Making the Most of Intellectual Capital

Knowledge didn't fuel America's economy in the past. The Industrial Age thrived on man's mastery over machine. Most work required steady hands to operate factory equipment and minds geared to such repetitive tasks as measuring and counting.

A basic education—the three R's of reading, 'riting and 'rithmetic—sufficed for most jobs. Over the course of workers' careers, jobs changed little, so talents acquired in youth often served until retirement. Lifetime learning didn't matter all that much.

America has left the Industrial Age behind. Factory work is increasingly being performed in other countries; much of what remains in the United States is highly technical, relying more on sharp minds than nimble hands.

Today, services dominate the U.S. workplace, providing 80 percent of the nation's jobs. Some of the work requires only basic skills, but many other jobs require an ability to handle complex tasks in marketing, finance, sales, law, research and business consulting. The skills of the Industrial Age aren't a good fit for these jobs. Only by upgrading their talents will Americans be ready to make the most of what our economy offers in the Information Age and beyond.

The transition entails moving up the hierarchy of human talents.[1] In the early stages of the country's economic development, most work required muscle power to lift, tote, push and pull. As industry replaced agriculture, more workers found their niche with manual dexterity and formulaic intelligence.

Postindustrial nations are shifting workers to more sophisticated jobs that require analytical intelligence, imagination and creativity, and the ability to interact with others. The work relies on brains rather than brawn. While the talents are less bookish than the traditional three R's, education experts insist they can be taught—with the right techniques.

Maintaining a comparative advantage in a modern economy requires that schools do a better job fostering creativity and people skills. Equally important, these skills have to be kept sharp in a world of rapidly changing tastes and technology. We can't just get a good education while young and expect it to suffice for an entire career.

The transformation of the way we work gives intellectual capital precedence over the physical capital that once drove the U.S. economy. Both kinds of capital make us richer, but they differ in important ways.

Physical capital grows when businesses invest in buildings, machinery and other productive assets. These are largely management decisions, and the process usually takes just a few months or years. To expand intellectual capital, we invest in human beings over decades—from learning the ABCs in preschool to mastering the latest computer programs at the office.

Companies make important contributions to creating intellectual capital, but workers must assume a large part of the responsibility. No one can learn for us. We have to supply the effort to develop our skills.

Knowledge is ultimately the property of the employee, rather than the enterprise. Workers take it with them when they switch jobs, a factor that limits companies' ability to capture the benefits of investing in human capital. As a result, workers can't count on employers to provide all the training they'll need. They must be active participants in their own education, engaging in lifetime learning on their own.

The age of intellectual capital carries important lessons for American workers.

First, education and experience pay off more today than they did yesterday. In 1974, high school graduates with about 40 years' experience earned an average of 57 percent more than those with less than a ninth grade education and only a few years on the job. By 2003, the bonus for work experience had widened to 78 percent.

For those with bachelor's degrees, the added value of 40 years' experience rose from 131 percent in 1974 to 216 percent in 2003. After five years or more of college, the premium for 40 years' work rose to 350 percent, up from 185 percent a generation ago.

The pattern holds for all levels of schooling and age groups. By offering increasingly higher financial rewards, markets are prodding Americans to get more education and experience.

Second, the benefits of experience extend deeper into life today. A generation ago, earnings were highest for those aged 35 to 44. Markets, in effect, decreed that older workers weren't as valuable as younger ones. This reflected the prevalence of work that required physical skills. Job performance deteriorated as workers' bodies fell prey to the effects of aging.

In an economy growing more knowledge-intensive, workers continue to earn more as they grow older. Today, earnings are highest for those aged 55 to 64. Unlike the body, the mind doesn't peak at midlife. It retains the capacity to learn.

Knowledge builds on itself, like compound interest. College-educated workers show the largest gains as they accumulate experience in the labor force. The slowest growth in lifetime earnings occurs among high school dropouts, those least apt to develop a discipline for learning.

Third, intellectual capital depreciates, just like physical capital. Knowledge that once held economic value can lose favor in the marketplace. Calculators and computers, for example, have made quaint art of the ability to use a slide rule to solve math problems. These days, there's little need for the skills of railroad porters and elevator operators.

As some skills wither, others blossom. A modern economy needs workers who can design computer games, route bar-coded packages overnight and correct astigmatism with laser surgery. Technology raises the bar on what we need to know. When few employees used a computer at work, only secretaries needed to type. Now, hundreds of occupations involve writing e-mails and entering data. Millions of people do it every day.

The knowledge needed to excel at today's jobs marches forward, sometimes at a bewildering rate. In a fast-paced economy, being out of the workforce exacts a high toll. Unemployed workers can lose ground without access to on-the-job learning. The more time they spend out of work, the more their wages fall behind. Upon reemployment, workers earn lower wages because they offer less experience and have lost touch with the job market's changing demands. Those on the sidelines for long stretches sometimes never catch up.

Americans will continue to reap the benefits of knowledge only by replenishing their depreciating skills. That's part of the reason lifetime learning carries great weight in today's economy.

Putting Together the Education Puzzle America offers an abundance of options for lifetime learning—from parents and preschool to adult education and advanced degrees. Each of us must find the pieces that fit the jobs we want.

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