On Measuring Human Capital


On Measuring Human Capital

By Michela Vecchi and Catherine Robinson

The Economic Statistics Centre of Excellence (ESCoE) and the Office for National Statistics (ONS) held an online workshop on human capital ‘Exploring Skills and Education‘, supported by the Economic and Social Research Council (ESRC) on 22 February.

Since 2016 there has been a sustained increase in interest in human capital, that is the stock of skills, knowledge and experience of an individual or population, which contributes to growth in productivity, prosperity and well-being. Reflecting this increasing interest, participants from academia, statistical agencies, government, non-governmental and international organisations came together to discuss our current understanding of human capital and future developments for research and policy.

In her opening remarks, Mary O’Mahony (King’s College London) acknowledged the work of organisations such as ONS in helping researchers investigating human capital by providing increasing access to relevant data. The importance of data access to address important questions and facilitate informed policy making was a theme that ran throughout the day.

Discussions focused on developments in methodology and measurement, as well as different facets of human capital, including skills, education and personality. The day also provided a regional context to human capital and the opportunity to discuss issues concerning UK inequality and the ‘levelling up’ agenda. Nine individual presentations were delivered in three sessions.

The first session, chaired by Khloe Tabor (ONS), focused on ‘skills mismatch’, the term used to describe the gap between workers’ skills and skills required in the job market. While definitions of skill mismatch do vary, this session broadly concentrated on the difference between the skills/education required for a role and the skills/education held by the worker. Evaluating this gap is difficult as there are different ways of measuring skills, and presentations in this session clearly highlighted this difficulty. While objective measures, based on qualifications, often exclude skills beyond education, self-evaluation by workers of their skills and the extent to which they match their job requirements may be biased. Skills of both technical (programming/mathematical skills) and non-technical nature (communication/creativity) can be crucial in facing future challenges, such as technological and demographic changes.

Michela Vecchi presents ‘Occupational Changes and Skills Mismatch During the COVID-19 Pandemic: UK Evidence’ in Session 2: Skills Mismatch

While the first session focused on the supply of skills, the second session, chaired by Michela Vecchi (University of Middlesex), was dedicated to the demand for skills and the ‘blossoming and accelerating’ use of alternative sources of data in human capital research. Work based on job vacancies data featured prominently in this session and linking this important source with information on skills supply should be an important focus for future research.

Taxonomy examples slide from the ‘A New Approach to Building a Skills Taxonomy’ presentation from Session 2: Skills & Commercial Data

The final session, chaired by Catherine Robinson (University of Kent), addressed one of the most crucial issues currently on the policy agenda in the UK: ‘levelling up’. The discussion focused on different concepts of human capital, from qualifications to vocational skills and personality traits, regional variations and correlations with regional inequalities. Looking beyond universities, intermediate qualifications, vocational education and technical training can play a relevant role in breaking the ‘low skill equilibrium’ and in developing relevant skills to promote regional growth.

Andrés Gvirtz presenting ‘Regional personality differences across Great Britain’ in Session 3: Regional Variations in Human Capital

The presentations were followed by a panel session on ‘skill measurement for policy and research use’. Chair Gueorguie Vassilev (ONS) was joined by Frank Bowley (Department for Education -DfE), Laura van der Erve (Institute for Fiscal Studies), Urvashi Parashar (Levelling Up Taskforce DLUHC) and Catherine Robinson (University of Kent).

Frank and Laura’s contributions centred around the use of a key UK dataset, the DfE Longitudinal Education Outcomes (LEO) database.

Frank outlined three ways in which the DfE is currently using skills measurement. The first is accountability. The DfE sets targets, which are made public, and skills measurement helps to drive progress towards those targets. The current government’s ‘levelling up’ white paper contains targets to grow high-value skills, especially in less-developed parts of the country. The second is evaluation. Using their skills index, the DfE can adjust the skills people achieve in line with the value of skills in the labour market, from the perspective of the further education sector. This evaluation can increase confidence in the contribution of government spending in schools, further education and higher education. Finally, the third use is for measurement. Although the UK is one of the biggest education funders, there may be room to better invest in skills. Looking into the future, Frank explained how researchers, policy makers and education providers can identify important skills, the necessary training to achieve those skills and how they can be used in businesses.  

The LEO dataset, although useful, does not provide data on skills beyond education. These may well form the greater base of skills in the economy. There is potential for obtaining more data in this area from administrative data sources and surveys. Workshop participants heard that this will be a priority focus for Frank’s Unit for Future Skills over the coming years. Though valuable, administrative data are of limited use to policy makers, because of their limited size and availability.  The question of how to collect big data sets, over a number of years, and in a timely manner, remains unanswered. Frank also commented on the need to move from the macro to the micro perspective to empower citizens to better make their own education and employment decisions.

Laura explained that LEO has supported much of her research in recent years, for example facilitating the understanding of which specific qualifications from universities are helping people to increase their earnings. However, an important limitation centres on understanding drivers. These were also key for Catherine. She highlighted why we need to look at mobility for workers and why people are in the ‘right’ jobs, citing three key drivers: individuals’ well-being, productivity, and value for money. Work is also needed on the demand side, in particular upgrading jobs as a part of the broader goal of moving the UK towards a more highly productive economy, with overlaps on measurement agendas for good quality jobs.

Catherine made the case for better linkages between further education, higher education, local authorities and businesses, to better understand employers’ needs. The existing education system centres on knowledge-based education while businesses increasingly demand skill-based education, hence supply and demand do not match. Catherine additionally expressed a desire for us to better understand regional variations and performance, investigating how much mismatch costs the UK in terms of productivity.

As well as better data linkages, Urvashi raised the important issue of the interaction between human capital and other types of capitals. This is relevant to understand policy-relevant issues such as graduate mobility and brain drain, which may be driven by regional distribution of tangible and intangible capital assets. Skills should be seen as a lifetime learning concept, a point echoed by the other panellists. She also said that there is a need to better exploit real-time data, for example commercial data. It was Frank’s opinion that we don’t currently measure demand very well, and that we need a better theory and policy framework of demand. This could be achieved with the use of job vacancy data and data collected by commercial social media platform such as LinkedIn. However, getting access to these data sources present several challenges given the proprietorial approach companies like LinkedIn take to ownership and sharing of their data.

Overall, the day provided an insight into the substantial and important body of work currently developing around human capital and its role in raising economic growth and wellbeing. What is clear is that regardless of where the skills gaps are in the future, or indeed how skills are best captured, their role in the future growth and prosperity of the UK is crucial.

Thank you to everyone who participated and helped make the day a success. You can access all of the slides and video recordings from the workshop here.

Michela Vecchi is Associate Professor in Economics at Middlesex University
Catherine Robinson is Senior Lecturer in Applied Economics and Business Statistics at the University of Kent

ESCoE blogs are published to further debate. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the ESCoE, its partner institutions or the Office for National Statistics.

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