The Office for National Statistics has just released updated estimates of the value of human capital. For ONS ‘… the stock of human capital accounts for what skills people have and how much they earn and what qualifications they have, as well as estimating how much longer they will continue to work’.
As such, ONS argues, the value of human capital is often higher in younger workers, which have more years in the labour market ahead of them.
We can look to the historical writings of Adam Smith for the source of the concept for Human Capital, but we owe the the modern Chicago School of economists for this contemporary application of the theory, we would argue.
(Spreadsheet in ODS format).
This modern theory was popularized by Gary Becker, an economist and Nobel Laureate from the University of Chicago, Jacob Mincer, and Theodore Schultz. However, more recently the new concept of task-specific human capital was coined in 2004 by Robert Gibbon, an economist at MIT, and Michael Waldman, an economist at Cornell. The concept emphasises that in many cases, human capital is accumulated specific to the nature of the task (or, skills required for the task), and the human capital accumulated for the task are valuable to many firms requiring the transferable skills.
The new ONS report delineates the following key estimates…
- In cash terms the stock of human capital in the UK grew 1.8%. However, once the effects of inflation were removed human capital actually fell by 0.8%. This was the first fall in human capital stocks since 2012, reflecting slower growth in earnings relative to inflation.
- In 2017, the UK’s ‘real’ full human capital stock was £20.4 trillion, more than 10 times the size of UK GDP.
- The estimates highlight that in 2004 the pay premium for obtaining a degree was 41% but by 2017 this had fallen to 24%.
- The ONS analysis also shows that between 2011 to 2017 the average stock of individuals over 35 grew by 7.0%, while the stock of those between 16 and 35 only grew by 3.6%.
We recently published The Size of the UK Social Enterprise in 2018 – if we believe, as we do, that the social economy is now a significant influencer of UK trade and business development – then it is pertinent to note that the value of ‘real’ gross human capital is ten times more than GDP.
The social economy must, therefore be a contributor to this value.
Also of note, is the fact that in terms of human capital, according to ONS, … the average stock of individuals over 35 grew by 7.0%, while the stock of those between 16 and 35 only grew by 3.6% over the focus period.