4 minute readHuman capital, the stock of knowledge and skills embodied in people, is a key input in economic production. Changes in both the “quantity” and the “quality” of a country’s human capital stock influence economic growth and productivity performance. Traditional measures of labour input in economic growth and productivity analyses, such as total hours worked, focus solely on changes in the quantity of labour input, ignoring changes in the skill composition of the workforce. For example, these measures equate an hour worked by a highly experienced surgeon and an hour worked by a junior retail salesperson, disregarding their vastly different experience and skills.

Firms recognise that workers with different skills and experience are not perfect substitutes by paying them different wages. It is therefore possible to account for differences between workers by weighting their hours worked by their respective shares in total wages. Such measures are often referred to as Composition Adjusted Labour Input (CALI), Labour Services, or Quality Adjusted Labour Input (QALI). CALI measures provide an improved understanding of whether the average “quality” of labour is increasing or decreasing over time.