THE WORLD OF WORK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00530R000300620002-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 27, 2016
• Document Release Date: January 2, 2013
• Sequence Number: 2
• Content Type: MISC

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THE WORLD OF WORK
CAREERS AND THE FUTURE
Edited by
Howard F. Didsbury, Jr.
WORLD FUTURE SOCIETY
Bethesda, MD ? U.S.A.
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Editor: Howard F. Didsbury, 1r.
Editorial Review Board: Deirdre H. Banks, lames J. Crider, Howard F. Didsbury,
1r. (Chairman), Theodore 1. Maziarski, Andrew A. Spekke,
Stephen H. Van Dyke
Staff Editors: Edward Cornish, Jerry Richardson
Production Manager: Jefferson Cornish
Editorial Coordinator: Sarah Warner
Editorial Consultants: David G. Cox, Mary Ann Madison, Veronica Perry, Michael
Warner
Cover Art: Cynthia Fowler
Typesetting: Harper Graphics
Published by:
World Future Society
4916 St. Elmo Avenue
Bethesda, Maryland 20814-5089 ? U.S.A.
Copyright 1983 orld Future~Society
All rights reserved ~'~
No part of this book may be reproduced by any means, nor transmitted, nor translated
into machine language without the written permission of the copyright holder.
Library of Congress Catalog Number: 83-50328
International Standard Book Number: 0-930242-21-I
Printed in the United States of America
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Human Capital:
A High-Yield Corporate Investment
by
Anthony Patrick Carnevale
It is human nature to waste anything that seems abundantly supplied.
~yAt the moment, there seems to be an overabundance of American workers.
Our economy apparently is overflowing with underemployed, unem-
ployed, and expendable people. As unseemly rates of unemployment hover
in double digits, we are told that labor-saving machinery will soon make
us all redundant. The bogeyman of technology is loose again.
We Americans are predisposed to the view that there are too many
people. Our recent history encourages us to accept the notion that people
are superfluous while machinery, financial capital, and the tangible fruits
of the earth are scarce. Since 1946, we have been forced persistently to
reshape our economic and social structures in order to bear, feed, clothe,
educate, employ, and house the 76 million members of the American baby
boom. As a result, ra?lrile rti?e have learned to value people for their pur-
chasing power, we have not .ceerr them ?.c critical resources for production.
Things are r8rely as they first appear. Upon closer examination, the
apparent oversupply of Americans proves illusory. Unfortunately, our
misconceptions and the biases of our recent history are threatening our
nation's economic future. There is some risk that we will be misled by
the notion that people are oversupplied and beguiled by our recent past
into a national investment strategy that favors machines and resources
extracted from the earth over people. This would shortly prove a serious
economic error.
As the following evidence will demonstrate, the economic and social
yield from investing in human resources is high and increasing. Our
economic growth and productivity are becoming ever more dependent on
our human resources.
Increasing Yield from Human Capital
The nation's economic history tells us with deadening statistical reg-
ularity of the increasing yield from human capital investment. The evi-
Anthony Patrick Carnevale i.c presently a rnn.cultnrK economist and is aLco a research
associate at both Harvard and Ohio Stag Urrirercin?. This article i.c an ereeutive
.cumman~ of a .ctut/v prepared for the American Socieh',lor Tririning and Development
(ASTDJ; information nrr the full .cooly cart be ohtained from ASTD, 600 Mandand
Avenue, S.W., Suite 305, Wasltin,Qmn. D.C. 20024.
Bence, as summarized in Figure 1, divides the increase in national income
between 1929 and 1978 into its human resource, land, capital, and pro-
ductivity components. Figure I also shows amiddle-of-the-road projection
of the growth in national income and its component parts through 1990.
The evidence demonstrates clearly the overwhelming historical and pro-
jected contribution of human resource facrors to the increase in national
income. By way of comparison, human resource inputs are shown to be
consistently more important than capital Further, land continues to slip
as a critical economic resource. For every year measured since 1928, and
projected through 1990, human resources have been the dominant factor
accounting for growth in national income.
Figure 2 provides additional detail on human contributions to growth
in national income. It breaks the human contribution into its component
factors: hours worked, age/sex composition, and education. "Hours worked"
have a nearly persistent negative effect on the human contribution to
national income. The reason: People are working fewer hours and enjoying
more leisure time. Thus ~it becomes a happy problem when understood in
the context of another set of trends-the simultaneous rise in wages and
worker productivity. Between 1929 and the mid 1960s, American workers
managed to increase their le)'sure time, their wages, and their productivity
all at the same time. The negative impact of "hours worked" is, therefore,
good news. It is testimony to the ultimate success of the American econ-
omy throughout most of this century. It demonstrates that American work-
ers have been working .smarter, not harder.
Figure 1
Components of arowlh in National Income 1929-1990
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Mqh Moderate
Drawn, cro.rtn
'~ t~ ~~ 2~~u 3a?~iu 7ce~:u 7[~iu 7rt~iu ~aliu gali~Faliu g
ifte economic conlrioution Irom prowtn in Human Rnources ~ Gaoltal a LarW ~ Productivity =Growth in National Income.
Q Muman Resource Factors
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Figure 2
Components of Growth in National Income 1929-1978
pp
~i'd~o ~F81~~~'~I~FRIfi$6yo ;F8ls$~5t;F81a Ett$o#F8la?~yal'; EI~# 1'tf' g
3S ~?0 7S 3 JS 3 8W o~7d ; - 3C 8 ~ ~ 6
~~$w bu~2 ~:~wS37a
The effect of education is all the more remarkable as it is probably
understated. its effect on national income measured in Figure 2 does not
include the substantial investment by employers in formal employee train-
ing and development. Estimates of this investment run higher than $30
billion. Even more substantial is the amount of informal, on-the-job train-
ing excluded from the measured amount of education in Figure 2.
Productivity: Human Decisions and Work Attitudes
Productivity is the human art of getting more with the same or fewer
resources. This can be accomplished by increasing the intensity with which
we utilize resources (working harder) or by increasing the efficiency with
which we mix and use available resources (working smarter): Both depend
on the skill and work effort of labor and~management. /n short, productivity
at its roots turns on human decisions and work attitudes. The quantitative
snapshot provided in Figure 3 demonstrates the overwhelming importance
of the human factor in productivity growth. It accounts for the greatest
proportion of productivity increases between 1929 and 1973.
Growth in on-the-job know-how, the reallocation of labor, and the
increase in the quality of labor through education, training, and health
care have consistently accounted for more than three-quarters of produc-
tivity increases since 1929 and for most of our growth in national income.
By comparison, the amount of machine capital per worker has contributed
a consistent, and disappointing, 20% or less. Figures 3 and 4 verify that,
(irowm In eCOnontlc conlrl0ugon Iron Numan Resources lworMlorce size, noors worwee, age/se. composltlpn, eMrcatlon, ogler Mtman resourrceat
Gpitel ~ LaM ~ RoduCtivity Growm in NetlOnel Income.
The changing composition of the work force also has had a negative
effect on growth in national income. This negative effect of~labor-force
composition is due mostly to the much publicized influx of youths and
_ tales into the work force. As the "baby boom" moved into the work
~e and as the number of females in the work force increased in the
SOS, a growing proportion of working Americans were relatively un-
educated, untrained, and inexperienced. The concomitant lack of human
capital investment and on-the-job experience in this group progressively
reduced the contribution of human resources to income growth throughout
the fifties, sixties, and seventies. However, as can be seen in Figure 2,
with added training and experience on the job, the negative impact of
young and female workers on national income growth will turn positive
in the 1980s and should remain so throughout the twentieth century.
Perhaps the most remarkable frndinR i.s the sizable, positive influence
of increased education nn growth in nationa! income. The nation's com-
mitment to educational attainment has increased at an accelerating rate.
Between 1940 and 1978, the median number of school years completed
among American workers increased from 9.1 to 12.7. Over the same
period, the proportion of all workers with a grade school education in-
creased from 50% to 91%, those with a high school diploma from 19.7%
to 41.4%, and those with four or more years of college from 5.7% to
17
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t=lgure 3
Components o1 Nroductlvlty Growth 1929-1978
1929-/1 191-/e 19/e-53 1953-6~ 198h~ 1969-73 1973-76
I -1 ~ ~ ~ ~I~ ~ ~ SIS ~ a il~ ~ ~ .fil~ ~ ~ 5IS ~ ~~~ ~
E~~ E ~ ~ $~ E ~ ~ Y
E i$ 3 F 3 r ? g 5 Y s F a
~~~a~~~a~>~~a;~~s~~~s;~~a~~~~
Growth M corrMbl,tlan from Nlmten Factps Iworktnp smarter, resource Msptbn, Ito W I~Iron IwaM a otMr lactaro ~ GroouctMry Growl.
Q Mumen Resource Fnclrxs
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rigure 4
Components of Growth in Economic Output 1948-1978 and Projected Through 1990
Growth in contrlDullpn Imm Human Factors nvorkirg smarter, etlucatinn, health, agMSe~ composition, population push, resource aAaplion) ~ LanA
. Other Patton = Growth in Economic Output.
in the absence of the human contribution, productivity would have been
virtually non-existent throughout most of this century.
The economic history of the modern world is a tale o/'the inexorable
shift from natural and machine resources to acy-rirecl human skills as the
basic building block of production. In 1890, resources from the earth,
including minerals, energy, and food, accounted for 50% of the gross
national product. 'T'oday, these same resources account for less than 10%.
Over the same period, human resources grew to account for more than
`}`;i fifths of the nation's total economic output. The acquired skills and
~~tres of the human population have become the master resource because
they are the agents that transform the environment into usable goods and
services. ,
In the last century, for instance, economists routinely listed land, labor,
and capital as the factors essential for economic production. In the shift
from an economy based on agriculture and other resources extracted from
the earth to the post-industrial economy, land has virtually been eliminated
as a prime factor of production. Available data suggest that land had no
impact on economic growth between 1948 and 1966 and a negative impact
on national income between 1966 and 1978.
In the United States, real earnings per hour of work have increased
fivefold since 1900. Fully 75% of national income now derives from
earnings. Nobel laureate Simon Kuznets's classic studies of economic
growth show a rapid growth in the value added by the human factor relative
to other factors of production. Kuznets finds that over this century, the
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share of national income attributed to property declined from 45% to 25?Io
while the human contribution to national income increased from 55% to
75%.
In 1817, an American laborer earned the equivalent of two hushels of
wheat per week. By 1890, weekly wages were equivalent to nine hushels
of wheat. Wheat dropped in price by half between 1900 and 1970, which
means that if human labor had remained in rough proportion to agricultural
output, workers could have expected- the equivalent of 18 bushels per
week in 1970. Instead, the weekly compensation of manufacturing workers
was equivalent to 96 bushels.
Not only has the economic system demanded an increased quantity of
human capital, it has rewarded an ever-increasing quality. Manufacturing
workers received only two cents per hour more than unskilled workers in
1900. By 1970, the absolute difference was 79 cents. Teachers, the na-
tion's lowest salaried professionals,.received only 24 cents per hour more
than unskilled labor in 1900. Their margin has increased to g 1.90 per
hour in 1970.
A Service and Information Economy
In the latter portion of the twentieth century, the dominance of human
resources in the American economy will continue and accelerate. We are
presently in the midst of a sh~f't to apost-industrial service and infnrrnation
economy where productivity wilt increasingly be embodied in persons,
not raw resources or machines.
We already have come full circle since the early nineteenth century. In
1820, more than 70% of the labor force worked on the farm. In 1980,
only 3% work on the farm, and 70?l0 of the work force has moved through
manufacturing and into services and information industries. What is more,
the current shift from manufacturing to.the service and knowledge indus-
tries will likely accelerate with new labor-saving technologies. Peter Drucker
and others claim that the current 32% of our work force employed in
manufacturing could shrink to 5% as early as 1995.
The coming of post-industrial society will not eclipse industrial pro-
duction, nor the importance of the more highly skilled workers who will
remain in industrial production. Agriculture did not disappear with the
advance of industry. It became mechanized and more productive. In 1850,
for instance, one farmer provided for four other people. In 1982, one
farmer provides for 78 others. In much [tie same fashion, manufacturing
and basic industries will rely more heavily on machinery and a smaller,
more highly skilled work force for increased productivity.
An inevitable and accelerating economic trend underlies these data.
That trend is what economists refer to as the "rationalization" of the
world economy. Rationalization is the process by which high-skilled, high-
technology intensive production concentrates in developed countries and,
correspondingly, lesser skilled, technology-poor production concentrates
in lesser developed nations. It is the sorting out of national competitive
advantage in the world economy.
The competitive advantage of the lesser developed nations begins with
their low-wage, low-skill labor pool. Our own competitive advantage relies
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h
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end accelerate the skill level of our labor force. In the long term, we
annot protect the U.S. share of unskilled production. Ultimately, we
annot match sweat equity with 950 million Chinese. We cannot compete
ur low-wage, low-skill production markets.
Our real competitors are the other, "more-developed" countries. As
he pace of technological change accelerates, competitive advantage de-
~ends on our ability to adapt, to apply new technologies to production,
~nd to integrate human skills with new machine technology. Adaptation
vill be all the more difficult as product life and skill life become shorter
end shorter. Ultimately, it is the rate at which we apply new technologies
and integrate them with ready labor that will determine our success. As
he international rationalization process accelerates, the constant and op-
imal shifting of human and machine resources will be required, as will
he constant retraining of the work force.
The evidence of the economic impact of human motivation is compel-
onvincing data show that the key difference in productivity among
+iiand nations cannot be attributed to the quantity of resource inputs
'gut to some unmeasurable qualitative human "factor x." Research shows
.hat productivity differences between workers in the same plants with the
.ame pay and equipment can vary by a factor of four, and differences
~~etween plants with identical equipment, labor, and pay can vary by 50%.
~~ccording to available research, the variation in "x" efficiency is rooted
~n motivational and cultural differences. Recent advances in the mea-
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human economic and social institutions always will adjust to the available
supply of economic resources. Increased prices for scarce resources create
incentives to expand supply. When rising prices fail to generate new
supplies, substitutes become cost effective and available resources can he
remixed in the production process. In the rare cases where the cost of
extracting more resources becomes prohibitive, human tastes will adjust
~ to accept substitutes or other goods and services.
The Bottom Line
The long view of economic history teaches us that people are the master
economic resource. They are the master resource because they use their
acquired skills and abilities as the catalytic agents that combine tangible
elements and intangible ideas to make machinery and usable goods and
services. In spite of that fact, there is a great temptation for employers to
ignore the long-term value of human investment. This is especially true
in times such as these when investment capital is short and unemployment
lines are long. SecondlX, in the short term, individual employers are faced
with the prospect of losing their investment in people. Employees are
mobile and machinery is not. When one employer invests in training and
development, another can invest in wages and pirate employees at the
completion of their training. ~.astly, when jobs are in short supply, there
is an equally greater temptation to rely on a quantity of cheap labor rather
than a quality few. With jobs available for only one in ten unemployed
workers, it is indeed a buyer's market.
Although employers generally appreciate the long-term yield of current
investment in human resources, the press of daily business and the realities
of the labor market encourage them to win their share of the nation's
skilled workers through wage bidding and not through human resource
development. We, as a nation of employers, have bee-i going to the well
for some time for skilled workers without replenishing the source of supply.
As a result, the long term finally is arriving, as evidenced in a spate of
statistics that suggest mounting skill shortages, reduced overall quality in
the American labor force, shoddy workmanship, unsatisfactory mainte-
nance, and wages that are not balanced by worker productivity. Further,
attempts to improve productivity by increasing machine capital are proving
costly and are resulting in protectionist resistance among current workers
who are concerned for their own job security. Individual firms that once
found it profitable to buy skilled workers by bidding up demand now find
the price high, the supply short, and the quality low. What was good for
individual employers has proven costly for all.
As a society, we will have to discover new mechanisms for employers
to realize the longer-term benefits of employee training and human re-
source development. Public incentives that place investment in human
resources at least on a par with investment in machinery will help. Fed-
erally operated training programs for skill shortages which do not have
the accountability of the workplace will only be marginally effective. In
:urement of motivational factors in the workplace suggest that a 10% i
improvement in motivational factors allows fora 1% reduction in product
~~rices.
The world of standing room only will never come. Births are influenced
I~eavily by economic and social conditions. Births rose with income during
ihcearl~ agricultural development of economic systems and declined with
~h~ooming of industry and urbanization. In fact, declining birthrates have
characterized the United States and other industrial nations for more than
?00 yeas. The single exception to that trend occurred in the United States
between.-946 and 1964 when 76,441,000 babies were born. This was
,000 more births than in the previous 20 years (1926-1945). By
:ill~iotts, however, the "baby boom" is an exception. It passes into
history while the dominant trend toward low birthrates reasserts itself.
The economic effects of population decline are already upon us. Overall
shortages of workers are hidden, however, under the cloak of the current
high rates of unemployment. Recovery will reveal this overall shortage
quickly and dramatically. In the 1970s, for instance, even the slower rates
cif growth produced 19 million new jobs for new workers. As the effects
of population decline begin to impact in the 1980s, there will be only 16
million new workers. If the eighties achieve even the middling rates of
economic growth characteristic of the seventies, the economy will generate
a minimum of 19 million new jobs, creating a gap of 3 million jobs for
which there will be no workers.
The anxious notion that we draw our resources from increasingly in-
accessiblereservoirs is scientifically unfounded and statistically unproven.
i the final analysis, resolution of the problem depends on the willingness
~ of employers to look beyond the short-term economic dynamics that dis-
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courage human resources investment. In the absence of employer-based
strategies, however, public programs and regulations are inevitable.
Source for Figures l-4
Anthony Carnevale, computed fmm r-.dward Denison. AcrnuminR jot Slower Economic Growth: The United
Srnres in the 1970.c, Brookings Institution (Washington. D.C., 1979): 1971-78 data computed fmm John
Kendrick. "Productivity Trends and the Recem Slowdown: Historical Perspective, Cause Factors, and Policy
Options," American Enterprise Institute (Washington. D.C.. 1979): 1980-1990 data computed from C. Jackson
Grayson. "The U.S. Economy and Pnxiuctivity: Where Do We Go from Here?" Joint Economic Committee
(Washington. D.C.. 1980), p. 44.
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