The Death of Human Capital Notes

Introduction by Nick Pearce

  • Welcome to the University of Bath Institute for Policy Research seminar.
  • The seminar is launching the book "The Death of Human Capital: Its Failed Promise and How to Renew It in an Age of Disruption," published by Oxford University Press.
  • The book challenges the dominant human capital theory, which posits that increasing education and skills leads to higher productivity, earnings, and economic performance.
  • The discussion has implications for education, skills, socio-economic, and other public policies.
  • Professors Hewitt Keep and Lisa Wilhelm will join the discussion later.
  • Housekeeping: Cameras and microphones are off. Questions can be submitted via the Q&A function.
  • The session is being recorded and will be available online as a podcast and video.

Phil Brown's Presentation

  • The book aims to address human capital theory, a significant concept in policy.
  • The goal is to propose new ideas and concepts for a paradigm shift.
  • The book is structured in three parts:
    • The rise of human capital.
    • The failed promise of human capital.
    • Rethinking supply, demand, and rewards for a new theory.
  • A key distinction is made between labor scarcity and job scarcity.
    • Labor scarcity: Focus on individual investment in education and skills valued by employers.
    • Job scarcity: Focus on whether enough jobs are available for the educated population.
  • New technologies may exacerbate job scarcity.
  • Capital continues to have power over labor, regardless of qualifications.
  • Productive value has disproportionately gone to a few, not the majority or qualified labor.
  • Labor scarcity is the exception, not the rule, especially with mass higher education.
  • People are not human capital but engage in capitalization, leveraging assets and skills.
  • The translation work between education and employment needs exploration, considering social positions.
  • Underutilization of human talents is the norm in mass higher education.
  • Other avenues for expressing talents outside wage work should be considered, along with improving job quality.
  • Job scarcity overburdens the labor market, unable to reconcile learning with earning.
  • It is important to consider the role of a basic income in the future to deliver social justice and fairness, as well as improve the quality of life.
  • Three grand challenges:
    • Educational challenge: What is the nature of human educational purpose in the context of advanced technologies? The human needs to be put back into human capital. Emphasizing human socialization, purpose. Broader than just employability, particularly post-COVID.
    • Technological challenge: With AI, what is the future of work? Do companies use technology to augment or deskill? Ideas about human capability, quality jobs, and reward distribution are crucial.
    • Inequality challenge: Grasping three interrelated inequalities:
      • Who learns what and when (educational inequalities, lifelong learning access).
      • Who does what (opportunities to capitalize, distribute work, and educational opportunities).
      • Who gets what (shared prosperity, social justice).
  • These challenges must be addressed for a paradigm shift.
  • GDP per capita in the UK has fallen more this year than in the last 300 years, so radical thinking is needed.

Hugh Lauder's Presentation

  • The journey of writing the book took nine years and has had consistent support of editor James Cook.
  • Economists have critiqued the book, but we believe it is now up to date.
  • Orthodox economics is too narrow in understanding the labor market.
  • Contribution, not just income, should be acknowledged as a measure and reward for human input.
  • The pandemic highlights the importance of essential workers and their low earnings.
  • Education needs to be broader, not just teaching to the test.
  • Human capital theory assumes technology will infinitely raise demand for high-skilled workers, which is not the case.
  • It also assumes better-educated people are more productive, but productivity is flatlining despite a better-educated population.
  • Employers are not always rational actors and do not always recruit the most able, regardless of background.
  • The labor market is filled with inequalities.
  • Two key theories of causation in human capital theory:
    • Say's Law: Supply will generate its own demand, which is not happening in education.
    • Supply and demand: Skill-biased technical change suggests technology will drive up demand for skilled labor, but this has not reduced income inequality.
  • Methodological problems:
    • Simplistic correlation between education and income.
    • Need to disaggregate data instead of looking at median or average returns.

Cindy Chung's Presentation

  • The central tenet of human capital theory is that more education equals higher income.
  • The promises on individual, family, and national levels are examined.
  • Graph shows men's and women's income over four decades (1970s-2010) in the U.S.
    • Women consistently earn less.
    • Earnings for graduates and high school leavers are stagnant in real terms.
    • Only the top 10% of graduates earn significantly more.
  • The median college graduate earns less than a high school leaver over 40 years.
  • Once the data is disaggregated, we see the distributional inequalities.
    • Persistent inequalities between men and women despite women outperforming men educationally.
    • Similar patterns across Europe and developed countries.
  • Racial inequalities:
    • Chinese and Japanese have massively overtaken non-Hispanic whites in gaining a four-year college degree.
    • However, Chinese and Japanese have a higher proportion of unemployed graduates.
    • Blacks, Native Americans, and Latin Americans trail far behind.
  • High school leavers consistently earn more than college median graduates.
  • Investment in education at the individual family level doesn't pay for everyone.
  • Returns on human capital investment are far worse for marginalized groups.
  • National level:
    • Low-income and mid-income countries spend a higher proportion of their GDP on education than high-income countries. (World Bank data).
    • Investing more in education doesn't make national wealth higher.
  • Hanushek and Wößmann's book on knowledge capital argues that education promotes economic growth.
  • Human capital theory was written pre-international mass migration.
  • People leave their countries after investing in education.
  • A basic arbitrage example is an Indian software engineer working in Sunnyvale, California, earning a fraction of the wages of native U.S. software engineers.
  • Investment in education doesn't guarantee economic growth, even at a national level.
  • There is a fundamental need to rethink the relationship between education, the economy, and the labor market to regenerate a new human capital theory.

Response by Nick Pearce

  • Congratulations to Phil, Hugh, and Cindy on completing this massive piece of research and writing.
  • The book delivers a highly critical analysis of human capital theory.
  • The book challenges the gospel of vocationalism, which believes in a simple linear relationship between increasing stocks of human capital in the workforce and subsequent productivity growth.
  • A one percent increase in the share of the workforce qualified to degree level will raise long-run productivity by 0.2 to 0.5 over a two-year period.
  • Participation in education leads to achievement, achievement leads to qualification acquisition, which is a proxy for skill acquisition, which leads to productivity growth, which leads to wage gain.
  • England has followed human capital theory fairly slavishly for the last 35 years.
  • In 1979, 11% of the UK workforce had a degree or sub-degree qualification, and 45% had no qualifications. Now, about 42% have a degree or equivalent, and just 8% have no qualifications.
  • The anticipated shift to a high-wage, high-productivity, high-innovation, and high-quality paradigm did not occur.
  • The death of human capital helps explain this massive failure of policy.
  • Theodore W. Schultz's 1960 prediction that human capital theory would mean that labor ceased to be treated as a manufacturer of production, like land, plant, or factories, is mentioned, but firms continue to see labor as a factor of production or a cost to be contained.
  • The book offers a way out of this failure and provides a means to reframe how we think about education, training, and skills.
  • The book helps ensure that people fulfill their potential and utilize their human capabilities.
  • Those with an interest in education, training, and skills need to read this volume.
  • Human capital theory and the policies it has inspired have run their course.

Lisa Wilhelm's Response

  • The book will inform my own writing and teaching.
  • The book will help me convince PhD students that the problem is the structures of the labor market, not the skills gap.
  • The book brings together many years of research and is very compelling.
  • The book helps to dissect the different variants of human capital theory, between the orthodox approach and the skill bias technological camp.
  • There is a tension between micro-credentials and the desire to credential everything, and the focus is on skills.
  • Micro-credentials are gig credentials for the gig economy based on methodological individualism, where everything can be broken down into tiny parts and then reassembled.
  • It leads to the fragmentation of occupations.
  • In Australia, only 28% of vocational education sector graduates end up working in the jobs for which they've been qualified.
  • The market is trying to sort it out.
  • Australia's view is that not only should students be preparing for the market, but that education itself should be a ruthless market.
  • The problem with the settings must be fixed and tweaked.
  • The book gives a set of theoretical tools underpinned by empirical evidence for breaking out of this circle.
  • The book puts the individual at the center and their flourishing at the center while demonstrating the pitfalls of methodological individualism and the orthodoxy of orthodox human capital theory.
  • CB Macpherson refers to the individual as the bourgeois possessive individual of liberalism. The liberal individual is premised on a conception of individuals as owners of their own capacities and persons, who therefore owe nothing to society for the conditions of their existence or for the development of their capabilities.
  • The self can only be realized in a market, and that's why it's an impoverished self.
  • Bourdieu explains that the actor of human capital theory is basically an ethnocentric concept, and it's an ethnocentric universalization of a historically specific period of human motivation.
  • The book situates education in a broader overlapping institutional context in which education is situated, and it demonstrates the interdependencies between social inequality, gender, race, and what it would take to begin to address these problems. It's enormously useful.