The most valuable skill in the age of artificial intelligence (AI) may not be coding, prompt engineering, or any of the other competencies appearing in job listings. It may be the ability to figure out which skills will be valuable next. Half a century ago, Theodore Schultz had a name for something much like this: the ability to deal with disequilibria—situations in which changing circumstances make old arrangements less useful.
Schultz’s 1975 article, “The Value of the Ability to Deal with Disequilibria,” wasn’t about AI, or even primarily about technological change. It was about a recurring feature of any dynamic economy. Circumstances change. Old ways of using resources stop making sense. New opportunities emerge. And people differ—sometimes substantially—in their ability to perceive those changes and respond.
Schultz’s insight was that this capacity to adapt is itself a form of economically valuable human capital—the knowledge and skills people bring to their work. That insight has rarely seemed more relevant than it does today.
Knowing When to Know Something Else
Schultz’s insight applies across technologies and has proved prescient as the economy evolves. Though he didn’t necessarily anticipate the scope and scale of changes underway in the AI era, he connected education and experience to people’s “allocative ability”—their ability to perceive changes in economic conditions, interpret them correctly, and adjust how they use their resources. That connection remains useful, especially as policymakers and others consider whether and how to help people adapt to a changing economy.
The value of allocative ability fits naturally within a broader law & economics tradition concerned with how people adapt without central direction. Friedrich Hayek asked how markets communicate information scattered among individuals through prices. Armen Alchian emphasized adaptation and the survival of successful firms under uncertainty. Schultz shifted attention to the individual receiving those signals: Why are some people better than others at recognizing that circumstances have changed and acting accordingly?
A reliable answer has substantial policy consequences, because economic adjustment doesn’t happen by itself. It occurs through individuals’ decisions. Workers decide whether to learn new skills, change occupations, relocate, or reorganize the work they already do. Students decide whether and what to study. Households decide how to allocate time and money. Each must interpret imperfect signals about changing opportunities and decide whether the expected gains justify the costs of adjustment.
This makes allocative ability a distinctive kind of human capital. A person may possess valuable skills yet fare poorly if she’s slow to recognize that their value has changed. Conversely, someone who identifies a new opportunity early, determines what it requires, and redirects her time and effort toward it may prosper even as her original skills become less valuable. In a period of rapid technological change, the ability to decide which skills to acquire can itself become unusually valuable human capital.
There’s No Diploma in Adaptability
Schultz observed that “[o]ur knowledge of a person’s abilities consists of inferences drawn from his performance.” That observation takes on added significance in a rapidly changing labor market. Employers necessarily rely on degrees, licenses, badges, and other credentials as indicators of ability. But the faster technology changes workers’ tasks, the more likely yesterday’s credential is to offer an unreliable guide to today’s useful capabilities.
Schultz wasn’t arguing against credentials. His analysis does, however, direct attention toward demonstrated capacity: what a person can actually do, how quickly she can learn something new, and how effectively she can recognize when doing something new has become worthwhile.
Allocative ability is therefore broader than the capacity to acquire a particular skill. It’s the capacity to recognize when existing ways of using resources no longer make sense and to discover better ones. For workers confronting AI, that may mean learning to use a new tool. But it might instead mean changing their mix of tasks, moving into a different occupation, developing a human capability that complements AI, or recognizing that a much-discussed new skill isn’t worth acquiring at all.
Yet allocative ability isn’t the only factor that determines how well someone navigates labor-market shifts. People need information to identify changing opportunities, affordable ways to experiment with new skills and occupations, and institutions that let them act on what they learn.
A worker can correctly perceive an opportunity and still be unable to pursue it if training is prohibitively expensive, occupational rules block entry, housing costs prevent relocation, or employers can’t distinguish actual ability from formal credentials. Schultz’s framework therefore directs attention not only to individual adaptability, but also to the institutions that make adaptation more or less costly.
Entrepreneurship Without the Startup
This is where Schultz makes perhaps his most interesting move. In his account, entrepreneurship isn’t confined to people who create technological disruption. It also describes those who respond to it. “Skill entrepreneurs”—my shorthand, not Schultz’s—are people who continually evaluate their own human capital and, when circumstances warrant, redirect how they use and develop it. As Schultz put it, “the demand for the ability to deal with new and better production possibilities” changes with technology.
This expands Joseph Schumpeter’s familiar conception of entrepreneurship. Schumpeter’s entrepreneur creates “developmental disequilibria”—disruptions to existing economic arrangements—through innovation. Schultz asks us to pay attention to the much larger population that must respond to the resulting change. “Households and individuals both within and outside of the market sector” also engage in entrepreneurial activity when they decide how to reallocate resources as circumstances change. His examples range from the “ability of housewives in managing household production” to “mature students deciding how to invest in themselves.”
That distinction is particularly useful for thinking about AI. Entrepreneurs building the most advanced AI systems are creating new possibilities—and new disequilibria. But millions of people who will never found an AI company must decide what those possibilities mean for them.
Should a lawyer learn to supervise AI-generated work rather than produce a first draft herself? Should a programmer become better at specifying and evaluating code rather than writing every line? Should a student still invest four years in a particular degree? These aren’t merely passive reactions to technological change. In Schultz’s sense, they’re entrepreneurial acts of discovery and reallocation.
Give Adaptation a Fighting Chance
Schultz’s framework suggests a different response to AI than the familiar call to identify the “jobs of the future” and train workers for them. If technological change creates genuine uncertainty, policymakers and educators can’t reliably know which skills will command a premium five or 10 years from now. A better objective is to help people discover changing opportunities and reduce the cost of responding to them. Three implications follow.
- Improve feedback about changing opportunities and the institutions that claim to prepare people for them.
Schultz emphasizes people’s ability to “perceive a given disequilibrium and to evaluate its attributes properly in determining whether it is worthwhile to act, and if it is worthwhile, [ensuring] people respond by reallocating their resources.”
Workers and students can’t adapt intelligently if they can’t tell which skills are becoming valuable or whether a training program actually teaches them. Better information about labor-market outcomes, completion rates, earnings, and demonstrated skills can improve those decisions.
The goal shouldn’t be for government or universities to produce an authoritative list of tomorrow’s valuable skills. Schultz’s point begins from the opposite premise: Changing conditions generate information that no central actor possesses in advance. The task is to make feedback faster and better so individuals can respond.
- Lower the cost of experimentation and reallocation.
“Young people,” wrote Schultz, “facing the need to change the investment they make in themselves are confronted by a . . . complex set of future rewards[.]” That problem becomes more acute when technological change makes those rewards unusually uncertain.
Educational systems built around large, irreversible, four-year bets may be poorly suited to an environment in which students need to update their plans repeatedly. Programs divided into smaller units, stackable credentials that build toward larger qualifications, apprenticeships, employer-based training, and other forms of relatively low-cost experimentation can keep options open when no one knows which capabilities will prove most useful. Education should also cultivate allocative ability itself: helping students learn to “perceive new classes of problems, to clarify such problems, and to learn ways of solving them.”
- Reduce institutional barriers that prevent people from acting on what they learn.
Schultz repeatedly considers moving to a new location or occupation as a response to changing economic conditions. The modern equivalents extend well beyond physically uprooting oneself.
Occupational licensing can make it harder to enter a newly attractive field. Credential requirements can prevent capable workers from demonstrating competence through alternative routes. Housing restrictions can make relocation prohibitively expensive. Benefits tied to a particular employer can raise the cost of trying a new occupation.
These rules may have other justifications, but Schultz gives us an additional question to ask: Do they prevent people from responding to valuable economic information?
The Future Is Subject to Change. So Are You.
AI makes it tempting to ask the wrong question: Which skills should people acquire to survive the coming transformation? Schultz suggests a better question to ask first: How do people become better at figuring out which skills are worth acquiring in the first place?
Disequilibrium isn’t a temporary defect that a sufficiently clever policy can eliminate. In a dynamic economy, innovation continually creates new opportunities, destroys old ones, and forces people to decide what to do next. A dynamic economy depends on people’s capacity to adapt. And adaptation, for Schultz, isn’t simply something that happens to an economy. It’s something people can become better at doing.
That makes the skill entrepreneur a potentially important figure in the AI economy. The value of any particular technical skill may rise and fall. The capacity to recognize those changes, learn from them, and act before everyone else does is more durable. As Schultz put it, “The ability to be among the first to act appropriately and to proceed most promptly in completing the reallocations has an economic value.”
The best preparation for an uncertain technological future may therefore be neither prediction nor protection from change, but cultivating people’s capacity to respond to it.
Further Reading
- Theodore W. Schultz, “The Value of the Ability to Deal with Disequilibria,” Journal of Economic Literature, Vol. 13, No. 3 (1975)
- Joseph Fuller et al., “Your Workforce Is More Adaptable Than You Think,” Harvard Business Review (2019).
- Annie Lowrey, “The Job Market Is Hell,” The Atlantic (Sept. 8, 2025).
- David H. Autor, “Why Are There Still So Many Jobs? The History and Future of Workplace Automation,” Journal of Economic Perspectives, Vol. 29, No. 3 (2015).
