Extending Human Capital Theory: Rationale for Social Intervention in Skill Formation

1. Skills and skilled work: extending the rationale for intervention.By Francis Green

2. Objective • highlight arguments for an extension to HCT theory's rationale for social intervention in skill formation that explain and support policies for social engagement with, and support for, employers and workers to promote skill formation and use

3. Human Capital Theory and the rationale for social intervention • education: • easy argument at school level on efficiency and equity grounds • mixed at HE level • workplace learning: • 1960s-1980s. NO – employees pay for general training, while company-specific skills are shared between firms and workers; no externalities • 1990s. YES -- imperfect markets imply: • firms contribute to transferable training • employees and firms will not contribute enough • 2000s: ? Where's the evidence that market failure is worse than government failure?

4. Critique of HCT's rationale for social intervention: 1 • HCT assumes individualistic, forward-looking agents maximising utility/profit, with adequate foresight. But skills are socially determined which affects: • employers' demand for skilled labour • employers' supply of skill formation services • individuals' demand for learning new skills

5. Critique of HCT's rationale for social intervention: 1 Employers' demand for skilled labour and supply of opportunities for workplace learning are socially determined: • substantial differences in management effectiveness, within and across countries and industries • RBV: successful organisations develop core competencies • human resources hard to imitate; HC embedded, less mobile; managerial skills essential for 'dynamic capability': so demand for skill a function of management strategy. • strategies are influenced by management capacities and institutional norms (which can change); are constrained by the past; and are not uniquely determined by technology • social agents may be able to develop better strategies

6. Critique of HCT's rationale for social intervention: 1 Similarly, workers' demand for learning, in a world with deep uncertainty, is socially determined: • multi-causal structure with feedbacks involving beliefs & expectations, resources, and preferences  rationale for interventions to: • break cycles of disadvantage • sustain individuals’ resources (capacities, information, self-efficacy) • minimise learning barriers

7. Critique of HCT's rationale for social intervention: 2 • Neglect of the demand side of the economy. • HCT assumes skills markets are flexible and thick. • Dropping this assumption has two implications: • the demand side matters, and governments can consider policies that leverage both demand and supply • governments should intervene to assist skill-matching processes. IAG should not be a cinderella service; equity not ignored.

8. Critique of HCT's rationale for social intervention: 3 • The nation state and skill • HCT incorporates no concept of the nation state, other than political economy models of vote maximisation. • Dropping this assumption means that: • governments and their citizens have interests in locating skilled activities within nation state borders • is the international "skills race" a regressive zero-sum game?

9. Conclusion • existing arguments about balancing market failure against government failure are legitimate, but need to be extended • social interventions to improve managerial capacities and ambitions w.r.t. skills may be warranted • social interventions to assist individuals' navigation of learning paths may be warranted • nationalist interventions can be effective and have a national rationale, though the international-perspective rationale is more complex

10. Thank you for your attention LLAKES is an ESRC Funded Research Centre.