Measuring Depreciation Rates of Human Capital and Use of Skills in Comparative Perspective

This study measured depreciation rates of human capital and compared the rates of Korea and other OECD countries. The effect of skills use on the depreciation rates was also analyzed. Findings suggest that Korea faces the largest depreciation of human capital and Korean young generation undergoes severer depreciation in the workplace. Moreover, young Koreans have larger depreciation rate while being employed than while being unemployed. Korea has the largest depreciation rates while being employed in all age groups, compared to the surveyed countries, suggesting that it has results from low demand for skills in the Korean workplace. Contrary to Korea, UK faces the lowest depreciation rate among OECD countries whereas its level of skills is similar with Korea’s level of skills. It can be inferred that UK maintains human capital although its initial level of human capital accumulated through formal education is not as large as Korea’s one. Analysis with distinguishing the states of being employed and unemployed also showed clear difference between Korea and UK. In case of UK, depreciation rate of young people while being unemployed is distinctly larger than that of while being employed and accumulation of human capital is observed while being employed in all ages groups, except the elderly. This study supports the intellectual challenge hypothesis and the ‘use-it-or-lose-it’ hypothesis, meaning that the demand for skills and actual use of skills in daily life and workplace is important in the depreciation and maintenance of human capital whereas the supply of education and training is important in the accumulation of human capital. However, demand for skills is a relative concept. Korean young people possess high level of proficiencies but low level of skills in the workplace, while British young people possess low level of proficiencies but high level of skills in the workplace.