Recently, I’ve been working on updating the Genuine Progress Indicator indicators for Ohio, and one of the new categories I’ve been working on has been services from human capital. In the context of GPI, this is basically how much value things like green jobs and education generate in terms of increases in long-term earnings.
More generally though, human capital refers to the knowledge and skills that helps an individual be productive. In practice this means that if two people are performing the same job, the person with more human capital would be more efficient because she would know how to do it better.
In many ways, human capital is a lot like the economic concept of utility. It’s not something that we can ever actually measure, there doesn’t exist a well defined human capital statistic, but we know as a society what sorts of things contribute to it.
Breaking it down even further, human capital can be separated into two main categories: general and specific. As the names suggest, general human capital refers to knowledge and skills that are universally applicable. Things like basic levels of education and communication skills. Specific human capital is the specialized training that individuals have. This might include higher education or mastering a trade.
The reason it’s important to understand all of this is because policymakers are always trying to find ways to invest in the development of human capital. One of the easiest ways to grow a local economy is to invest in training those individuals.
From an equity perspective, this is especially important for marginalized communities who have historically had much less access to pathways to human capital development like higher education. There is a positive generational feedback loop where individuals who have more human capital are likely to earn higher wages, which leads to their children having greater access to human capital development.
Another important consideration when investing in human capital is retaining the individuals receiving the training. A common issue in areas with relatively low human capital is brain drain, which is when people who grow their human capital leave to go live somewhere where they can presumably earn more. To counter this, policymakers can offer incentives to highly skilled workers who choose to stay in their communities.
Another issue relevant to human capital is how it interacts with the criminal justice system. People who end up in prison have an especially hard time finding jobs after their sentence. This struggle makes it more likely that in order to survive, they may need to turn to more illegal activity.
This problem has deep roots that no one program can fix, but increasing job training programs in prisons is a step in the right direction. If inmates have the opportunity to increase their human capital during their incarceration, their odds of integrating back into the workforce upon release can be increased.
Improving human capital will not fix all the problems in society, but it can give individuals more opportunity. People with greater human capital have greater career flexibility, more opportunities, and can contribute more to their local economies. Policymakers interested in economic growth should always be looking for ways to invest in people and retain their skills.