How Investing in Human Capital Can Help Fix the Economy

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Source: Bill Pugliano/Getty Images

Source: Bill Pugliano/Getty Images

As everyone is painfully aware, economic conditions in the United States appear on paper to have recovered from the 2008 financial crisis, but in reality, that’s far from the case. Many people are still struggling. In many cities, the cost of living is shooting through the roof, leading to the gentrification of neighborhoods, foreclosures, and rent prices that are forcing many to move to more affordable locations. Job numbers indicate that we have recovered every lost position since the crisis began, the only problem is that most of those jobs have been resurrected in the form of unskilled, low-wage work.

Recovery came at a sluggish pace and with little help from policy makers who, rather than passing any meaningful legislation, opted to gridlock Congress and even shut down the government. We’ve reached full recovery regardless, but it’s becoming increasingly obvious that that’s not an entirely accurate assessment. When things hit a wall in 2008 and 2009, the U.S. economy shifted permanently. Large swaths of the middle class disappeared, and the pace of a widening income gap hit a sprint from a gallop. Things have only grown in intensity, and the struggles of lower and middle class families have grown more severe.

One way some experts are looking at putting the economy back together again is through an increased investment in human capital. What is human capital, you ask? It’s a term used to describe an employee’s skills and ability to adapt. In a recent speech, Jeffery Lacker, the president of the Federal Reserve Bank of Richmond, discussed how he thinks workforce development should not aim for short-term solutions, but be built as a long-term strategy for keeping people employed even in dark economic situations.

“Our research suggests that much of what we’re currently seeing in the labor market reflects structural trends rather than a primarily cyclical change in labor market behavior. That has prompted us to think about long-term strategies to prepare workers for the labor market. We’ve been thinking about workforce development at the level of the individual: What can be done to improve people’s skills and adaptability, what economists call “human” capital?” he asks.

“This approach suggests that we may realize high returns from workforce development efforts, particularly those that encourage individual investments in skills starting at a young age. Workforce development should be thought of as more than just a short-term treatment — it also can work as a long-term vaccine that makes workers more resilient to changing labor market conditions.”

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