Thursday, March 21, 2013

Global cost (or value) of a human being

[This post is a continuation of my previous post "Social accountability in Human Capital Management", posted on March 18th. You may want to read them in sequence]

When considering skilled labor a resource, I came up wondering – what is the cost of a resource? Is it simply, in this case, the salary? Or is it actually the cost of the employee providing the service? In other words, can we separate the individual from the service provided?

Typing “Cost of Human Being” in a Google Search Engine generates about 259’000’000 results in under 30 seconds. Most of these results are highly controversial, and bring in ethic debate about cost versus value, genetic research, buying human beings and ultimately, slavery.

There is only some marginal (and humoristic) information about the actual COST of raising an individual in nowadays society: after all, creating a baby is one of the (few) free acts in our modern world, but raising the same is anything but free. It has been calculated that the cost of bringing up a child in the US is close to 300’000 US, not including college (college tuition alone accounts to an average of 160’000 US for an average 4 years degree, College Board, 2011-2012 [4]).

Yet even this mind-boggling 460’000US cost/per child is not accounting for the society costs; what about the city’s investments on schools, Kinder Gardens, teachers’ programs, playgrounds, museums, libraries… and the family investment in missing wages? Someone must be home, so we are talking about 10 to 15 years of home presence, often a stay-at-home parent or a shift arrangement that includes both parents, grand-parents, external hired help (at a high additional cost). Missing wages may be small at the start, but 10 years of (missed) career development also have an impact on the final earnings of an individual, of a family and (last but not least) on retirement funds or lack thereof.

So, as any parent will confirm, having and raising children is a true investment. Finance teaches us that any investment has to have an ROI, so for a moment, let’s forget how personally rewarding our progeny is (ahh, the tantrums, the fights, the sleepless nights), and think who is benefitting of our parental investment.

Birth rate 
Occidental, western civilization has been facing a declining birth rate. The recently published statistic released in November 2012 by the PEW Research Institute [5] reports a 2011 birth rate at levels to be found only during the Great Recession in the 1920ies (we don’t have any prior records).
On one side, there seems to be a clear link between economic distress (I suspect that many have read about the COSTS related to raising a child, and opted out... just kidding) and fertility rates. Not surprising: when the economy slows down, on one side we can afford less, and on the other we need women’s income to bring home the bacon. The easier way to get a higher birth rate would be to convince women that Barefoot and Pregnant is the best way to be; not such an easy task anymore, at least not in Western society.

What will such a decline mean to society? Researchers and sociologists are still busy evaluating this. It is clear that a declining birth rate implies a complete shift in society’s age structure, heavily impacting the health and pension fund situation for generations to come, worldwide. Retirement was difficult for our parents? Wait to see what it will be for us.

As a society, as a nation and even more so as HR professionals, we have also to be prepared to take a hard look at what such a shift will mean for the future workforce. A reduction of local labor workforce by a third must have a hard impact on a nation’s immigration policies, economic plans and growth (the Population Reference Bureau forecasts between 1999 and 2050 Japan's labor force will fall from 68 million to 46million, Italy's from 23 million to 14 million, and Germany's from 41 million to 28 million [6])