“The most important resource in any economy or organization is its human capital - that is, the collective knowledge, attributes, skills, experience, and health of the workforce,” said Human capital at work: The value of experience, a recent research report by the McKinsey Global Institute. Human capital development starts in early childhood, continues through formal educations, and grows as a person acquires and deploys new skills through their working life. The value of human capital can be approximated by an individual’s lifetime earnings, and represents roughly two-thirds of their total wealth.
“Human capital is much more than a macroeconomic abstraction,” notes the report. “Each person has a unique, living, breathing set of capabilities. They belong to the individual, who decides where to put them to work. The degree of choice is not limitless, of course. People are the products of geography, family, and education; their starting points matter. Having career options also depends on an individual’s abilities and attributes, their networks, their family obligations, the health of the broader labor market, and societal factors. While we recognize these constraints, career moves are nevertheless an important mechanism for expanding skills and increasing earnings.”
McKinsey’s study is focused on the contributions of work experience to a person’s human capital. The research analyzed a dataset containing the de-identified histories of all the job moves made by about a million workers in each of four countries: the US, UK, Germany, and India. The study traced the work history of each individual and their lifetime earnings starting with the first job after the last degree obtained and after all subsequent role moves. For each role move, the study estimated its skill distance, defined as the the opportunity to acquire new and additional skills in the new job. Finally, the study calculated both the share of lifetime earnings attributed to the entry-level skills acquired through formal education, and the share of lifetime earnings attributed to work experience.
Continue reading "Human Capital: The Value of Work Experience and Continuous Learning" »