The ONS researchers, Richard Jones and Blessing Chiripanhura, present a detailed and scholarly paper. They define Human Capital  and explain its importance; they survey the history of attempts to measure it; they compare 3 main approaches to measurement; and then they explain why they use the “discounted lifetime labour income” method for the calculations. Their data comes from the UK’s annual Labour Force Survey.

Two crucial assumptions were made in reaching that figure of £16,686 billion:

• a 3.5% discount rate
• a 2% productivity growth rate

Changing either of these by one percentage point while holding everything else constant will alter the total estimate of the value of human capital by £2 to £2.5 trillion up or down.

For those who aren’t investment specialists, the discount rate is the factor used when determining the present value of something that will be received in the future. So the human capital value we are talking about is actually potential human capital value. It decreases as someone gets older and is said to be at a maximum sometime during a person’s mid-twenties.

This seems an unfair way of disregarding the lifetime experience and knowledge of more mature workers – but that debate would open up a whole new can of worms, and then we’d also start factoring in familiarity with new technology and age-related brain differences. Another criticism could be that this measure of human capital is a relatively simplistic one, because it excludes all sorts of other variables that might be considered relevant, yet intangible, such as  social capital, moral capital, emotional capital, and so on. But, hey, it’s much better than nothing!

The total figure of £16,686 million represents an increase of 19.3% over that of 2001. The following graph, taken from the paper, shows how the increase was relatively steady from 2001 to 2007, but slowed during the recession of 2008-2009:

Note that Jones and Chirpanhura found that the aggregated value of women’s human capital was about 63% of that of men’s – due to the fact that women have less time in paid employment over their lifetime and they STILL (in spite of the 1970 Equal Pay Act) have lower average labour market earnings. (Recommended film: Made in Dagenham). If unpaid work in the home, e.g. raising children, were to be included in the estimate of the UK’s human capital, as the Wages for Housework campaign would like, then the total value would be much more than £16,686 billion!!