Work experience and skills picked up on the job account for 58 per cent of a worker’s share of lifetime earnings in India, much higher than in other countries, according to a report ‘Human Capital at Work: The value of experience’ launched on Thursday by McKinsey Global Institute (MGI) and McKinsey’s People & Organization Performance Practice.
The report, which quantified the economic value of work experience or on-the-job learning in the lifetime earnings of individuals, found that experience accounts for 40-43 per cent of lifetime earnings in the US, UK and Germany.
Further, it found that the trend is far more significant in for people with less education. The differences are striking across occupations. People who start in roles requiring education and credentials earn more, their entry-level skills continue to drive most of their earnings over a lifetime (65 per cent for physicians and lawyers). But for an individuals involved in manual labour, the ‘experience effect’ matters more. For example, for tile-setters or a counter worker, experience on the job accounts for more than 70 per cent.
People who started off with low pay but became upwardly mobile and earned more over their lifetime did so by making bigger leaps to roles with new skills.
“People’s lifetime earnings aren’t necessarily dictated by their education. Those who start with disadvantages because of a lack of qualifications can make up ground by accumulating skills. Companies have an important role to play in helping people achieve this. They should be wary of typecasting people and instead focus on their capacity to learn and evolve,” said Anu Madgavkar, a partner with the McKinsey Global Institute.
Another finding from the study showed that jumping jobs and acquiring more skills through them often pays off, with the average person in the dataset changing roles every four years. Three out of five start and end their careers in a different occupation and acquired 26 per cent new skills with each role move. About half of all role moves were pay-decreasing. This could happen by choice or because someone is fired or laid off. However, the pay-increasing moves led to 45 per cent higher salaries on average, the report found.
Also, bolder role moves deliver bigger boosts. Some workers jump substantially from lower starting points to higher earning brackets, this group seems to use work experience effectively, and took on new jobs with distinctly new skills. Many people have tough starting points because of educational gaps or other disadvantages. But almost 25 per cent workers surveyed in India managed to move up one or more earning quintiles. Experience accounted for 80% of their lifetime earnings (vs only 55 per cent for those who stayed flat or dropped down). This group made more frequent and bolder role moves, acquiring 30 per cent new skills with each role move, compared to only 20 per cent for the cohorts that stayed flat.
The research also sends important messages to employers looking to get the best out of their people, finding that 87 per cent of role moves involved people switching employers (as opposed to moving roles within organisations), highlighting that companies need to attract talent by delivering the learning and advancement workers want, the report said.
The research identified four groups of workers based on movement patterns, these could be called: Experience seekers, Early movers, Late movers and Lock-ins. Experience seekers make more frequent and bolder moves throughout their careers, they have the highest growth in lifetime earnings. Early movers make big moves early then settle in and have higher overall lifetime earnings. Individuals get the greatest lift from spending time early in a career with an effective organization. Overall organization health (i.e., good management practices), time spent on training and in-role coaching, and internal growth opportunities are what set these companies apart (while size does not).
The report researched around a million work histories in India to understand how work experience adds value over time.