Skills Development for Tomorrow: Addressing the talent shortage - Examining Workforce Development Strategies
In an effort to address the growing issue of human capital investment, accounting and related taxation changes are being considered as a key part of the solution. Changing official accounting standards, including rethinking related tax incentives, is a complex process, best driven by political and business action.
One such alternative accounting model is human resource accounting, which helps bridge the skills gap by explicitly valuing and capitalizing human capital investments over time. By treating employees as valuable assets on company balance sheets, organizations can measure returns on investing in workforce development, better forecast training needs, and manage knowledge retention, directly supporting the closing of skills mismatches.
The implementation of human resource accounting, however, requires supportive policies and business strategies to integrate human capital into financial reporting frameworks and promote investments in skills development. Political actions such as incentivizing human capital investment, reforming accounting standards to recognize intangible assets, and promoting workforce participation are crucial. Businesses need governance reforms that increase employee participation and shared governance, as well as long-term planning that recognizes human capital as a key source of competitive advantage.
The Employability Account model is proposed as a potential solution for capitalizing human capital investments over time. This model quantifies workforce value, showing how investing in employee skills creates measurable corporate value and reduces turnover risks.
However, companies often do not prioritize such initiatives, with factors such as cost, time, unclear return on investment, and the risk of employees leaving being major deterrents. The current accounting frameworks, such as US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), do not allow businesses to estimate the value of human capital investments or recoup any expected returns, further discouraging long-term training investments.
Despite the potential benefits, these alternative reporting frameworks do not yet significantly influence corporate decision-making. Redundancies and severance expenses are increasing due to the skills gap, highlighting the need for change.
The report offers considerations around the implementation of these alternative models and suggests that political and business action is necessary to drive changes in accounting standards and related tax incentives. Alternative reporting frameworks, showing the connection between intangible value investments (human capital) and profit, are gaining ground among companies and stakeholders.
As the skills gap widens, making it difficult to find talent with key skills, it is clear that alternative accounting and investment models provide the structure to recognize, measure, and manage human capital effectively. Political and business actions enable these changes through regulatory, fiscal, and governance innovations that foster sustainable human capital development and help close skills gaps over time.
- To foster sustainable human capital development and close skills gaps over time, it's essential for policymakers to consider education-and-self-development initiatives, such as the Employability Account model, which quantifies workforce value and demonstrates the returns on investing in employee skills.
- By promoting business strategies that integrate human capital into financial reporting frameworks, organizations can better understand the finance-related benefits of employee training, support long-term planning that recognizes human capital as a key source of competitive advantage, and prioritize workforce development, in addition to traditional finance and business considerations.
