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This paper challenges common sense understandings of the relationship between literacy and numeracy skills and (un)employment. Focusing in particular on literacy skills, the paper first outlines the human capital argument that improving literacy skills adds to the economic value of individuals, enterprises and the nation. This dominant discourse is then challenged by an alternative sociocultural approach to literacy known as the 'new literacy studies'. Reference is made to ethnographic studies of how people use and value a range of literacy practices in workplace contexts, including two studies undertaken by the author. By linking these micro studies to broader macro structural factors it is argued that literacy 'problems' play an ideological role in supporting dominant capitalist interests. In a reversal of the usual dominant discourse, literacy problems are seen to be produced/caused by particular economic conditions as dominant groups effectively shift the responsibility for these conditions onto those who lack skills, and in particular, literacy skills. This critical perspective undermines current priorities in policy and research.