Korn Ferry Economic Analysis: Human Capital Nearly 2.5 Times More Valuable to Economy Than Physical Assets Such as Technology, Real Estate & Inventory
Los Angeles. December 15, 2016
-- The Human Workforce is Valued at $1.2 Quadrillion, Compared to
$521Trillion Value of Physical Assets
-- For Every $1 Invested in Human Capital, $11.39 is Added to GDP
LOS ANGELES, Dec. 15, 2016 —An economic analysis commissioned by Korn Ferry (NYSE:KFY) reveals the tremendous financial value people bring to the global economy.
The analysis, conducted for Korn Ferry by the Centre for Economics and Business Research, finds that human capital represents to the global economy a potential value of $ 1.2 quadrillion. This is 2.33 times that of physical capital, which is valued at $521 trillion and includes tangible assets like technology, real estate, and inventory.
“Although organizations often put technology in the spotlight in the future of work, it is human capital that holds the greatest value for organizations now and in the future,” said Jean-Marc Laouchez, Global Managing Director, Solutions, Korn Ferry Hay Group. “When an innovation strikes gold, the connection between the value that’s created and the team behind the technology is often lost. Leaders must recognize and capture the value of all their resources to succeed.”
According to the analysis, human capital is also the greatest value creator available to organizations. For every $1 invested in human capital, $11.39 is added to the GDP.
“The return on human capital—value versus cost—should give a clear signal to CEOs: Investing in people can generate value for the organization over time that significantly exceeds the initial financial outlay,” said Laouchez. “People, as assets, appreciate. This distinguishes them from physical assets, which operate at a limited maximum output and which typically depreciate over time.”
Human Capital Value Globally
Although the structure and size of a country’s economy frames the relative value of human to physical capital, the critical importance of people is clear to see. In each of the eight nations analyzed, the human capital value exceeds the value of physical capital.
Agriculture and Industry-Based Nations
Even in nations weighted toward agriculture and industry, the value of human capital exceeds physical assets. In China, with human capital assets valued at $110 trillion and physical assets valued at $49 trillion, the human capital to physical asset ratio is 2.23. In India, the value of human capital is $80 trillion and the physical capital is valued at $48 trillion, making the human capital ratio 1.67.
Markets with service-based economies experience higher ratios, meaning the value of human capital further outstrips that of physical capital. The ratio is greatest in the UK, where, human capital (valued at $27 trillion) is 4.23 times higher than physical capital (valued at $6 trillion). The United States holds the human capital of greatest value, at $244 trillion. With physical capital valued at $62 trillion, the United States has the second-highest human capital ratio of the analyzed nations, at 3.92.
“The economic reality of human capital value magnifies the importance of attracting and retaining the right people now and in the future. Technology alone cannot deliver the uplift in productivity and value every organization needs,” said Jeanne MacDonald, Global Operating Executive and President, Talent Acquisition Solutions, Korn Ferry Futurestep. “The digital world is fundamentally changing the connections between companies, their employees and their customers. In many ways, technology is strengthening these connections—breaking down structural, geographic and cultural barriers to bring customers closer and link up global colleagues. But CEOs must keep their eyes wide open to the potential pitfalls of the digital revolution, including asking technology to do all the work to the exclusion of people.”
About the Economic Analysis
To quantify the relative value of human and physical capital, Korn Ferry commissioned the Centre for Economics and Business Research to develop a robust economic model. The Centre’s economists determined human capital value by developing a lifetime income calculation, encompassing the ability of people to perform labor and add productive value over time. Physical capital captures the value of tangible means of production. It was calculated using the same principles that were applied to human capital’s value—potential earnings from the asset in use.
Editor’s Note: A link to the full report can be found here
About Korn Ferry
Korn Ferry is the preeminent global people and organizational advisory firm. We help leaders, organizations, and societies succeed by releasing the full power and potential of people. Our nearly 7,000 colleagues deliver services through our Executive Search, Hay Group and Futurestep divisions.