No, Skills are Not "The New Currency of Work" (Human Capital, pt. 1)

Clearing up skills as currency vs. human capital, and how the lack of a shared paradigm facilitates HR's credibility crisis

The phrase “skills are the new currency” has been parroted by consulting firms and SaaS vendors in a way that reminds me of local news outlets all reading from the same script. I know it’s just a metaphor, but I have two issues with it: First, it’s a really bad metaphor. Second, choice of words actually does matter, because words influence thinking - especially in the HR / talent space where there is a perpetual state of confusion about key concepts - but more on that later.

On the first issue - currency is a type of money that is used as a medium of exchange, whereas skills are human capital: along with knowledge, abilities, and other characteristics of people, skills are assets that are used to produce things of value. This distinction is important, because while organizations can own currency as a type of capital (cash), they do not own human capital (that would be slavery)¹. Rather, organizations typically rent human capital from individuals (us workers) who own it.

Unlike currency, skills do not have a very high degree of liquidity: to make a transaction with someone and put their human capital to work, there are a lot of frictions, or transaction costs (i.e., search costs, bargaining costs, and costs of enforcing contracts) involved.

Concept Confusion

Memes like “skills are currency” can only reproduce successfully in a field like HR / talent management, where practitioners have a hard time distinguishing between basic ideas. This issue may be one of the largest contributors to HR’s credibility crisis. Take Finance as an example for comparison - while imperfect, it has a set of clear, widely accepted definitions for essential concepts. Unlike “leadership principles”, the ‘price to earnings ratio’ is not going to have a different definition at each different company. The existence of a shared, accurate conceptual framework (let’s call it a paradigm for short) in Finance makes everyone’s lives a lot easier, and lends credibility to the profession.

On the other hand, there is widespread confusion about talent-related concepts, despite decades of scientific research on established constructs. The trendy, myopic focus on skills to the exclusion of knowledge, abilities, and competencies, as well as practitioners’ inability to differentiate these concepts represents ground-zero. A deep dive on this issue is not the focus of this article, so I will point you towards the excellent recent Future of HR podcast episode with Dave Ulrich, Bob Eichinger, and Allan Church which touches it, but I’m sure that many readers can recall examples where this confusion has stunted progress in their organizations.

The broader point is that we are in desperate need of a shared paradigm that can be used to make sense of, and strategically manage people. Here are a couple of maxims I would suggest building from (note, these are not my / new ideas, I am just trying my best to curate and clarify):

1. Knowledge, skills, and abilities, and other characteristics (KSAOs) are characteristics of people. Competencies are just broader constellations of KSAOs, but often have a behavioral focus (i.e., “problem solving”).

2. KSAOs and competencies are human capital: they are assets, owned by individual workers, that organizations typically rent access to, and leverage to produce things of value.²

From Paradigm to Insight

If that seemed obvious to you, I appreciate your patience while we cleared it up - but KSAOs being human capital has several surprisingly powerful implications. We can use these implications to think more clearly about the interesting problems we face, and I’ll explore some of these in future articles:

• Like other forms of capital, KSAOs have a degree of durability. However, they can appreciate or (more commonly) depreciate in value.

• Human capital has lower liquidity and transferability than other forms of capital, due to a variety of transaction costs (search, bargaining, enforcement).

• Human capital can be appraised (measured), and invested in.

• Human capital cannot be owned by organizations, which has implications for the types of investments organizations may want to make in it.

1. At the risk of being pedantic, this is also the reason the phrase “talent is our greatest asset” is a bad phrase. You would not want to live in a country where our talents could be owned legally as an asset by someone else! I admit I have made this mistake before.

2. Economists have been clear on this for a very long time, making the “skills as currency” talk all the more embarrassing.