Collaborative investment in human capital

We know that significant investment in human capital is needed to ensure workers across industries, geographies and demographics are equipped for the future of work. In the U.S., the cost of retraining 1.4 million workers at risk of technological displacement is estimated at US $34 billion. More widely, 87% of companies around the world either already have a skills gap or expect to have one within the next few years. To address this, companies will not only have to hire workers with relevant skills but also reskill a significant proportion of their existing employees. The Confederation of British Industry estimates that nine out of ten workers will need to retrain by 2030 at an additional cost of GBP £13 billion per year.

By working together – both with other businesses and with governments – businesses can lower the cost of investment and reinforce the business case. A U.S. analysis suggests that the cost of reskilling 25% of the workforce at risk of automation can be borne profitably by individual companies, but if companies work together, economies of scale could enable them to retrain 45% of the workforce.

By creating vehicles and frameworks for collaborative investment, business leaders can reshape the investment case in favor of human capital investment, close the investment gap and ensure both individual companies and wider industry benefits.

Collaborative public and private sector initiatives are starting to address the significant up-skilling and reskilling needs of workers today and in the future.

Sector skills councils – employer-led organizations to define skills gaps and outline strategies to tackle them – offer potential institutional vehicles to coordinate investment. For example, TechSkills brings together UK tech employers with education providers to meet the demand for tech talent. Luxembourg’s Digital Skills Bridge offers a structured process for employers and unions to work together on defining plans to address skills gaps and obtain government funding for reskilling programs.

There is also growing recognition of the need to shift accounting principles for human capital investment. The World Economic Forum together with Willis Towers Watson have begun work on a set of accounting principles to promote recognition of human capital investment as an asset.

But even with better coordinating mechanisms, further support will be needed to fill the investment gap in skilling. One route is via direct government support to learners via individual learner accounts. France has introduced the Compte Personnel de Formation (CPF), a personal training and skills account dedicated to vocational training and lifelong learning, with learners receiving EUR €500-800 per year up to a maximum of EUR €5000-8000. SkillsFuture provides Singaporeans with credit to support learning. Learner accounts could be supplemented with company investments to unlock learner opportunities. Austria provides a 120% tax allowance on expenses associated with training. In the U.S., Connecticut, Georgia, Kentucky, Mississippi, Rhode Island and Virginia have all experimented with providing businesses with tax incentives for training investments.

Within your own organization:

• Conduct a thorough analysis of workforce skills gaps to understand potential investment requirements.
• Apply human capital accounting principles that frame skilling as an investment rather than cost.
• Protect employee time for learning to encourage employees to invest in their own development.

With others:

• Collaborate at an industry level (e.g., through sectors skills councils) to build a detailed view of skills shortages.
• Coordinate investments in skilling programs that harness economies of scale to reduce costs. Work with SMEs in your supply chain to share access to training opportunities for their workforce.
• Use cross-sectors secondments to harness the comparative skill advantages of workforces in different industries and transfer skills more effectively across industries.
• Engage investors to build the case for skilling strategies that deliver a wider range of societal benefits.
• Promote accounting frameworks that recognize skills investment as both a business and social asset.

• Work with policymakers to design effective incentives for human capital investment, focused on the skills investments that are less likely to pay off to individual companies but that are systemically important for the workforce of the future.