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.
Whether we accord with the ONS value of skills in this analysis, or not, it would seem that in a period of economic turmoil and change, that it is the older, more experienced workers who will see their capital increase faster, whilst younger members of the working cohort, passionate about a new idea as they may be, have yet to obtain the necessary practical skills to fully leverage their own human capital,by this measure. Yet, we stress.
The note about the premium value of being a graduate is interesting too. As a bald indicator it does not, we would argue make an assessment of a generation of workers emerging who are developing a different culture, tolerance, creative sensibility and ethical approach to business and enterprise, we would argue.
Surely, the social economy is about more than the fight to reach the peak earnings band in a corporate environment, or to achieve peak sales and shareholder value, and exercise value for an elite cohort at the expense of others.
You can see this ‘soft’ change emergent in the Oxford community, 80,000 Hours. Here professionalism and education at an elite establishment is at the heart of the group, but the social, the community ‘worth’ of individuals is a golden thread in their proposition. See more here.
This philosophical shift to a new social paradigm in business or profession is a new thing.
It cannot be calculated by wage value alone, as wage value, although important to the individual or family, it is not the defining plank of their ‘social landscape’ view of the world.
This emerging cohort of workers, at all levels, with a tilt towards and a different view of equality and inclusion, to social liberalism, federalism and co-operation may be the underlying theme of social business development for the rest of the century?
Like the old debate around the ‘value’ of education in the Humanities as a broad piece, it is difficult to calculate. The impact is subtle, but huge, we would argue. See more.
This article from the World Economic Forum sums up the argument for STEM education, yet it is the Humanities and it’s philosophy of culture and understanding of the human condition that drive social enterprise development. Hard to put the ‘hard dollar’ to it, of course.
The difference about the social economy, unlike ‘naked capitalism’, is that all age groups should be cultivated for their existing skills and experience, and and the young are empowered to develop their new ones. It does not sound unreasonable that human capital development, in a time of skills upheaval and market crisis, would follow the same wave form of development, based on age cohorts and market change?
We would want to argue that the ‘scrap heap’ will be an alien concept in the growth of human capital, in this new economic model, as those in the social labour market find their encouraging, socially responsible and age-blind stride.
Inverted the conceptual argument brings us to critique of Human Capital as a concept. Some labor economists have criticised the Chicago-school theory, claiming that it tries to explain all differences in wages and salaries in terms of human capital. As we outline above.
One of the leading alternatives, advanced by Michael Spence and Joseph Stiglitz, is “signaling theory”. According to signaling theory, education does not lead to increased human capital, but rather acts as a mechanism by which workers with superior innate abilities can signal those abilities to prospective employers and so gain above average wages.
Even if this were true, it is the powerful adjunct of the social philosophy of business, driven ethically and mediated by radiant humanist values, that will temper and change the discourse of work, whatever the underlying assessment of output and value. The social comes to transcend self interest – a concept at the heart of any social enterprise?
With the ‘social’ admixture, we would argue, to education, economy and human welfare, we can all do well and add to our societal capital, no matter the competition or how far our horizon stretches.
Source narrative and data: https://www.ons.gov.uk/releases/humancapital/