Human capital makes up a significant portion of both global and individual wealth. A person’s ability to use their education, training, intelligence, skills, and even health to provide what employers value and make a living for themselves is a crucial part of how life works in many countries.
However, the capacity to build human capital has its limits. The health status and environment a person is born into can determine abilities, access to education, and employment prospects.
Still, for many in advanced countries, there are significant choices they can make early on in their adult lives that will expand their economic value and help them build human capital. Many of those choices in today’s professional landscape revolve around work roles and experience.
While the definition of human capital suggests that many factors contribute to a person’s human capital, people still debate which element is most important. It has been well-known for many years that education contributes significantly to a person’s economic value.
While few statistics speak directly to this phenomenon, in countries where the average number of years of schooling is higher, the economy grows faster (a 0.37 percentage point for each added average year). Research also shows that college graduates enjoy 84% higher wages, are half as likely to be unemployed, and earn nearly $1.2 million more throughout a lifetime than those with only a high school diploma.
Still, as vital as education is to the concept of human capital, it isn’t everything. Research shows that professional experience contributes much to a person’s ability to build human capital.
Economists have also observed that the contribution of work experience to an employee’s human capital is even more significant in countries with low levels of educational attainment and for people who start out in low-paying professions and later move up to a much higher tax bracket.
With this in mind, society must learn to separate a lack of quality education from being relegated to a lifetime of poverty.
Many advanced countries are seeing the emergence of an upwardly mobile group on track to move up one or more earning quartiles from their starting salaries.
Those in this group — which comprises anywhere from 20 to 30 percent of the population, depending on the country — achieved these goals through work experience.
Thus, their experience accounts for most of their lifetime earnings, not their education (or lack thereof).
Employees must realize that not just any work experience will increase human capital. Using work experience to build economic value may come with some big professional decisions on your part, as most people who experience higher earnings have to switch roles to do so.
While many role moves can come with as much as a 10% pay increase, most require a worker to leave their current employer for a different one. Many employers do not offer professional development or internal advancement tracks and lack the ability to help their employees grow in their careers.
Employees who seek out work experience and are willing to make bold moves to find roles that fit them are the ones who win in the end.
This may mean moving roles frequently and expanding your capabilities, which can eventually land you a higher-paid role because of the breadth of your experience. It may also mean getting a break that allows you to pursue a passion in another field.
Either way, being willing to make the career leap to do something different helps bold early movers build capital, while those who are locked into one career don’t make as much in their lifetimes.
Increasing employees’ human capital doesn’t just benefit them. It also helps their employers. Here are five ways businesses can encourage employees to focus on building their economic value.
Most employers select applicants for roles based on whether their past experience lines up with role expectations. However, businesses can benefit from evaluating potential employees for their transferable skills and willingness to learn new ones.
Many people have hidden talents that their employers have yet to see or acknowledge. Employers should be open to finding gems that may not have traditional career trajectories.
Employers must ensure that the training they offer employees has a clear schedule and timeline and that it moves employees toward a specific role. If there’s no clear purpose for training employees, it likely won’t be as effective as you think.
Employers need to maximize the learning that happens during the execution of day-to-day job duties by providing employees with coaching during a six-month to one-year onboarding process.
A Gallup study shows that 65% of workers base their decision to accept a job on their learning opportunities, so coaching programs are key to attracting and retaining top talent.
Many people who attain upward mobility have to leave their companies to do so, but this isn’t good for company growth. Employees need to have a clear path to career advancement, as this boosts employee morale and makes people want to stay long-term.
Employers need to recognize that top performers will always be moving around. They should do what’s possible to attract candidates who are searching and equip those who stay with what they need to attain higher-paying roles in the organization.
Provide concrete skill requirements for leadership roles and the training required to gain those skills so you can retain as many employees as possible.
While education and human capital will always be inextricably linked, the role work experience plays in building economic value cannot be ignored. People who are willing to make bold moves earlier in their careers benefit most from this phenomenon, increasing their wealth even in countries where educational quality and attainment aren’t as much of a possibility.
Upward mobility doesn’t just do great things for the individuals who achieve it. Business leaders can also benefit, but they must be willing to position themselves to do so by recognizing potential, investing in employee coaching and training, and creating clear paths for people to advance.
When companies invest in building human capital this way, everyone — from employees to businesses to the greater populace — wins.
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