Human capital – the productive capacity that is embedded in people – is one of the most important contributors to the growth in nations’ output and standard of living. Globalisation and technological change have increased the importance of human capital in recent years, to the point that there are now only two options to sustain high profits and high wages in developed nations: escalating the skill levels of individuals or developing superior capacity for managing those skills and “human capital” more broadly.
Employers have responded to these new phenomena by increasing wages for employees with more skills and by increasing their use of downsizing and other methods (such as “offshoring”) intended to reduce labour costs.
There is little evidence, however, that such efforts by employers have improved
profits, productivity, or stock price performance. Employer-provided training for employees represents one method of improving the skill level of a nation’s workforce. Although long-standing economic theory suggests that existing incentives for
employers and employees should naturally yield the delivery of an optimal level of training, there is new awareness of a variety of market failures that may be causing a sub-optimal level of training, despite evidence that points to a positive relationship between employer-provided training and firm outcomes
(productivity, profitability, employee retention, customer retention, stock performance).
