Britain’s wealth lies in its people

A decade ago a World Bank report asked ‘Where is the Wealth of Nations?’ New calculations published in Scandinavian Economic History Review show that for Britain, the answer is undoubtedly in its people.

In his paper, Dr Jan Kunnas from KTH Royal Institute of Technology, calculates that Britain’s human capital has grown by a multiple of 112 over the past 250 years. The main drivers of this phenomenal growth have been the growth in the workforce and the growth in wages. In the same period, from 1760 to 2009 human capital per worker and per capita grew 13-fold. Kunnas defines human capital as the knowledge and skills embodied in individuals. He measures it by the discounted earnings the population is expected to earn during their time in the labour force.

So what has driven this growth? As real wages remained more or less constant in the late eighteenth and early nineteenth century, the growth of the workforce was initially the main driver of the change in human capital. The period after the Second World War witnessed fast growth in wages, while the growth of the workforce stagnated, not to be resumed until after 1983. In the long run, the main source of human capital growth has been the growth in real wages. This can also be interpreted as the quantity of labour driving labour input up to 1950 and then labour quality taking over. The average time that individuals remain in the workforce has had a minimal effect on the human capital; people are living longer, but they are also retiring earlier, and the workforce is growing older.

Just as it has been for the past 250 years, Britain’s future wealth lies in its people. Based upon his research, Kunnas suggests that “the major impacts of Brexit will be in: 1) how it affects Britain’s education system that maintains and build up its human capital, and 2) how it affects Britain’s attractiveness to well-educated immigrants.”

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