Show Special Report Human capital at work: The value of experienceThe most important resource in any economy or organization is its human capital—that is, the collective knowledge, attributes, skills, experience, and health of the workforce. While human capital development starts in early childhood and continues through formal education, the McKinsey Global Institute and McKinsey’s People & Organizational Performance Practice have focused new research on the next stage, which spans the full working life. Human capital is much more than a macroeconomic abstraction. Each person has a unique, living, breathing set of capabilities. Those capabilities belong to the individual, who decides where to put them to work. The degree of choice is not limitless, of course. People are the products of geography, family, and education; their starting points matter. Having career options also depends on an individual’s abilities and attributes, their networks, their family obligations, the health of the broader labor market, and societal factors. While we recognize these constraints, career moves are nevertheless an important mechanism for expanding skills and increasing earnings. The patterns within our data set show that moving into a new role pays off—and even more so when someone lands a new position that stretches their capabilities or represents a match that better utilizes their skills.
In our data sample, roughly a third of US, German, and UK workers, and almost a quarter of Indian workers, are on a path to move up one or more quintiles in estimated lifetime earnings from their career starting points. This upwardly mobile group stands out for making more frequent and bolder role moves. For people without educational credentials who start out in low-paying positions in particular, movement is critical to boosting their earnings. Role moves help individuals continuously upgrade their skills, raise their income, and build track records that translate into value. However, individuals can’t make bold moves that represent a real leap unless an employer sees their potential and takes a chance on hiring them. The most effective way for an individual to maximize the “experience effect” is to join an organization that prioritizes and strengthens their development. Our research focuses on how work experience builds on the foundation of formal education and enhances the value of human capital (see Sidebar, “How we model the link between role moves and the addition of skills to lifetime earnings”). We define work experience holistically as the accumulated knowledge that workers gain by being in the labor market. This can occur through doing the work itself, formal employer-provided learning and development programs, and job changes that better match someone’s existing skills or enable that person to add new skills. Organizations set up their working environments with systems and practices that help employees become more productive. When people enter these settings, value is created. In addition to earning wages, workers gain knowledge and new capabilities that they carry with them for the remainder of their careers. Many roles require employees to become proficient with new types of software or equipment. Employees benefit from structured learning programs and daily coaching on the job. There are insights to be gained from watching colleagues handle tricky situations gracefully (or not) and seeing how managers motivate their teams (or do not). Someone who starts out taking orders in a fast-food restaurant learns the art of handling difficult customers and staying cool under pressure. Someone who starts in IT by answering questions on a help desk absorbs technical knowledge that they continue to use when they become a network administrator. An inventory clerk who watches his manager solve logistical logjams can apply those approaches in a future role as a warehouse manager or procurement agent. By our estimates, the value of human capital represents roughly two-thirds of an individual’s total wealth. Skills acquired or deployed through work experience contribute an average of 46 percent of this value over a typical working life. However, this is an average for the four focus countries, and it contains a wide range of variations (Exhibit 1). We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: The experience effect looks strikingly similar across the advanced economies we studied. Our analysis finds that work experience contributes 40 percent of the average individual’s lifetime earnings in the United States, and 43 percent in both Germany and the United Kingdom. By contrast, work experience contributes 58 percent of average lifetime earnings in India. Access to education remains a key challenge in India—and with only 12 percent of the population having tertiary education as of 2020, work experience will be a more important driver of income for the workforce as a whole by default. In other emerging economies that have similarly low levels of educational attainment plus high productivity and wage growth from a low baseline, lifetime earnings are likely to exhibit similar patterns. People who start out in occupations with higher educational and credentialing barriers (such as lawyers and dentists) earn more than other workers over their lifetimes. For most of them, entry-level skills contribute a larger share of those earnings than acquired skills. The reverse is generally true for people who start out in occupations with lower educational requirements. They typically earn less over a lifetime, with the greater share driven by work experience. The income growth of a dishwasher who becomes a food prep cook, then a line cook, and eventually a sous chef is almost entirely fueled by techniques and tricks of the trade learned on the job. In addition to enabling someone to acquire skills, work experience gives that person a track record, which is valuable in and of itself for the signal it sends to potential future employers. In the United States, for example, the size of the experience effect varies substantially across starting occupations. At the low end are chiropractors. Before treating patients, they must complete a doctor of chiropractic degree program that can take three to five years, then pass a series of licensing exams. Their entry-level skills account for 85 percent of their lifetime earnings. At the other end of the spectrum are food batchmakers, who operate equipment that blends ingredients for manufacture. People who start in this type of factory job are less likely to have higher education; the experience they amass over time determines 90 percent of their lifetime earnings. Someone who attended poor-quality schools and lacks any postsecondary education or training is starting from behind in the labor market. Many employers rely on college degrees as a well-established signal of a candidate’s employability. Yet educational disadvantage does not have to lock in destiny—at least not for everyone. In the United States, for example, our lifetime earnings projections show a subset of people who overcome the odds. Of particular note, 28 percent of high school graduates have higher earnings potential than the median holders of associate degrees, and 37 percent of associate degree holders could earn more than median bachelor’s degree holders over their lifetimes.
In all the countries we studied, a sizable cohort is on a path to move up one or more earning quintiles from their career starting point. This applies to roughly one-third of workers in advanced economies (30 percent in the United States, 32 percent in Germany, and 34 percent in the United Kingdom) and to 23 percent of workers in India. In the United States, some 6.1 percent are on track to move from the bottom to the top quintile in earnings. The upwardly mobile group appears to be amassing work experience in an effective way that yields real benefits. In our worker sample, experience accounts for 60 to 80 percent of lifetime earnings for the cohort that moved up but only 35 to 55 percent for those who stayed flat or dropped down. However, many people are unable to make these leaps because of structural and social barriers, such as biases, the lasting effects of unequal education, and the lack of professional networks. Movement is an inherent feature of labor markets. Across the entire data set, the average person switched roles every two to four years, with a median skill distance of 25 to 45 percent, depending on the country. This matters because role moves enable individuals to build or demonstrate their skills. Moves can involve workers assuming new roles within their current company, moving to a different employer, changing specialties or occupations, or pursuing a combination of these strategies. At any given time, a significant proportion of role moves are triggered by firings and layoffs in addition to voluntary job changes. In our data set, each move increased wages by 6 to 10 percent on average. However, this includes people who moved into lower-paying roles, whether by choice or out of necessity. Forty to 50 percent of the role moves observed in the decade involved pay increases. The workers who made these moves managed to boost their earnings by 30 to 45 percent on average each time.
More than 80 percent of the role moves observed in our data set involved someone moving from one employer to another. Far fewer moves involved people being promoted into more senior roles or branching into different specializations within their existing organizations. This high level of external movement holds true across all cohorts. This seems to indicate that many employers do not have internal advancement tracks that are wide enough to keep most people growing and working toward higher rewards over time. Individuals who want to reinvent themselves and take on more senior roles often have to go to a new environment to do so. Those who take new roles involving bigger changes or challenges receive bigger rewards. We look at each individual’s career trajectory, paying particular attention to their role moves. When someone changes jobs, their new position typically has some distinctly new skill requirements that were not present in their previous position, based on our review of job postings. The nonoverlapping share is the “skill distance” between the two roles—and the higher the share, the “bolder” we consider a role move to be. The illustrative example in Exhibit 2, below, shows a German worker who started as a welder, then changed jobs twice. When he became a maintenance supervisor, the move involved a skill distance of 33 percent; when he later became a production manager, the move involved a skill distance of 47 percent. His average skill distance is therefore 40 percent, which is representative of the typical German worker. Exhibit 2
We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: In our data set, salary-increasing moves involved a median skill distance of 35 to 50 percent across countries, higher than the range of 25 to 45 percent for all moves across countries. In other words, when someone made a move for higher pay, their new job typically involved a more significant share of skills and responsibilities that were not part of their previous job. This kind of movement requires an employer to take a chance on someone’s potential, even if they have not been performing exactly the same tasks in their previous role. The new role may be a major learning opportunity, or it may be a better match that enables someone to deploy existing skills that they have not been utilizing. Incremental moves with largely overlapping requirements do not pack the same punch.
The most upwardly mobile cohorts in the sample make both frequent moves and bold moves (Exhibit 3). 1 In the United States, for example, people who moved into higher earning quintiles averaged 4.6 moves during the observed period, while those who stayed flat averaged 3.7 moves. The upwardly mobile in the US and India made moves with an average skill distance of 30 to 40 percent; those who stayed flat averaged only 20 to 30 percent. This growth in skills compounds with each move, resulting in a far bigger shift in capabilities and responsibilities over the entirety of a working life. Exhibit 3 We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: From our data set, we looked at a smaller universe of people with more than ten years of work history. Within it, four distinct archetypes emerge. They are not meant to convey individuals’ circumstances or motivation; they describe movement patterns and outcomes, with illustrative examples.
Not all companies are equally good at developing people. Size is not the differentiator, as we find that small companies can be just as adept as their larger counterparts in this area. But companies with the strongest organizational health, those that offer more structured training for their employees, and those that provide more opportunities for internal advancement seem to stand out. People join these companies to build knowledge and networks, understanding that their experience will provide a valuable signal to other employers for the remainder of their careers. Early career experience at these companies helps employees go on to become more upwardly mobile. Companies can help individuals grow—and establish themselves as great learning organizations and magnets for talent in the process. Three priorities stand out:
Is the extent to which the job has an important impact on the lives of other people?According to the job characteristics model, task significance is defined as the degree to which a job has a substantial impact on the lives of other people.
Is the degree to which the job allows an individual to make decisions about the way the work will be carried out?Autonomy. The degree to which the job allows an individual to make decisions about the way the work will be carried out.
Why are people's jobs so important to them?For individuals, work is an important feature in structuring: personal and social identity; family and social bonds; ways of making money, and thereby accessing a number of essential and non-essential goods, services and activities; daily routines; level of activity; physical and mental well-being; self-confidence and ...
How important is job satisfaction to happiness?Job satisfaction impacts employees overall psychological well-being including your sense of identity, health, overall happiness. Increased job satisfaction creates harder working employees who take fewer sick days than their less satisfied counterparts.
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