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Human Capital in 2023 and Beyond

Forecasting is at the front of every business’s collective effort right now. What’s coming next? What are the latest trends? How can we prepare for the future? The economy, with the rampant labor shortage and subsequent supply chain issues, looks to be taking a turn for the worse. One of the most relevant topics to come to the fore, especially regarding the labor shortage, is human capital.

That’s right. Human capital. It’s not about machines, statistics, developing artificial intelligence, or even the remnants of the pandemic—though each of these does play a role in how we consider and innovate human capital. Instead, it’s about people. We’re going to explain exactly what human capital is, what makes it so different from other forms of capital, and why it’s more important than ever in 2023.

What is Human Capital?

First, we must begin with the definition of capital. Capital is essentially anything that confers value or benefit to its owner or administrator. The term “human capital” was initially coined in the 1950s and 60s by economists Gary Becker and Theodore Schultz. It is the intangible qualities and assets that a worker possesses, or is capable of gaining, which benefit the company and the overall economy. Human capital could include an employee’s assets like education, mental and physical well-being, computer knowledge, communication skills, leadership qualities, and people management.

It can be broken down into two main categories: specific and general. Specific human capital refers to any training, education, and skills that a worker receives which are applicable to one company or operation. Learning how to use a particular program or machine owned and operated by a company is one example of specific human capital. Generally, a company is more likely to fund this type of education as it receives the direct and near-exclusive benefits of educating the employee.

Conversely, general human capital is any training, education, or skills that would benefit the worker in any or many industries and companies. This could look like taking an online course on leadership or communication skills. Individuals are more likely to invest in this form of training, rather than the company.

The “Human” in Human Capital

But what exactly is so “human” about human capital? About nine years ago, Russian economist Konstantin Gurdgiev gave a Ted Talk in Dublin, Ireland titled “Human capital & the age of change.” In this talk, Gurdgiev discusses the shift the modern economy is taking toward human-capital-intensive growth, where entrepreneurship, creativity, and a revolutionized approach to risk-taking are realized. In a later interview, Gurdgiev says he believes urbanism is the “ground zero” of economics. Successful urbanism operates on what he calls the C.A.R.E. System, which incentivizes individuals by creating, attracting, retaining, and enabling human capital in city structures.

But even if you can create, attract, retain, and enable human capital, how do you measure it? Gurdgiev says: “Many economists assess human capital using simple criteria: either by looking at skill sets that can be quantified, or at the growth of industry in the country. I see this approach as highly limited. To me human capital is something that is extremely difficult to measure: not the industry, but the entrepreneurs themselves as a certain type of people who are ready to handle the risks and find possibilities for business development in spite of them.”

Herein, we approach the answer to our question. Human capital is unique amongst other forms of capital. People are organic and have endless creative and energetic potential, unlike financial capital, for example, which can be easily measured and has limited growth potential based on external factors. While measuring it is vital in the sense that we need quantifiable results to predict the value of investment, we can also look to the virtually unlimited growth potential of a human being.

But growth potential doesn’t mean a thing if businesses can’t retain talent. And the current state of the labor market certainly isn’t helping things.

The Current Labor Market

The U.S. has over 10 million open jobs right now, but only 5.7 million workers are unemployed. So even if every single unemployed person got a job tomorrow, we’d still have over 4 million open jobs.

And even though millions of U.S. workers were laid off when the pandemic forced companies to close or contract operations, in 2022 employers added 4.5 million jobs to the market. Job openings have consistently risen since January 2020 and unemployment has slowly dropped, but there are 3 million fewer people participating in the labor force now than there were in February 2020. And women are participating in the labor force at the lowest rates since the 1970s. Now, you’re probably wondering what contributes to those statistics.

A U.S. Chamber of Commerce report revealed multiple factors contributing to such a drastic shift in only 3 years:

  • 27% of employees who lost their jobs during the pandemic aren’t returning to work to take care of kids and family; finding quality childcare has become increasingly difficult.
  • 28% say that health issues have prevented them from returning to work.
  • The pandemic forced many workers 55 and older into early retirement. Retirement rates increased from just over 48% in Q3 2019 to 50.3% in Q3 2021.
  • Other concerns from this group include caution about Covid-19 for in-person work, low pay, or a desire to re-skill before returning to the workplace.

So what can employers do to deal with this reality? First, we must understand the new nature of work to better retain and engage employees.

Adapt to the Boundaryless

In 2021 and into 2022, experts called the labor crisis the Great Resignation. The U.S. Chamber of Commerce has re-termed this workforce phenomenon The Great Reshuffle. Hiring has actually outpaced quitting by about 4%, but many workers didn’t return to their old jobs, they simply found new ones. Plus, the 2023 Human Capital Trends Report from Deloitte notes that workplaces are dealing with more discontinuity and disruption than ever before. Growth initiatives based on doing more work more efficiently just don’t cut it in 2023. The former clear boundaries of jobs and the workplace–in everything from the literal boundaries of an office, to the clarity of job processes, to making decisions based on the bottom line–aren’t so cut and dry anymore.  These factors, coupled with the staggering labor gap, mean that no matter how hard businesses may try to gain and retain talent, it’s going to be challenging for a while.

Modern workplaces are changing faster than ever. Businesses that adapt their human capital to the boundaryless nature of the workplace will be on track to continue to innovate and grow. Deloitte’s report outlines 3 targeted ways to adapt:

  1. Approach roadblocks as a researcher,
  2. Co-create relationships between organizations and workers; and
  3. Prioritize human outcomes.

Approach Roadblocks as a Researcher

Instead of seeking an immediate and quick solution to people-oriented challenges, businesses should approach these issues with an exploratory mindset–every challenge is an experiment and opportunity to innovate. And speaking of boundaries, humans are working closer than ever with new technologies like AI to augment processes and outcomes. Organizations and workers need to understand the workplace not as 4 walls, but as a metaverse workplace which redefines the “how” and “why” of work, rather than the “where.”

Co-create Relationships

Instead of approaching the workplace chain-of-command from a traditional management perspective, forward-thinking organizations should treat their workers more like partners. Whether businesses like it or not, workers have greater influence over organizational outcomes than ever before. Instead of stifling this, businesses can empower employees to take authentic accountability over their work and overarching goals and results.

Deloitte’s report revealed that companies which gave employees more influence and responsibility for organizational outcomes experienced more positive outcomes like greater worker engagement and adaptability.

Prioritize Human Outcomes

As noted earlier, making the bottom line your only measure of success or motivation isn’t the answer. Businesses that prioritize human outcomes, like sustainability, diversity, inclusion, and trust, will fare better in the struggle for quality workers.

At the end of the day, what we’re saying is that businesses must be human and human-centered to adapt to retain workers. Approaching challenges with an exploratory mindset, partnering with employees to provide more responsibility for organizational outcomes, and prioritizing those dynamics that workers truly care about, will lead to meaningful change in a boundaryless world.  Empowering individuals and teams to push the boundaries of what’s possible is at the very heart of human capital in 2023 and beyond.

 

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