Competitiveness and Human Capital

Why is the quality of human capital so important in determining the competitiveness of an economy?

According to a 2015 IMF report, "returns to research and development and subsequent innovation depend critically on the human capital base of countries, which determines their capacity to recognize, assimilate, and apply new technologies."

Human capital refers to the value of skills, experience, aptitudes and attitudes of the human factor of production labour.

Policies to improve human capital might focus on some of the following:

• Skills e.g workplace training to increase people’s occupational mobility
• Enterprise e.g. Programs for start-ups such as Start-Up Chile, Young Innovative Companies in France, Entrepreneurship First (UK)
• Mobility: Housing market reforms to improve affordability and geographical mobility
• STEM: Investment in improved access to and quality of teaching in STEM subjects (Science, Technology, Economics!, Engineering and Maths)

Many businesses in the UK complain of shortages of skilled workers as a factor holding them back. Britain is ranked highly in the world for the flexibility of their labour market. But in 2015, Britain was ranked only 43rd of 144 countries for the quality / attainment of Science and Maths graduates.

Weaknesses in human capital is likely to be one factor behind the persistent UK productivity gap with many other leading countries.