Extracting value from skills

There are many environmental and economic reasons to be concerned about the blossoming of fracking technology but this post (Lithuania Scares Away It Only Shale Gas Suitor) from Walter Russell Mead highlights again one of the so often overlooked economic multipliers of the US economy, its robust and reasonably stable political and legislative infrastructure. De Soto and other economists have done some good work in this area but by and large it goes unremarked.

Lithuania, Poland, and Mexico’s troubles define the contours of an all too often overlooked ingredient to the American success story: a comprehensible, consistent and, for the most part, transparent regulatory environment. Countries that lack this ingredient find it immensely difficult to attract foreign companies interested in taking on the high-risk/high-reward task of drilling for shale oil and gas.

This is, I think, linked to the recent OECD Skills Outlook 2013: First Results from the Survey of Adult Skills. The report has an agenda, as always, and there are a lot of methodological questions. I suspect the broad observations are somewhat on mark though. Their first finding is:

What people know has a major impact on their life opportunities. Our study confirms that knowledge is destiny. On average across countries, the median hourly wage of workers who get high scores in our literacy test - Level 4 or 5, meaning that they can make complex inferences and evaluate subtle arguments in written texts - is more than 60% higher than the hourly wage of workers who score at Level 1 or below - meaning those who can, at best, read relatively short texts and understand basic vocabulary. Those with poor literacy skills are also more than twice as likely to be unemployed. In short, poor skills severely limit people’s access to better-paying and more-rewarding jobs. It works the same way for nations. The Skills Survey shows that the distribution of skills relates closely to how the benefits of economic growth are shared within societies.

This confirms to me that we need a significant sea change in the orientation of our social policies. It is nice and to a degree necessary to have a robust social safety net to assist the disabled, aged, incapacitated, etc. But we have spent so long on that task, and with some degree of success, that we have lost sight of the other as important goal which is to assist people in making themselves productive. It is the age old teach them to fish issue. We have focused on security of the safety net, as we ought, but need to focus on helping people make themselves productive.

While there is a tremendous lift to be accomplished in that regard, compared to others we aren't doing too bad.

All this said, skills are only valuable when they are used effectively, and the Skills Survey shows that not all countries are good at making effective use of their talent. In fact, some perform much better than others. For example, while the US and England have a limited skills base, they are extracting good value from it. The reverse is true for Japan, where rigid labour-market arrangements prevent many high-skilled individuals, most notably women, from reaping the rewards that should accrue to them.

Undoubtedly part of the reason for the US making better use of its more limited skills resources is the labor force flexibility and regulatory stability and transparency.