes rates by literacy levels is the same in the general population and in the First
𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐻
4.9 %Nations population (i.e., 10.0=), then we can express the weighted average as such:%
𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿
4.9
20% = (𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿 ∗ 60%) + (∗ 𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿 ∗ 40%)
10.0
Then, we can solve for the diabetes rate of the low-literacy First Nations population:
𝐷𝑖𝑎𝑏𝑒𝑡𝑒𝑠𝐹𝑁,𝐿 =

20 %
4.9
60% + (10.0 ∗ 40%)

This calculation gives an estimate of the diabetes rate of 25.1 per cent in the low-literacy First
Nations population. Applying the ratio of incidences in the overall Canadian population (4.9/10)
to that number, we obtain an estimate of the diabetes rate of 12.3 per cent in the high-literacy
First Nations population.
Since the costs to governments due to diabetes is annual, it has to be summed over the number ofyears the target population will live with diabetes on average. According to the National Reportof the First Nations Regional Health Survey, a document published by the First Nations
Information Governance Centre (2018), the average First Nations diabetes diagnosis occurs at
37.8 years old. Therefore, in our calculations, we assume that annual costs associated withdiabetes are equal to zero until 37 years old,18 and $1,131 thereafter. Because we discount costsavings when summing them, the average diagnosis age of 37.8 years old introduces another
downward bias to the estimates. Indeed, the average diagnosis age conceals diagnoses atdifferent ages. Obviously, earlier diagnoses cost more than later one. However, the additional
years of treatment for an individual diagnoses earlier than at the average age cost much morethan the “savings” from years in which an individual that is diagnosed late does not needtreatment, simply because the early years are discounted much less than later years.

18

Assuming an average patient is diagnosed at 37.8 years old, treatment costs start in the 38th year. The treatment
costs in that first year will be lower than the per person costs we estimated, since it is only part of a year. However,
we assume that adding the expenditures for visits to doctors and diagnosis tests should make up part of thedifference in the first year.

27

Table 1: Estimation of Diabetes-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of diabetes in low literacy population
Incidence diabetes in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort diagnosed with diabetes once out of school
Before the program (3,994 ∗ 25.1%)
After the program (3,994 ∗ 12.3%)
Difference (3,994 ∗ 12.8%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 511.9 ∗ 1,131
Total discounted cost savings summed over the lifetime of a cohort (37 years
old to 76 years old)

7,133
3,994
25.1 %
12.3 %
12.8 %
1,003.6
491.8
511.9$1,131$579,998$6,165,749

Table 1 summarizes the calculations done in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of diabetes. We find that as a result of the increased
literacy skill levels, about 512 fewer of the students in the cohort of 7,133 would be diagnosed
with diabetes. That would lead to annual savings of $578,998, or $6,165,749 over the lifetime ofa cohort of students in the program.
Incarceration
Indigenous Canadians are greatly over-represented in Canadian prisons. Despite representing
only about 4 per cent of the population, they represented about 30 per cent of the admissions tofederal and provincial/territorial prisons in 2017/2018 (Malakieh, 2019). For comparison
purposes, they represented about 20 per cent of admissions in 2007/2008. One contributing
factor to the over-representation of Indigenous Canadians in prisons is the higher share ofindividuals with low literacy skills in that population.
We estimate the cost of incarceration using data from the Parliamentary Budget Officer (2018),
who assess the cost of incarceration in federal prisons at $119,216 per prisoner, per year
(converted to 2020 dollars).19 We do not know the average sentence length for the First Nations
population (on- or off-reserve), but the Department of Justice Canada (2004) does provide a
median incarceration length for Indigenous youth of 212 days (including all Heritage groups).
The median sentence length is less sensitive to outliers such as very long sentences for murders,and it under-estimates how long incarcerated Indigenous Canadian spend in prison. In addition,
sentences might be longer for on-reserve First Nations in Canada than for Indigenous Canadians
as a whole.

19

On average, provincial prisons have lower costs, since they have different needs and prisoners with shorter
average sentence lengths (PBO, 2018). For simplicity, we assume that costs per inmate are equivalent in provincial
and federal prisons.

28Indigenous Canadians are also more likely to recidivate than non-Indigenous Canadians.
LaPrairie (1996) puts the likelihood of recidivism for Indigenous Canadians at 51 per cent(compared to 28 per cent for non-Indigenous Canadians). For our calculations, we assume thatwhen incarcerated, First Nations on reserve spend time in prison equal to the median sentence
length (assuming that the average for the Indigenous population applies to the First Nations on
reserve), and that 51 per cent of them recidivate once (and serve the same sentence length), for atypical virtual sentence length of 212 𝑑𝑎𝑦𝑠 × 1.51 = 320.12 𝑑𝑎𝑦𝑠. This is likely an underestimation, since many recidivate more than once, and sentence lengths likely increase for every
sentence beyond the first.
The likelihood of being incarcerated varies according to literacy level as well. To calculate
incidence rates of incarceration by literacy skill level, our starting point is the estimate that 65
per cent of the prison population has low literacy skills (Canadian Association of Chiefs of
Police, 2009). We also know that in 2017-2018, there were 38,786 inmates in federal andprovincial/territorial prisons, or 13.1 per 10,000 (Malakieh, 2019), and that 42 per cent of
Canada’s population has literacy skills falling in levels 1 and 2 (Canadian Association of Chiefsof Police, 2009). We can use these numbers to estimate the incidence rate of incarceration inboth literacy skill level, by dividing an estimate of the number of inmates with low (high)literacy skills in Canada by an estimate of the total population with low (high) literacy in Canada:(65% ∗ 38,786) 𝑙𝑜𝑤 𝑙𝑖𝑡𝑒𝑟𝑎𝑐𝑦 𝑎𝑑𝑢𝑙𝑡 𝑖𝑛𝑚𝑎𝑡𝑒𝑠= 20.7 𝑝𝑒𝑟 10,000
𝑙𝑜𝑤 𝑙𝑖𝑡𝑒𝑟𝑎𝑐𝑦 𝑎𝑑𝑢𝑙𝑡 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 (42% 𝑜𝑓 𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛𝑠)(35% ∗ 38,786) ℎ𝑖𝑔ℎ 𝑙𝑖𝑡𝑒𝑟𝑎𝑐𝑦 𝑎𝑑𝑢𝑙𝑡 𝑖𝑛𝑚𝑎𝑡𝑒𝑠= 8.1 𝑝𝑒𝑟 10,000ℎ𝑖𝑔ℎ 𝑙𝑖𝑡𝑒𝑟𝑎𝑐𝑦 𝑎𝑑𝑢𝑙𝑡 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 (58% 𝑜𝑓 𝐶𝑎𝑛𝑎𝑑𝑖𝑎𝑛𝑠)
These calculations indicate that the rate of incarceration among low-literacy adults is 20.7 per
10,000 (0.21 per cent) and that the rate of incarceration among high-literacy adults is 8.1 per
10,000 (0.08 per cent). Low-literacy individuals are thus about 2.5 times more likely to beincarcerated.
These numbers, however, are for the general population. We adjust them for the Indigenous
population using the ratio of these two incidences (20.7 and 8.1 per 10,000) and the overall
Indigenous incarceration rate of 90.8 per 10,000 population, or 0.98 per cent (for all Heritagegroups).20 This latter figure is estimated using data from Justice Canada (2018), stating that 33.1
Indigenous individuals per 10,000 are incarcerated in federal prisons (all Heritage groups), towhich we add an estimate of the incarceration rate in provincial/territorial prisons based on theratio of federal to provincial adult prison population overall provided by Malakieh (2019):
14,129 in federal prisons to 24,657 in provincial/territorial prisons. We also know that 60 per
cent of the Indigenous population has low literacy skills (Gulati, 2013).
20

Due to lack of data specifically about on-reserve First Nations, we rely here on data for the Indigenous population
as a whole.

29

Then, we can estimate the incarceration rate by literacy level by decomposing the overall
Indigenous incarceration rate as a weighted average of the incarceration rates among the
population with the two literacy levels:
90.8 𝑝𝑒𝑟 10,000 = (𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿 ∗ 60%) + (𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐻 ∗ 40%)
where 𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿 is the incarceration rate of the low-literacy Indigenous population,and 𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐻 the incarceration rate of the high-literacy Indigenous population.
Assuming that the ratio of the incarceration rates by literacy levels is the same in the general
𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐻
8.1 𝑝𝑒𝑟 10,000
population and in the Indigenous population (i.e., 20.7=), then we can𝑝𝑒𝑟 10,000
𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿express the weighted average as such:
90.8 𝑝𝑒𝑟 10,000 = (𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿 ∗ 60%) + (8.1∗ 𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿 ∗ 40%)
20.7

Finally, we can solve for the incarceration rate of the low-literacy Indigenous population:
𝐼𝑛𝑐𝑎𝑟𝑐𝑒𝑟𝑎𝑡𝑖𝑜𝑛𝑖𝑛𝑑.,𝐿 =90.8 𝑝𝑒𝑟 10,000
8.1
60% + (20.7 ∗ 40%)

This calculation gives an estimate of 120.1 incarcerations per 10,000 (or 1.2 per cent) in the lowliteracy Indigenous population. Applying the ratio of incidences in the overall Canadian
population (8.1 and 20.7 per 10,000) to that number, we obtain an estimate of 40.0 incarcerations
per 10,000 people (or 0.4 per cent) in the high-literacy Indigenous population.21
We assume here that the rates are the same for the overall Indigenous population and the First
Nations on reserve. In reality, the rate is probably higher for the First Nations on reserve. If thehigher rate also translates in a larger gap between the two literacy level groups, it would bias our
results downwards.
Table 2 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of incarceration. We find that as a result of the increased
literacy skill levels, about 32 fewer of the students in the cohort of 7,133 would be incarcerated.
That would lead to annual savings of $3,344,646. That cost includes the recidivism rate, and weassume it is incurred at 18 years old, after the last year of mandatory schooling. Discounting at a
rate of 2.6 per cent, we thus obtain a present value of $2,392,678. It is lower than the calculated
nominal value because cost savings taking place in the future are worth less than those taking
place today.

21

This estimation is most likely biased upwards. Indeed, the high-literacy group includes individuals with literacy
skills of levels 4 and 5. However, without better data, it is currently the best possible estimate of the difference
between incarceration rates by literacy level.

30

Table 2: Estimation of Incarceration-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of incarceration in low literacy population
Incidence of incarceration in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort incarcerated
Before the program (3,994 ∗ 1.2%)
After the program (3,994 ∗ 0.4%)
Difference (3,994 ∗ 0.8%)
𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛 (median sentence length, including recidivism)
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 32.0 ∗ $104,558
Discounted cost savings over the lifetime of a cohort (occurs at 18 years old)

7,133
3,994
1.2 %
0.4 %
0.8%
48.0
16.0
32.0
$104,558$3,344,646$2,392,678

Welfare Payments
As discussed in the previous section, higher literacy skills are associated with better labour
market outcomes. These better outcomes should translate into lower dependency on welfare andlower unemployment. This report will thus measure the cost savings to governments (i.e., lower
welfare payments) associated with higher literacy on these two outcomes. To do so, we will relyon Murray et al. (2009), who estimate the savings in welfare payments that would result fromsuddenly lifting Canadians with literacy skill levels 1 and 2 to level 3 (i.e., low literacy to highliteracy as defined in this report).22
For welfare, they estimate the cost savings at $542 million in 2003. They calculate these savings
based on a reduction in the number of welfare recipients of 80,000, resulting in annual savings of$6,775 per recipient, or $9,487 per recipient in 2020 dollars assuming a 2 per cent annual
inflation rate and no real growth in the welfare benefits between 2003 and 2020. The welfare
incidence rate by literacy skill level is estimated using data from Shalla and Schellenberg (1999),
who estimate an incidence rate for welfare of 22 per cent for the population with literacy skill
level 1, compared to 11 per cent for the population at level 2, 8 per cent at level 3, and 3 per centat levels 4 and 5.23 We consider levels 1 and 2 to be low literacy skills. Therefore, the average
welfare incidence among those of skills at levels 1 and 2 is 16.5 per cent.
Since this is the incidence for the whole Canadian population, we need to adjust it for the onreserve population. The overall welfare dependency rate on Canadian reserves is equal to 29.9
per cent (Indigenous Services Canada, 2019). Considering that 60 per cent of the Indigenous
population has low literacy skills (Gulati, 2013), and assuming it is equivalent on reserves, 24 we
can estimate the welfare incidence rate by literacy level by decomposing the overall welfare

22

More specifically, they find this estimate using propensity score matching and micro-data from the 2003 IALS.
The incidence rate at levels 4 and 5 is inferred using information from the table in Shalla and Schellenberg (1999).
24
Unfortunately, data on the on-reserve First Nations population specifically were not available.
23

31

incidence rate as a weighted average of the rates among the two populations at different literacy
levels:29.9% = (𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿 ∗ 60%) + (𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐻 ∗ 40%)
where 𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿 is the welfare incidence rate of the low-literacy First Nations population,and 𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐻 the welfare incidence rate of the high-literacy First Nations population.
Assuming that the ratio of the welfare incidence rates by literacy levels is the same in the general
𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐻
8%
population and in the First Nations population (i.e., 16.5%=), then we can express the
𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿weighted average as such:
29.9% = (𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿 ∗ 60%) + (8∗ 𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿 ∗ 40%)
16.5

Then, we can solve for the welfare incidence rate of the low-literacy First Nations population:
𝑊𝑒𝑙𝑓𝑎𝑟𝑒𝐹𝑁,𝐿 =29.9%
860% + (
∗ 40%)
16.5

This calculation gives an estimate of 37.7 per cent in the low-literacy on-reserve First Nations
population. Applying the ratio of the incidences in the overall Canadian population (8 and 16.5
per cent) to that number, we obtain an estimate of 18.3 per cent in the high-literacy on-reserve
First Nations population.
Table 3: Estimation of Welfare-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of welfare status in low literacy population
Incidence of welfare status in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort receiving welfare payments
Before the program (3,994 ∗ 37.7%)
After the program (3,994 ∗ 18.3%)
Difference (3,994 ∗ 19.4%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 775.0 ∗ $9,487
Discounted cost savings summed over the lifetime of a cohort (from 18 to 65
years old)

7,133
3,994
37.7 %
18.3 %
19.4%
1,504.3
729.4
775.0$9,487$7,351,759$146,733,649

Table 3 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of welfare payments. We find that as a result of theincreased literacy skill levels, about 775 fewer of the students in the cohort of 7,133 would be32

receiving welfare payments. That would lead to annual savings of $7,351,759. Assuming thatthese savings are repeated annually over the course of the students’ work lifetimes (18 to 65
years old), the net present value is equal to $146,733,649.
Employment Insurance Payments
For employment insurance (EI), the cost savings are also obtained from Murray et al. (2009),
who find that lifting the literacy skills of people with skills level 1 and 2 to level 3 would save
$4,351 million in EI payments in 2003. They calculate this savings based on a reduction in thenumber of EI recipients of 511,000,25 translating in savings of $8,515 per recipient, or $11,923
per recipient in 2020 dollars assuming a 2 per cent annual inflation rate and no real growth in the
EI benefits between 2003 and 2020. It is important to note that while First Nations on reserve are
exempt from paying income tax, they do usually pay employment insurance premiums if theywork, and are eligible for these benefits (Canadian Revenue Agency, 2019).26
The EI incidence rate is based on data from Shalla and Schellenberg (1999), who estimate thatthe incidence rate of receiving employment insurance benefits is 21 per cent at literacy skill level
1, 21 per cent at level 2, 19 per cent at level 3, and 11 per cent at levels 4 and 5. Again, thesenumbers have to be adjusted for the First Nations on reserve. According to the 2016 Census,
First Nations on reserve had an unemployment rate of 24.9 per cent, compared to 7.4 per cent for
the non-Indigenous population (a ratio of 3.36). We assume that unemployed individuals on
reserves are all receiving EI benefits, although some might be unemployed but ineligible forbenefits or have their benefits exhausted, thus biasing our results upwards.
Considering that 60 per cent of the Indigenous population has low literacy skills (Gulati, 2013),
and assuming it is the same on reserves,27 we can estimate the EI incidence rate in the First
Nations population by literacy level by decomposing the overall EI incidence rate as a weighted
average of the rates among the two populations at different literacy levels:
24.9% = (𝐸𝐼𝐹𝑁,𝐿 ∗ 60%) + (𝐸𝐼𝐹𝑁,𝐻 ∗ 40%)25

On average, in 2003, there were about 840,000 EI recipients. The reduction of 511,000 recipients estimated by
Murray et al. (2009) thus represents a large share of total recipients. Looking closer at provincial estimates, Murray
et al. (2009) assume large reductions in EI incidence due to literacy improvements. For example, the lifting ofindividuals from level 1 to level 3 leads to a 18 percentage points decline in EI incidence in Quebec and to a 8
percentage points decline in Ontario (along with large decreases in other provinces as well). Moreover, they assume
incidence rates of EI as low as 1 per cent in Ontario for the population lifted to level 3 literacy skills. Theseassumptions may explain the very large magnitude of the decrease in EI recipients. That being said, we areinterested in the amount per person, and the figure of $8,514 corresponds to about 29 weeks of average payments in2003 (Statistics Canada Table 14-10-0008-01). While $8,514 may be an over-estimate of the per-person cost savings,
it is thus not an unrealistic amount.
26
Another point to consider is that while fewer people receiving Employment Insurance saves costs for thegovernment, it also translates in lower contribution rates, thus also reducing revenues. The analysis abstracts fromthat aspect of the Employment Insurance system, and focuses on the reduced benefits paid.
27
Unfortunately, data on the on-reserve First Nations population specifically were not available.

33where 𝐸𝐼𝐹𝑁,𝐿 is the EI incidence rate of the low-literacy First Nations population, and 𝐸𝐼𝐹𝑁,𝐻 the
EI incidence rate of the high-literacy First Nations population. Assuming that the ratio of the EI
incidence rates by literacy levels is the same in the general population and in the First Nations
𝐸𝐼
21%
population (i.e., 19% = 𝐸𝐼 𝐹𝑁,𝐿 ), then we can express the weighted average as such:
𝐹𝑁,𝐻
19
24.9% = (𝐸𝐼𝐹𝑁,𝐿 ∗ 60%) + (∗ 𝐸𝐼𝐹𝑁,𝐿 ∗ 40%)
21
Then, we can solve for the incidence rate of EI receipts of the low-literacy First Nations
population:
𝐸𝐼𝐹𝑁,𝐿 =29.9%
1960% + (
∗ 40%)
21

This calculation gives an estimate of 25.9 per cent in the low-literacy First Nations. Applying theratio of the incidences in the overall Canadian population by literacy levels (19 and 21 per cent)to that number, we obtain an estimate of 23.4 per cent in the high-literacy First Nations
population.28 As in other estimates, we assume that the same rates apply to First Nations on
reserve.
Table 4 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of EI payments. We find that as a result of the increased
literacy skill levels, about 98 fewer of the students in the cohort of 7,133 would be receiving EI
payments annually. That would lead to annual savings of $1,174,111. Assuming that thesesavings are repeated annually over the course of the students’ work lifetimes (18 to 65 years old),the discounted present value is equal to $23,434,072.

28

For comparison purposes, Arriagada and Hango (2016) find a gap of about 5 percentage points between thepredicted probabilities of being employed of First Nations living off-reserve with high and low literacy skill levels.
However, they defined high literacy skills as level 3 or higher, in contrast to our definition of level 3 alone.

34

Table 4: Estimation of Employment Insurance-Related Cost Savings Resulting from Higher Literacy
Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of receipt of EI in low literacy population
Incidence of receipt of EI in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort receiving EI benefits
Before the program (3,994 ∗ 25.9%)
After the program (3,994 ∗ 23.4%)
Difference (3,994 ∗ 2.5%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 98.5 ∗ $11,923
Discounted cost savings summed over the lifetime of a cohort (from 18 to 65
years old)

7,133
3,994
25.9 %
23.4 %
2.5 %
1,034.0
935.5
98.5$11,923$1,174,111$23,434,072

Additional Tax Revenues
Better literacy levels also translate into higher salaries and higher employment rates. In turn,these higher salaries and greater employment mean more income and consumption tax revenues
for the government. Due to data constraints, this report focuses on income taxes. The estimation
here is simple, and is based on numbers from Murray et al. (2009), who estimate that lifting the
population with literacy skills at level 1 or 2 to level 3 would result in an increase in income tax
revenues of $11,190 million in 2003. Divided by the approximately 7.4 million people who
would be lifted from levels 1 or 2 to level 3, and converted to 2020 dollars, this increase inrevenues is equal to about $2,113 per person, annually.
For this outcome, we do not need to calculate incidence rates. We instead assume that the
average amount of $2,113 applies to every individual for whom the program successfullyincreased literacy skills (3,994 students). This results in annual increased revenues of about $8.4
million, or $156.5 million discounted over the working life of one cohort (20 to 65 years old).
Table 5: Estimations of Additional Income Tax Revenues Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠𝑗𝑡 = 3,994 ∗ $2,113
Discounted Additional Revenues summed over the lifetime of a cohort (from 20
to 65 years old)
Discounted Additional Revenues summed over the lifetime of a cohort (from 20
to 65 years old), under the assumption that governments only receive half oftotal annual additional revenues (i.e., 3,994 ∗ $2,113 ∗ 0.5)

35

7,133
3,994
$2,113$8,438,924$156,511,899$78,255,950

For the First Nations on reserve, this number is likely over-estimated. Indeed, those who work on
reserves are exempt from income tax. Assuming that all of them pay taxes would result in an
over-estimate of the increased tax revenues.
That being said, the increased revenues might still increase tax revenues for governments in three
ways. First, First Nations on reserve may work outside the reserves, in which case their income
is taxable in most cases. Second, the increase in literacy, and the ensuing increase in educational
attainment, might lead some First Nations to leave the reserve to look for work. In that case, theywould most likely no longer be exempt from income tax. Third, if they do stay on reserves, thehigher incomes of the MSLP participants would result in spillovers in communities outside thereserves, through increased spending in these communities. In turn, that increased spending
would translate in more consumption tax revenues and, through a multiplier effect, increased
income and consumption tax revenues from non-Indigenous residents in communities close to
the reserves.
For these reasons, we do not include all of the additional tax revenues from taxes in the baseline
analysis. Assuming that these two factors (First Nations youth moving away and the multipliereffect) together amount to half of the estimated increased tax revenues, we estimate the total
benefits in this category with only 50 per cent of the estimate for tax revenues in Table 5.
Therefore, increased tax revenues for governments for one cohort would reach about $78 million.
Costs of Substance Abuse
Low literacy is often associated with a higher likelihood of having substance abuse problems.
The costs imposed by substance abuse (including alcohol, tobacco, cannabis, opioids, and otherillegal drugs) were estimated in a study by the Canadian Centre on Substance Use and Addiction(2018). They estimate the total cost to Canadian society at $38.4 billion in 2014. The costs are
split in four categories: healthcare ($11.1 billion), lost productivity ($15.7 billion), criminal
justice ($9.0 billion), and other direct costs ($2.7 billion) such as prevention, fire damage, andworker’s compensation. They also provide estimates of costs by individual substances. In thisreport, we will use four categories: alcohol, tobacco, cannabis, and other illegal drugs (including
cocaine, etc.).29

29

While abuse of opioids is a growing problem in Canadian society in general and on reserves specifically, we did
not include that drug category in the analysis due to a lack of data on the number of potential abusers. For thenumber of users, the Canadian Institute for Health Information (2018) provides the number of prescriptions in
Canada. Combining the costs to Canadian society with this number translates in costs of $188 per user, annually.
However, this is greatly under-estimated, since many people with prescriptions for opioids use the drugs without
issues. For the incidence rate, Carriere et al. (2018) links data from the 2011 National Household Survey and theDischarge Abstract Database to find that the hospitalization rate is equal to 30.8 per 100,000 for the population notin the labour force over 5 years, compared to 6.5 per 100,000 for those who are employed, also over 5 years. The
same report states that for First Nations people living on reserve, the incidence rate for hospitalizations due toopioids is equal to 47.6 per 100,000, compared to 10.8 per 100,000 for Non-Indigenous people (both over 5 years).
Combining these numbers, we would estimate the incidence rates for opioid abuse among low-literacy on-reserve
First Nations Canadians at 0.027 per cent, and 0.006 per cent among high-literacy on-reserve First Nations

36

The costs in the healthcare (hospitalizations, surgeries, doctor visits, etc.) and criminal justice(policing, courts, etc.) categories are the costs most obviously paid by governments. The costs
due to lost productivity include workers’ compensation payments, but also more general social
costs such as the loss of productive working years due to premature mortality ($10.1 billion in
total). While this social cost is not paid directly by the government, it still represents a loss tosociety, and loss of tax revenues to the government. We decide to include it in the analysis, thus
possibly over-estimating the costs of substance abuse in the context of the study. Anotherconcern is on costs of policing related to cannabis. When the costs were estimated by the CCSA,
cannabis was illegal. For that reason, we subtract the costs related to criminal justice for cannabis($1.8 billion) in this study.
To obtain costs per “user” of the drugs, we also need data on the number of users. We obtainthese data from Statistics Canada’s Canadian Tobacco, Alcohol and Drugs Survey (Statistics
Canada, 2018b). For alcohol, we take the number of heavy drinkers. For tobacco and cannabis,
only the total number of users is available, which may underestimate the costs per user since notevery smoker is necessarily “abusing” the substance. We use the same source for the “otherillegal drugs” category. Combining the costs and the number of users, we obtain estimates ofannual cost savings per person equal to $2,280 for alcohol, $2,960 for tobacco, $641 for cannabis,
and $6,114 for other illegal drugs. Finally, for each substance category, we assume that thesecosts are annual and repeat every year from the end of the program (after Grade 6, at 12 years old)
until the life expectancy of 76 years old.
Drug usage rates by literacy skill level were not available, so the analysis will rely instead on
approximations based on education or income levels. For alcohol, cannabis, and other illegal
drugs, these were available from Health Canada’s Canadian Addiction Survey (CAS) (Adlaf etal., 2005).
For alcohol, the CAS provides information on the rate of hazardous drinking, among the
population who drank alcohol in the past year, broken down by education level. The share ofpast-year drinkers reporting hazardous levels of drinking among those with less than a highschool diploma is 21.8 per cent, compared to 19.2 per cent for those with a high school
diploma.30 Since education is correlated with literacy, we use these two incidences for low(levels 1 and 2) and high (level 3) literacy, respectively. Those numbers are for the populationthat drank at least once in the past year. In their sample, about 79 per cent of the population
reported drinking in the past year. The report does not specify that number for First Nations on
reserve, or even for the Indigenous population in general. According to the First Nations
Regional Health Survey (First Nations Information Governance Centre, 2018), 57.4 per cent ofFirst Nations adults reported drinking at least once in the past year. Assuming that this share is
the same on reserves, and also assuming that the share of drinkers who suffer self-harm is the

Canadians. These figures resulted in negligible cost savings, even when summed over the lifetime of students in thecohort.
30
Hazardous drinking is defined as scoring at least 8 on the AUDIT test, a standard test to determine whether
someone has alcohol dependence.

37

same in the on-reserve population as in the general population, the incidence rates used in thereport are 12.5 per cent for the low-literacy on-reserve Indigenous population and 11.0 per centfor the high-literacy on-reserve population.
Table 6: Estimation of Alcohol-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of hazardous drinking in low literacy population
Incidence of hazardous drinking in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort drinking hazardously
Before the program (3,994 ∗ 12.5%)
After the program (3,994 ∗ 11.0%)
Difference (3,994 ∗ 1.5%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 59.6 ∗ $2,280
Discounted cost savings summed over the lifetime of a cohort (from 12 to 76
years old)

7,133
3,994
12.5 %
11.0 %
1.5 %
499.8
440.2
59.6
$2,280$135,892$3,625,071

Table 6 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of alcohol abuse. We find that as a result of the increased
literacy skill levels, about 60 fewer of the students in the cohort of 7,133 would be drinking
alcohol in hazardous quantities annually. That would lead to annual savings of $135,892.
Assuming that these savings are repeated annually over the course of the students’ lifetimes,
their present value is equal to $3,625,071.
For tobacco, we use data from the Canadian Tobacco Use Monitoring Survey of 2012 (Statistics
Canada, 2013). That survey estimates the share of current smokers in the overall Canadian
population by education level, finding that 19.5 per cent of people without a high school
education smoked tobacco, compared to 17.5 per cent of those with a college education.
According to Statistics Canada (2015), the share of smokers among First Nations off reserve isabout twice that of the non-Indigenous population (27.0 per cent vs. 15.0 per cent, or 1.8 times
higher). We assume that this ratio also holds for the First Nations on reserve, and estimate
incidence rates for the study by multiplying the overall incidence rates by 1.8, obtaining rates of
31.5 per cent for the high-literacy on-reserve population, and 35.1 per cent for the low-literacy
on-reserve population.

38

Table 7: Estimation of Tobacco-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of tobacco use in low literacy population
Incidence of tobacco use in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort using tobacco
Before the program (3,994 ∗ 35.1%)
After the program (3,994 ∗ 31.5%)
Difference (3,994 ∗ 3.6%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 143.8 ∗ $2,960
Discounted cost savings summed over the lifetime of a cohort (from 12 to 76
years old)

7,133
3,994
35.1 %
31.5 %
3.6 %
1,402.1
1,258.3
143.8$2,960$425,719$11,356,496

Table 7 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of tobacco usage. We find that as a result of theincreased literacy skill levels, about 144 fewer of the students in the cohort of 7,133 would besmoking tobacco. That would lead to annual savings of $425,719. Assuming that these savings
are repeated annually over the course of the students’ lifetimes, their discounted present value isequal to $11,356,496.
For cannabis, the past-year usage rates were 14.8 per cent and 14.2 per cent, for those with lessthan high school education and those with a high school diploma, respectively (Adlaf et al.,2005).31 According to the First Nations Regional Health Survey (First Nations Information
Governance Centre, 2018), 30.3 per cent smoked cannabis at least once, compared to 14.1 percent among the overall Canadian population (Adlaf et al., 2005), or 2.1 times higher for First
Nations in Canada. We assume that this ratio also holds for First Nations on reserve, andestimate incidence rates for the study by multiplying the overall incidence rates by 2.1, obtaining
rates of 31.8 per cent for the high-literacy on-reserve population, and 30.5 per cent for the lowliteracy on-reserve population.
Table 8 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of cannabis usage. We find that as a result of the
program and the increased literacy skill levels, about 52 fewer of the students in the cohort of
7,133 would be smoking cannabis. That would lead to annual savings of $33,024. Assuming thatthese savings are repeated annually over the course of the students’ lifetimes, their discounted
present value is equal to $880,955.

31

Among those with a university degree, 10.9 per cent smoked cannabis in the past year. For those with some postsecondary education, the rate is the highest at 16.5 per cent. Since it is not clear who is included in that category(e.g., current college students), we use the completion of secondary education as the divide between low literacy (i.e.,levels 1 and 2), and high literacy (i.e., level 3).

39

Table 8: Estimation of Cannabis-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of cannabis use in low literacy population
Incidence of cannabis use in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort using cannabis
Before the program (3,994 ∗ 14.8%)
After the program (3,994 ∗ 10.9%)
Difference (3,994 ∗ 3.9%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 51.5 ∗ $641
Discounted cost savings summed over the lifetime of a cohort (from 12 to 76
years old)

7,133
3,994
31.8 %
30.5 %
1.3 %
1,270.4
1,218.951.5$641$33,024$880,955

For other illegal drugs, the share reporting past-year use were 2.9 per cent among those without ahigh school diploma and 1.7 per cent those with a university degree (Adlaf et al., 2005).32 About
2.4 per cent of the First Nations population used cocaine regularly in the past year (First Nations
Information Governance Centre, 2017), but we do not have information on use of heroin or otherillicit drugs. For the estimation of cost savings connected to the use of illicit drugs, we use theincidence rates for the overall population, assuming they are similar for First Nations on reserve:
1.7 per cent for the high-literacy First Nations on reserve population, and 2.9 per cent for the
low-literacy First Nations on reserve population.
Table 9 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of use of other illegal drugs such as cocaine. We findthat as a result of the increased literacy skill levels, about 48 fewer of the students in the cohortof 7,133 would be using these drugs. That would lead to annual savings of $293,074. Assumingthat these savings are repeated annually over the course of the students’ lifetimes, theirdiscounted present value is equal to $7,818,036.

32

Among those with a high school diploma only, the share reporting past-year use of other illegal drugs (cocaine,
speed, ecstasy, hallucinogens, heroin) is 3.6 per cent (Adlaf et al., 2005), higher than among those without a highschool diploma. However, the two shares are similar, and due to a relatively small sample, they are not statisticallydifferent. Furthermore, looking at the use of the drugs by income level, the same survey reports lower use amongpeople with higher incomes. To avoid assuming that literacy increases the usage of illegal drugs, an assumption thatwould be difficult to justify given the data, we use the incidence of the use of illegal drugs among those with lessthan high school and among those with a university degree.

40

Table 9: Estimation of Other Drug-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of use of other illegal drugs in low literacy population
Incidence of use of other illegal drugs in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort using other illegal drugs
Before the program (3,994 ∗ 2.9%)
After the program (3,994 ∗ 1.7%)
Difference (3,994 ∗ 1.2%)
𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 47.9 ∗ $6,114
Discounted cost savings summed over the lifetime of a cohort (from 12 to 76
years old)

7,133
3,994
2.9 %
1.7 %
1.2 %
115.8
67.9
47.9
$6,114$293,074$7,818,036

Teenage Pregnancy
Low literacy skills are also linked to a greater likelihood of teenage pregnancy. The KPMG
Foundation argued that cost savings associated with lower rates of teenage pregnancies included
savings on delivery costs, social assistance, etc. In this report, to avoid double-counting, we
assume that welfare costs are included in the welfare calculations defined above. Moreover, we
do not include delivery costs, as teenage girls might instead just become pregnant later in theirlives. However, we do include abortion costs.
Limacher et al. (2006) estimate the direct cost to society of a traditional (non-chemical) abortion
in a hospital at $849.51. In 2020 dollars, it is equivalent to $1,143.33. We obtain data on theincidence of teenage pregnancy by literacy level from Maxwell and Teplova (2007), who
describe the results of the Pathways to Education program in Toronto for the 825 students
enrolled in it between 2001 and 2006. As a result of that program, the authors argue, the rate of
teenage pregnancies in the target population fell from 3 per cent to 0.75 per cent.
These rates must be adapted for the First Nations population. Unfortunately, the only data
available were for First Nations off reserve. In that population, 28 per cent of women became
mothers before the age of 20 (Boulet and Badets, 2017). That number does not include teenage
girls who were pregnant but decided to end their pregnancy. However, due to lack of data on
teenage pregnancies among First Nations women, and due to the lack of data for on-reserve First
Nations women, the analysis will use 28 per cent as the incidence of teenage pregnancies among
on-reserve First Nations women, noting that it is an under-estimation of the actual incidence.
Then, we can estimate the teenage pregnancy rate by literacy level by decomposing the overall
First Nations teenage pregnancy rate (i.e., 28 per cent) as a weighted average of the teenage
pregnancy rates among the First Nations population with the two literacy levels:
28% = (𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐿 ∗ 60%) + (𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐻 ∗ 40%)41

where 𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐿 is the teenage pregnancy rate of the low-literacy First Nations population,
and 𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐻 the teenage pregnancy rate of the high-literacy First Nations population.
Assuming that the ratio of the teenage pregnancy rates by literacy levels is the same in the
𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦
0.75 %
general population and in the First Nations population (i.e., 3 % = 𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐻), then we can
𝐹𝑁,𝐿express the weighted average as such:
28% = (𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐿 ∗ 60%) + (0.75∗ 𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐿 ∗ 40%)
3

Then, we can solve for the teenage pregnancy rate of the low-literacy First Nations population:
𝑃𝑟𝑒𝑔𝑛𝑎𝑛𝑐𝑦𝐹𝑁,𝐿 =

28 %
0.75
60% + ( 3 ∗ 40%)

This calculation gives an estimate of the teenage pregnancy rate of 40.0 per cent in the lowliteracy First Nations population. Applying the ratio 0.75/3 to that number, we obtain an estimateof the teenage pregnancy rate of 10.0 per cent in the high-literacy First Nations population.
Assuming that 52.8 per cent of teenage pregnancies are aborted in the general population(Statistics Canada Table 13-10-0167-01), and that this share holds in the First Nations population,
we end up with incidence rates of 21.1 and 5.3 per cent, for low and high-literacy teenage girls,
respectively. The target population for this outcome is limited to girls, so only half of the total
target population. Finally, we assume that teenage pregnancies occur only once, at 16 years old.
Table 10 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of teenage pregnancies. We find that as a result of theincreased literacy skill levels, about 633 fewer of the female students in the cohort of 7,133
would be undergoing an abortion in their teenage years. That would lead to savings of $362,069.
Assuming that these savings occur at the age of 16, their discounted present value is equal to$272,713. This amount excludes other important negative impacts of teenage pregnancies,
including the impact on children born to teenage mothers, who are more likely to be raised inpoverty (i.e., inter-generational spillovers).

42

Table 10: Estimation of Teenage Abortion-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort (50% female)
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of teenage abortion in low literacy population
Incidence of teenage abortion in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort undergoing an abortion in teenage years
Before the program (1,998 ∗ 21.1%)
After the program (1,998 ∗ 5.3%)
Difference (1,998 ∗ 15.9%)
𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 633.3 ∗ $1,143
Discounted cost savings (one abortion at 16 years old)

3,567
1,998
21.1 %
5.3 %
15.9 %
844.4
211.1
633.3
$1,143$362,069$272,713

Adult and Special Education Costs
The last measures concern additional educational costs imposed by low literacy skills. First, lowliteracy translates in a greater need for special education. Therefore, improvements in literacy
skills should lead into cost savings in that domain. To find the per-student cost, we rely on datafrom Ontario, assuming that they are similar in other provinces. In Ontario, in 2007-2008, there
were a total of 191,899 students with special education needs (Government of Ontario, 2010). Of
those, 11.7 per cent had behaviour or language impairment problems, two categories most likely
linked to low literacy skills. The annual budget for special education in that year was $2.31
billion (Government of Ontario, 2010). Assuming that 11.7 per cent of the budget was allocatedto students in the two categories selected, the per-student costs were $1,408. Budgets areadjusted upwards by 10 per cent for three categories: Northern schools, Indigenous students, andsmall schools (Nishnawbe Aski Nation, 2012). Since on-reserve schools cater to Indigenous
students, and are mostly smaller schools, we adjust the costs upwards by 20 per cent. However,
not all on-reserve schools are in the North. For simplicity, we assume that half of them are, andadjust the costs by 5 per cent on that criterion (half of 10 per cent). Therefore, increasing theamount by a total of 25 per cent, and converting it to 2020 dollars, we obtain a per-student
amount of $2,146.
For the incidence of special education needs, we rely on the assumptions made in the KPMG
Foundation study for the United Kingdom, assuming they hold in First Nations reserves as well.
In particular, we assume that 34 per cent of students with low literacy skills need organizedspecial education at school, compared to 3 per cent of those with high literacy skills. These
incidences might be under-estimated for on-reserve students. However, if they are both underestimated, the differential incidence (34 minus 3 per cent) could be relatively accurate. Finally,
we assume that these costs are annual over every school year (12 grades).
Table 11 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of special education. We find that as a result of theincreased literacy skill levels, about 1,238 fewer of the students in the cohort of 7,133 would be43

needing special education. That would lead to annual savings of $2,657,411. Assuming that thesesavings occur annually over 12 school grades, their discounted present value is equal to$27,078,433.
Table 11: Estimation of Special Education-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of special education in low literacy population
Incidence of special education in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort receiving special education
Before the program (3,994 ∗ 34%)
After the program (3,994 ∗ 3%)
Difference (3,994 ∗ 31%)𝐴𝑛𝑛𝑢𝑎𝑙 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 1,238.3 ∗ $2,146
Discounted cost savings summed over the lifetime (Grades 1 to 12)

7,133
3,994
34 %
3%
31 %
1,358.1
119.8
1,238.3$2,146$2,657,411$27,078,433

Second, lower literacy also translates in greater needs for remedial literacy education at adult age.
For the cost of these adult classes, we rely on estimates from British Columbia, assuming thatthey are similar in other provinces. In that province in the 2019-2020 school year, adulteducation is funded at $4,773 per student (Government of British Columbia, 2019). For theincidence, we rely on the assumption of the KPMG Foundation study, and assume that 14.3 percent of the low-literacy population needs adult remedial classes, compared to none of the highliteracy population. Finally, we assume that students take one year of remedial classes when they
do, and that they take those classes at 19 years old, one year prior to the age at which we
assumed they started working.
Table 12: Estimation of Adult Classes-Related Cost Savings Resulting from Higher Literacy

Target population in a cohort
Cohort population lifted from low to high literacy (56% success rate)
Differential incidence calculation:
Incidence of taking adult classes in low literacy population
Incidence of taking adult classes in high literacy population∆𝐼𝑛𝑐𝑖𝑑𝑒𝑛𝑐𝑒
Number of students in cohort taking adult classes
Before the program (3,994 ∗ 14.3%)
After the program (3,994 ∗ 0%)
Difference (3,994 ∗ 14.3%)
𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 ⁄𝑃𝑒𝑟𝑠𝑜𝑛
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 𝑆𝑎𝑣𝑖𝑛𝑔𝑠𝑗𝑡 = 571.2 ∗ $7,733
Discounted cost savings (class taken at 19 years old)

44

7,133
3,994
14.3 %
0%14.3 %
571.2
0
571.2
$4,733$2,763,708$1,900,781

Table 12 summarizes the numbers used in this report to estimate the cost savings from higher
literacy scores due to a lower incidence of adult remedial classes. We find that as a result of theincreased literacy skill levels, about 571 fewer of the students in the cohort of 7,133 would betaking adult classes. That would lead to savings of $2,763,708 for the cohort. Assuming thatthese savings occur at the age of 19, just before starting their work lives, the discounted present
value is equal to $1,900,781.

3.3 Total Benefits of the MSLP: Cost Savings and Additional Revenues
Table 13 shows the results of the estimations of benefits, including the cost savings togovernments and additional revenues, for each outcome. The total benefits per cohort fromincreasing literacy skills in the target population add up to about $310 million, using the averagerate on 30-year federal government bonds over the past ten years as the discount rate (2.6 percent). Over a cohort population of 7,133 students, this translates in benefits of $43,448 per
student. The additional tax revenues and reduction in welfare payments are the biggest
contributors by far. Assuming the MSLP or similar programs are operated for 20 years, and thusthat 20 cohorts of equal size benefit from them, the total benefits of the increase in literacy levels
are $4,906 million in 2020 dollars, assuming the same discount rate of 2.6 per cent over these 20
years.
Table 13: Estimation of Benefits (Cost Savings and Additional Revenues) from Increased Literacy

Diabetes
Incarceration
WelfareEmployment insurance
Additional Tax Revenues
Substance abuse
Alcohol
TobaccoCannabis
Other illegal drugs
Teenage pregnancy
Special education
Adult classes
Total

33

Cost perstudent(2020 Dollars)

Incidence in
Low Literacy(%)

Incidence inHigh Literacy
(%)

A

B

C

4,713
104,558
9,487
11,923
2,113

25.1
1.2
37.8
25.9
n.a.

12.3
0.4
18.3
23.4
n.a.

D = A * (B-C) *population *56%
578,998
3,344,646
7,351,759
1,174,111
4,219,462

2,280
2,960
641
6,114
1,143
2,146
4,773

12.5
35.1
31.8
2.9
21.1
34.0
14.3

11.0
31.5
30.5
1.7
5.3
3.0
0

135,892
425,719
33,024
293,074
362,069
2,657,411
2,726,388

The benefits from additional tax revenues are multiplied by 50 per cent.

45

AnnualBenefits33(2020 Dollars)

Total Benefits over
the Students’
Lifetime(2020 Dollars)
E = discounted sumof D over relevant
number of years
6,165,749
2,392,678
146,733,649
23,434,072
78,255,950
3,625,071
11,356,496
880,955
7,818,036
272,713
27,078,433
1,900,781
309,914,581

When estimating the returns to social investments such as the MSLP, the choice of a discountrate is somewhat controversial. Governments might care less about dollar amounts in the future,but should society discount benefits that occur in a long time? Should it care less about future
generations? For comparison purposes, we re-estimate the total benefits with a discount rate of 0
per cent. In that case, the total benefits would reach about $722 million, more than twice theamount found with a discount rate of 2.6 per cent. Cost savings related to welfare payments($353 million) and additional income tax revenues ($194 million) still make up most of thebenefits. If instead of using the ten-year average of the rate on 30-year federal government bonds,
we used the current rate of 1.7 per cent as the discount rate, we would find an estimate of total
benefits of $409 million.

3.4 The Total Costs of the MSLP and Return to Investment
Based on the pilot program, the MFI reports that the MSLP would cost about $140,000 per
school annually. Assuming there are 518 band-operated schools on reserves in Canada(Drummond and Rosenbluth, 2013), we estimate the total annual cost of the MSLP applied to all
on-reserve schools at about $72.5 million. At the time, the MSLP was a seven-year program:kindergarten to grade 6 (O’Sullivan, 2016). These are annual costs, so we assume they are used
for the seven school grades part of the program. Therefore, one seventh of that sum, $10.4
million is relevant to a cohort in any given year.
However, the current incarnation of the MSLP in aimed at children from kindergarten to grade 3,
or four years. Assuming that the annual costs remain the same, we can estimate the total cost fora cohort. Summing $10.4 million over four years, discounted at a rate of 2.6 per cent, we obtaintotal costs of $39.9 million for a cohort. Therefore, the total benefits of $310 million for one
cohort of students translate in a return of about $7.77 for every dollar spent. It is important tonote that in determining this return, the costs are all incurred in the first four years, while benefits
all accrue in the future, sometimes many decades later. Since we are discounting amounts in later
years, the benefits are discounted more heavily than the costs. With a zero discount rate, thereturn to investment is $17.42 for each dollar invested, while it would be $10.12 with a discountrate of 1.7 per cent.
The estimation of the rate of return also assumes that the MSLP is directly expanded to every onreserve school in the country. A likely scenario instead would be that the MSLP is expanded to aselection of additional schools, and then scaled up to other schools by other organizations whotake the insights of the program and apply them elsewhere. In other words, the MSLP mightscale up to more schools through a demonstration effect. Moreover, through learning-by-doing,costs are likely to decrease in later years. All in all, this potential over-estimation of the costs of
the MSLP in the analysis mean that the return on investment could be under-estimated. Withbetter data on the costs of the program and estimates of the demonstration effect, a more accurate
rate of return could be determined.

46

The results of our analysis point to benefits lower than those of the KPMG Foundation study. In
that analysis, they estimated the total benefits at £1,569.6 million over the students’ lifetimes.34
Their target population being 38,700 students, the benefits translate to £47,599 per student.
Converted to 2020 dollars using a 2 per cent annual inflation rate and an exchange rate of 1.75
dollars per pound, this amounts to approximately $88,251 per student, about 1.5 times thebenefits estimated for the MSLP. In terms of returns to investment, however, the KPMG
Foundation study estimated a rate of return over the students’ lifetimes of £17 per pound
invested (using the savings estimated with moderate certainty), higher than the $7.77 weestimated for the MSLP. As mentioned above, the future costs of running the MSLP might beover-estimated, translating in an under-estimated return on investment. In addition, the KPMG
estimate may also be over-estimated. For example, the success rate of 79 per cent may be overestimated.
While the estimate of the return to investment is lower in this report than in the KPMG
Foundation study, a rate of return of over $7 per dollar invested is an attractive return. By
investing in the MSLP, even when doing so directly in every on-reserve school across thecountry (and as such likely over-estimating costs), the government recoups much more than theamount invested in future cost savings and additional revenues. In addition, this return toinvestment abstracts completely the personal returns to the students involved in the program.
They will lead better and healthier lives, have larger incomes, rely less on welfare, and will beless likely to spend time in prison.

3.4 Caveats and Data Gaps
The analysis relies on a number of assumptions and imperfect data. Therefore, the total amountof benefits should be interpreted with caution. In this section, we review some of the potential
caveats of the analysis, and discuss how future work could improve the analysis.
Causality between Literacy and Socio-Economic Outcomes
One important implicit assumption in the analysis is the existence of a causal relationshipbetween improved literacy skills and the outcomes considered. If the relationship between
literacy and the outcomes considered in the analysis is not causal, then even with increased
literacy, we might not observe improved outcomes, which would lead to lower benefits.
Unfortunately, without better data, we cannot be certain whether the relationship is causal.
Regarding labour market outcomes, at least one recent study suggest that the relationship withliteracy is not causal. Indeed, Gibson et al. (2019) suggest that reading proficiency at age 15 is
not associated with better earnings, after controlling for a large number of personal
characteristics including education.

34

Their methodology differed slightly, as they estimated the costs to different degrees of certainty. The estimate of£1,569.6 million represents their estimates with moderate certainty.

47

Another consideration is that the relationship between literacy and socio-economic outcomes
found in research on the overall population might be weaker in the case of the First Nations on
reserve. Indeed, while better literacy scores might help an individual in a large town in urban
Canada find a better job, many reserves are more remote, where job opportunities are more
limited. In that case, better literacy scores might not readily translate in better labour market
outcomes. More research would be needed to better understand the relationship between literacy
and socio-economic outcomes in the specific case of First Nations on reserve.
An additional limitation to this study is that it does not consider intergenerational effects. Indeed,
the better socio-economic outcomes among young First Nations on reserve due to increased
literacy would then likely have lasting outcomes for the next generations. For example, when
they become parents later, they are more likely to value reading abilities and school education for
their own children.
Data Limitations Related to Socio-Economic Measures
Some limitations of the analysis are due to the lack of data. Indeed, there is a particular dearth ofdata on socio-economic outcomes included in this study specific to the First Nations on reserve.
With better data, for example, additional outcomes could be considered. The KPMG study, forexample, considers outcomes such as truancy and school exclusions, as well as more healthoutcomes such as depression and obesity more generally. We could also consider the costs ofcrime more generally than only through incarcerations, such as the costs of policing and the costof hiring prosecutors, as well as the costs to victims and the psychological damage due to feelingin danger. Given these data gaps, this study likely under-estimate the benefits of increased
literacy.
Even regarding the outcomes we do include in the analysis, the data are often imperfect, forcing
us to rely on assumptions of various probabilities to estimate the final costs or incidences. In
many cases, these assumptions might lead to downward biases, but we are unable to rule out
upward biases as well. The report discusses those biases along with the estimations, but we list
them here as a reminder. For under-estimations, we note the following:••••

The cost savings related to diabetes are likely under-estimated in the analysis, since thetreatment costs for diabetes might be higher on First Nations reserves than in the general
population;
The cost savings related to incarcerations is likely under-estimated in the analysis, since
our assumptions on recidivism and sentence length may be too low;
The incidence of incarceration is likely under-estimated, since we are using theincarceration rate of First Nations off reserve, and the rate may be higher for First
Nations on reserve;
The incidence rates of substance abuse are probably under-estimated, since we used theoff-reserve incidence rates due to data limitations, and the rate may be higher for First
Nations on reserve;

48

•
•

The incidence and costs of abortions are probably both under-estimated, since we used
off-reserve data sources, and the figures may be higher for First Nations on reserve;
The costs of special education are likely under-estimated, since they correspond to costs
for the overall population (and in only one province), and the costs may be higher forFirst Nations on reserve.

For over-estimations, we note the following:••

The incidence of receiving Employment Insurance is likely over-estimated, since manyFirst Nations individuals might not qualify for these benefits (if they do not work
regularly);
The amount of income tax recovered for governments is likely over-estimated, since mostFirst Nations on reserve are exempt from income tax;o However, First Nations individuals with better literacy skills might work outside
the reserve (thus paying income tax), might move out of reserves to look for work,and also spend more off-reserve, which should increase tax revenues from nonIndigenous people there, through a multiplier effect;

Future work could improve the analysis by looking at better datasets. One example is the
Canadian Community Health Survey, from which micro-data are available and would allow
more precise cross-tabulations of health outcomes by education level (as a proxy for literacy
levels).
Data Limitations Related to the Cost of the MSLPThe estimation of the return of the MSLP relies on relatively crude assumptions on the cost of
running the program and its effectiveness. In fact, the costs are taken from a quote in Geddes(2015) from a director at the Martin Family Initiative, but since then, more precise estimates of
the costs have probably been gathered, and in more schools. In future work, data fromadministrative sources could be used to estimate a more precise cost of running the program. The
MFI also recognizes the importance of evaluating the program and is actively gathering data on
the costs of the MSLP (and costs of running on-reserve schools more generally). Those data
could be used later to improve our estimates.
In addition, as time passes, the costs of running the MSLP will likely decrease. By expanding the
program to more schools, the program will benefit from economies of scale. By gaining
experience, the administrators of the program as well as the teachers involved will figure out
how to run the program more efficiently, benefitting from learning by doing. We have also
assumed that the MSLP will be responsible for the implementation of the program in all onreserve schools in the country. However, seeing the positive results in the reserves that receive
the MSLP, other organizations could implement similar programs in other schools. In that case,the initial investment in the MSLP would be lower than the assumption used in this report.

49

Data Limitations Related to the Success Rate of the MSLPThe analysis also relies on a success rate of 56 per cent, based on results of the first pilot study
for the MSLP. If the long-term success rate of the MSLP or similar programs is lower, the fiscal
benefits for governments would also be lower. That being said, even with a much lower rate ofsuccess, our analysis predicts a positive rate of return. For example, a success rate of 14 per cent(a quarter of the one used in the analysis) would translate in a return of $1.94 for every dollar
invested.
In future work, the analysis could use data from the implementation of the MSLP in more
schools, to find a better estimate of the success rate. In addition, if some schools adopt the
principles of the MSLP by themselves, through a demonstration effect, the analysis could
integrate the rate at which literacy increases among students in these schools to provide a more
precise estimate of the return to investment (both through direct investment and through thedemonstration effect).

4. Conclusion
This report discussed the potential impacts of the Model Schools Literacy Program for schools
on First Nations reserves in Canada. It did so in two parts. First, the report reviewed the literatureon the relationship between literacy and socio-economic outcomes. It finds that literacy is
associated with better GDP growth, better labour market outcomes, better health, lower crime,and higher social engagement. However, that relationship might not be causal. Indeed, literacy
skills and formal education are also closely related, and it is not clear whether education orliteracy skills has the greatest impact on those socio-economic outcomes. That being said, one
could argue that adequate literacy skills are needed for success in school, such that literacy
improvements are a first step towards more formal education, and eventually towards betterlabour market outcomes.
The second part of the report estimated the benefits and costs of scaling up the MSLP (orimplementing new similar programs) to all on-reserve schools in the country. This program
started in two pilot schools, with promising results: the students involved achieved much betterskill levels in reading and writing. It is currently being expanded to more schools, but if the
program is successful, the ultimate goal would be to expand it to more and more schools acrossthe country. The MSLP itself could be expanded to more schools, but it could also serve as ademonstration and inspire other organizations to run their own version of the program in somenumber of on-reserve schools.
To estimate the benefits of scaling up the MSLP or similar programs to every on-reserve school,
the report develops a methodology similar to a report by the KPMG Foundation (2009). We firstestimate the number of students in a given cohort (i.e., the group of all students that started
school for the first time in the same year) that would obtain better literacy skills as a result of the
program. We calculate this number using the total number of students in on-reserve schools andthe success rate of the MSLP in lifting students out of low literacy, based on the pilot schools.

50

We then select a number of measures which should improve due to better literacy skills, such as
diabetes incidence and incarceration rates, and estimate the number of students in a given cohortthat would enjoy better outcomes. Finally, we multiply the number of students that would enjoy
these better outcomes on each measure by the per-person cost savings or additional revenues forgovernments associated with each measure.
The report estimates that scaling up the MSLP either directly or with similar programs to every
on-reserve school in Canada would result in total discounted benefits of about $310 million overthe lifetime of a cohort of student, in 2020 dollars. Using a rough estimate of the costs of running
the MSLP, we find that the MSLP would lead to $7.77 of benefits to governments for every
dollar invested. Notably, this estimate of the return to investment does not include any of thebenefits accruing to the individuals themselves, or social benefits that are not directly taken into
account in the fiscal benefits to governments. For example, our estimates do not include theprivate benefits of better health for the individuals, or the lower costs on victims of crime.
These estimates are subject to several additional caveats, mostly due to data limitations.
Therefore, future work should focus on obtaining better data on a greater number of measures, toobtain a better estimate of the potential benefits of the MSLP. Future work should also make usof data obtained in the second wave of schools participating in the MSLP, to obtain a better
estimate of the costs, as well as the success rate.
In parallel to the cost-benefit analysis conducted in this report, the MFI is carrying out acomprehensive evaluation of the intervention. This evaluation will answer questions on theeffectiveness of the program on the students and will provide a unique database of reading skills
across the country covering almost 3,000 First Nations students. In conjunction with this report,that evaluation will provide other schools and governments better information to guide theirdecisions when allocating funding.
Since its inception, the MSLP has shown considerable promise by improving the literacy skillsof the participating students. Improving literacy skills on reserves should lead to higher
educational attainment, and to better labour market outcomes. These improvements could play animportant role in the federal government’s objective of reconciliation with Indigenous Peoples.

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