Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the
production process
Industrial processes are procedures involving chemistry, chemical, physics, physical, electronics, electrical, or mechanization, mechanical steps to aid in the manufacturing of an item or items, usually carried out on a very large scale. Industr ...
. It encompasses employee
knowledge
Knowledge is an Declarative knowledge, awareness of facts, a Knowledge by acquaintance, familiarity with individuals and situations, or a Procedural knowledge, practical skill. Knowledge of facts, also called propositional knowledge, is oft ...
,
skill
A skill is the learned or innate
ability to act with determined results with good execution often within a given amount of time, energy, or both.
Skills can often be divided into domain-general and domain-specific skills. Some examples of gen ...
s,
know-how
Procedural knowledge (also known as know-how, knowing-how, and sometimes referred to as practical knowledge, imperative knowledge, or performative knowledge) is the knowledge exercised in the performance of some task. Unlike descriptive knowledge ...
, good
health
Health has a variety of definitions, which have been used for different purposes over time. In general, it refers to physical and emotional well-being, especially that associated with normal functioning of the human body, absent of disease, p ...
, and
education
Education is the transmission of knowledge and skills and the development of character traits. Formal education occurs within a structured institutional framework, such as public schools, following a curriculum. Non-formal education als ...
. Human capital has a substantial impact on individual earnings.
Research indicates that human capital investments have high economic returns throughout childhood and young adulthood.
Companies can invest in human capital; for example, through education and
training
Training is teaching, or developing in oneself or others, any skills and knowledge or fitness that relate to specific useful competencies. Training has specific goals of improving one's capability, capacity, productivity and performance. I ...
, improving levels of quality and production.
History
Adam Smith
Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
included in his definition of
capital "the acquired and useful abilities of all the inhabitants or members of the society". The first use of the
term "human capital" may be by
Irving Fisher
Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist and progressive social campaigner. He was one of the earliest American neoclassical economists, though his later work on debt de ...
. An early discussion with the phrase "human capital" was from
Arthur Cecil Pigou
Arthur Cecil Pigou (; 18 November 1877 – 7 March 1959) was an English economist. As a teacher and builder of the School of Economics at the University of Cambridge, he trained and influenced many Cambridge economists who went on to take chair ...
:
But the term only found widespread use in economics after its popularization by economists of the
Chicago School, in particular
Gary Becker
Gary Stanley Becker (; December 2, 1930 – May 3, 2014) was an American economist who received the 1992 Nobel Memorial Prize in Economic Sciences. He was a professor of economics and sociology at the University of Chicago, and was a leader of ...
,
Jacob Mincer
Jacob Mincer (July 15, 1922 – August 20, 2006), was a father of modern labor economics. He was Joseph L. Buttenwieser Professor of Economics and Social Relations at Columbia University for most of his active life.
Biography
Born in Tomaszó ...
, and
Theodore Schultz.
The early 20th century Austrian sociologist
Rudolf Goldscheid
Rudolf Goldscheid (12 August 1870 – 6 October 1931) was an Austrian writer and sociologist, co-founder of the German Sociological Association, known for his theory of human economy () and for developing the topic of fiscal sociology. He has b ...
's theory of organic capital and the human economy also served as a precedent for later concepts of human capital.
The use of the term in the modern
neoclassical economic
An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...
literature dates back to
Jacob Mincer
Jacob Mincer (July 15, 1922 – August 20, 2006), was a father of modern labor economics. He was Joseph L. Buttenwieser Professor of Economics and Social Relations at Columbia University for most of his active life.
Biography
Born in Tomaszó ...
's article "Investment in Human Capital and Personal Income Distribution" in the ''
Journal of Political Economy
The ''Journal of Political Economy'' is a monthly peer-reviewed academic journal published by the University of Chicago Press. Established by James Laurence Laughlin in 1892, it covers both theoretical and empirical economics. In the past, the ...
'' in 1958. Then
Theodore Schultz also contributed to the development of the subject matter. The best-known application of the idea of "human capital" in economics is that of Mincer and
Gary Becker
Gary Stanley Becker (; December 2, 1930 – May 3, 2014) was an American economist who received the 1992 Nobel Memorial Prize in Economic Sciences. He was a professor of economics and sociology at the University of Chicago, and was a leader of ...
. Becker's book entitled ''Human Capital'', published in 1964, became a standard reference for many years. In this view, human capital is similar to "
physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's outputs depend partly on the
rate of return
In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment over a specified time period, such as i ...
on the human capital one owns. Thus, human capital is a
means of production
In political philosophy, the means of production refers to the generally necessary assets and resources that enable a society to engage in production. While the exact resources encompassed in the term may vary, it is widely agreed to include the ...
, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or
fixed capital
In accounting, fixed capital is any kind of real, physical asset that is used repeatedly in the production of a product. In economics, fixed capital is a type of capital good that as a real, physical asset is used as a means of production which i ...
.
Some contemporary
growth theories see human capital as an important
economic growth
In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
factor. Further research shows the relevance of education for the economic welfare of people.
Adam Smith
Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters). The four types were:
# useful machines, instruments of the trade;
# buildings as the means of procuring revenue;
#
improvements of land;
# the acquired and useful abilities of all the inhabitants or members of the society.
Smith defined human capital as follows:
Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.
Therefore, Smith argued, the productive power of labor are both dependent on the division of labor:
The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effects of the division of labor.
There is a complex relationship between the division of labor and human capital.
In the 1990s, the concept of human capital was extended to include natural abilities, physical fitness and healthiness, which are crucial for an individual's success in acquiring knowledge and skills.
As a result of his conceptualization and modeling work using Human Capital as a key factor, the 2018
Nobel Prize for Economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...
was jointly awarded to
Paul Romer
Paul Michael Romer (born November 6, 1955) is an American economist and policy entrepreneur who is a Seidner University Professor in Finance at Boston College. Romer is best known as the former Chief Economist of the World Bank and for co- ...
, who founded the modern innovation-driven approach to understanding economic growth.
In the recent literature, the new concept of task-specific human capital was coined in 2004 by
Robert Gibbons, an economist at
MIT
The Massachusetts Institute of Technology (MIT) is a private research university in Cambridge, Massachusetts, United States. Established in 1861, MIT has played a significant role in the development of many areas of modern technology and sc ...
, and
Michael Waldman, an economist at
Cornell University
Cornell University is a Private university, private Ivy League research university based in Ithaca, New York, United States. The university was co-founded by American philanthropist Ezra Cornell and historian and educator Andrew Dickson W ...
. The concept emphasizes that in many cases, human capital is accumulated specific to the nature of the task (or, skills required for the task), and the human capital accumulated for the task are valuable to many firms requiring the transferable skills. This concept can be applied to job-assignment, wage dynamics, tournament, promotion dynamics inside firms, etc.
Background
''Human capital'' in a broad sense is a collection of activities: all the knowledge, skills, abilities, experience, intelligence, training and competences possessed individually and collectively by individuals in a population. These resources are the total capacity of the people that represents a form of wealth that can be directed to accomplish the goals of the nation or state or a portion thereof. The human capital is further distributed into three kinds;
#
Knowledge capital
#
Social capital
Social capital is a concept used in sociology and economics to define networks of relationships which are productive towards advancing the goals of individuals and groups.
It involves the effective functioning of social groups through interper ...
#
Emotional capital.
Many theories explicitly connect investment in human capital development to education, and the role of human capital in economic development, productivity growth, and innovation has frequently been cited as a justification for government subsidies for education and job skills training.
It was assumed in early economic theories, reflecting the context – i.e., the
secondary sector of the economy
In macroeconomics, the secondary sector of the economy is an economic sector in the three-sector theory that describes the role of manufacturing. It encompasses industries that produce a finished, usable product or are involved in constructi ...
was producing much more than the
tertiary sector
The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the ...
was able to produce at the time in most countries – to be a
fungible
In economics and law, fungibility is the property of something whose individual units are considered fundamentally interchangeable with each other.
For example, the fungibility of money means that a $100 bill (note) is considered entirely equ ...
resource
''Resource'' refers to all the materials available in our environment which are Technology, technologically accessible, Economics, economically feasible and Culture, culturally Sustainability, sustainable and help us to satisfy our needs and want ...
, homogeneous, and easily interchangeable, and it was referred to simply as workforce or
labor
Labour or labor may refer to:
* Childbirth, the delivery of a baby
* Labour (human activity), or work
** Manual labour, physical work
** Wage labour, a socioeconomic relationship between a worker and an employer
** Organized labour and the labour ...
, one of three
factors of production
In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...
(the others being land, and assumed-interchangeable assets of money and physical equipment). Just as land became recognized as
natural capital
Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...
and an asset in itself, human factors of production were raised from this simple mechanistic analysis to human capital. In modern technical financial analysis, the term "balanced growth" refers to the goal of equal growth of both aggregate human capabilities and physical assets that produce goods and services.
The assumption that labor or workforces could be easily modelled in aggregate began to be challenged in 1950s when the
tertiary sector
The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the ...
, which demanded creativity, begun to produce more than the
secondary sector was producing at the time in the most developed countries in the world. Accordingly, much more attention was paid to factors that led to success versus failure where human management was concerned. The role of
leadership
Leadership, is defined as the ability of an individual, group, or organization to "", influence, or guide other individuals, teams, or organizations.
"Leadership" is a contested term. Specialist literature debates various viewpoints on the co ...
,
talent, even
celebrity
Celebrity is a condition of fame and broad public recognition of a person or group due to the attention given to them by mass media. The word is also used to refer to famous individuals. A person may attain celebrity status by having great w ...
was explored.
Today, most theories attempt to break down human capital into one or more components for analysis.
Paolo Magrassi
Paolo Magrassi is an Italian technologist known as one of the authors of the Supranet concept, the co-creator of the AlphaIC methodology for assessing the value of information technology expenditures, and the manager of the Pontifex project, whic ...
(2002) "A Taxonomy of Intellectual Capital", Research Note COM-17-1985, Gartner Most commonly,
Emotional capital is the set of resources (the personal and social emotional competencies) that is inherent to the person, useful for personal, professional and organizational development, and participates to social cohesion and has personal, economic and social returns (Gendron, 2004, 2008).
Social capital
Social capital is a concept used in sociology and economics to define networks of relationships which are productive towards advancing the goals of individuals and groups.
It involves the effective functioning of social groups through interper ...
, the sum of social bonds and relationships, has come to be recognized, along with many synonyms such as goodwill or brand value or
social cohesion
Group cohesiveness, also called group cohesion, social harmony or social cohesion, is the degree or strength of bonds linking members of a social group to one another and to the group as a whole. Although cohesion is a multi-faceted process, it ...
or social resilience and related concepts like
celebrity
Celebrity is a condition of fame and broad public recognition of a person or group due to the attention given to them by mass media. The word is also used to refer to famous individuals. A person may attain celebrity status by having great w ...
or
fame, as distinct from the
talent that an
individual
An individual is one that exists as a distinct entity. Individuality (or self-hood) is the state or quality of living as an individual; particularly (in the case of humans) as a person unique from other people and possessing one's own needs or g ...
(such as an
athlete
An athlete is most commonly a person who competes in one or more sports involving physical strength, speed, power, or endurance. Sometimes, the word "athlete" is used to refer specifically to sport of athletics competitors, i.e. including track ...
has uniquely) has developed that cannot be passed on to others regardless of effort, and those aspects that can be transferred or taught: instructional capital. Less commonly, some analyses conflate good instructions for health with health itself, or good
knowledge management
Knowledge management (KM) is the set of procedures for producing, disseminating, utilizing, and overseeing an organization's knowledge and data. It alludes to a multidisciplinary strategy that maximizes knowledge utilization to accomplish organ ...
habits or systems with the instructions they compile and manage, or the "
intellectual capital Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people (human capital), the value relat ...
" of teams – a reflection of their social and instructional capacities, with some assumptions about their individual uniqueness in the context in which they work. In general, these analyses acknowledge that individual trained bodies, teachable ideas or skills, and social influence or persuasion power, are different.
Management accounting
In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.
Definition
One simple definition of management accounting is th ...
is often concerned with questions of how to model human beings as a
capital asset
A capital asset is defined as property of any kind held by an assessee. It need not be connected to the assesse’s business or profession. The term encompasses all kinds of property, movable or immovable, tangible or intangible, fixed or circula ...
. However it is broken down or defined,
human capital is vitally important for an organization's success (Crook et al., 2011); human capital increases through education and experience. Human capital is also important for the success of cities and regions: a 2012 study examined how the production of university degrees and R&D activities of educational institutions are related to the human capital of metropolitan areas in which they are located.
In 2010, the
OECD
The Organisation for Economic Co-operation and Development (OECD; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...
encouraged the governments of advanced economies to embrace policies to increase innovation and knowledge in products and services as an economical path to continued
prosperity
Prosperity is the flourishing, thriving, good fortune and successful social status. Prosperity often produces profuse wealth including other factors which can be profusely wealthy in all degrees, such as happiness and health.
Competing notions ...
. International policies also often address
human capital flight, which is the loss of talented or trained persons from a country that invested in them, to another country which benefits from their arrival without investing in them.
Measurement of human capital
World Economic Forum Global Human Capital Index
Since 2012 the
World Economic Forum
The World Economic Forum (WEF) is an international non-governmental organization, international advocacy non-governmental organization and think tank, based in Cologny, Canton of Geneva, Switzerland. It was founded on 24 January 1971 by German ...
has annually published its Global Human Capital Report, which includes the Global Human Capital Index (GHCI). In the 2017 edition, 130 countries
are ranked from 0 (worst) to 100 (best) according to the quality of their investments in human capital. Norway is at the top, with 77.12.
World Bank Human Capital Index
In October 2018, the
World Bank
The World Bank is an international financial institution that provides loans and Grant (money), grants to the governments of Least developed countries, low- and Developing country, middle-income countries for the purposes of economic development ...
published the Human Capital Index (HCI) as a measurement of economic success. The Index ranks countries according to how much is invested in education and health care for young people. The World Bank's 2019
World Development Report
The World Development Report (WDR) is an annual report published since 1978 by the World Bank. Each WDR provides in-depth analysis of a specific aspect of economic development. Past reports have considered such topics as agriculture, youth, equity ...
on ''The Changing Nature of Work'' showcases the Index and explains its importance given the impact of technology on labor markets and the future of work. One of the central innovations of the World Bank Human Capital Index was the inclusion and harmonization of learning data across 164 countries. This introduced a measure of human capital which directly accounts for the knowledge and skills acquired from schooling, rather than using schooling alone, now widely recognized to be an incomplete proxy. The learning outcomes data, methodology, and applications to the human capital literature underlying this effort were published in ''Nature''.
;Human Capital Index ranking (top 50 countries)
Other methods
A new measure of expected human capital calculated for 195 countries from 1990 to 2016 and defined for each birth cohort as the expected years lived from age 20 to 64 years and adjusted for educational attainment, learning or education quality, and functional health status was published by ''
The Lancet
''The Lancet'' is a weekly peer-reviewed general medical journal, founded in England in 1823. It is one of the world's highest-impact academic journals and also one of the oldest medical journals still in publication.
The journal publishes ...
'' in September 2018.
Finland
Finland, officially the Republic of Finland, is a Nordic country in Northern Europe. It borders Sweden to the northwest, Norway to the north, and Russia to the east, with the Gulf of Bothnia to the west and the Gulf of Finland to the south, ...
had the highest level of expected human capital: 28·4 health, education, and learning-adjusted expected years lived between age 20 and 64 years.
Niger
Niger, officially the Republic of the Niger, is a landlocked country in West Africa. It is a unitary state Geography of Niger#Political geography, bordered by Libya to the Libya–Niger border, north-east, Chad to the Chad–Niger border, east ...
had the lowest at less than 1·6 years.
Measuring the human capital index of individual firms is also possible: a survey is made on issues like training or
compensation,
and a value between 0 (worst) and 100 (best) is obtained. Enterprises which rank high are shown to add value to shareholders.
Human capital management
Human capital management (HCM) is the term used to describe workforce practices and resources that focus on maximizing needed skills through the recruitment, training, and development of employees.
Departments and software applications responsible for HCM often manage tasks that include administrative support, reporting and analytics, education and training, and hiring and recruitment.
Cumulative growth
Human capital is distinctly different from the tangible monetary capital due to the extraordinary characteristic of human capital to grow cumulatively over a long period of time. The growth of tangible monetary capital is not always linear due to the shocks of
business cycle
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
s. During the period of prosperity, monetary capital grows at relatively higher rate while during the period of
recession
In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...
and depression, there is deceleration of monetary capital. On the other hand, human capital has uniformly rising rate of growth over a long period of time because the foundation of this human capital is laid down by the educational and health inputs. The current generation is qualitatively developed by the effective inputs of education and health. The future generation is more benefited by the advanced research in the field of education and health, undertaken by the current generation. Therefore, the educational and health inputs create more productive impacts upon the future generation and the future generation becomes superior to the current generation. In other words, the productive capacity of future generation increases more than that of current generation. Therefore, rate of human capital formation in the future generation happens to be more than the rate of human capital formation in the current generation. This is the cumulative growth of human capital formation generated by superior quality of manpower in the succeeding generation as compared to the preceding generation.
Intangibility and portability
Human capital is an
intangible asset
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, exclusive franchises, Goodwill (accounting), goodwill, trademarks, and trade names, reputation, Research and development, R&D, Procedural knowledge, ...
, and it is not owned by the firm that employs it and is generally not fungible. Specifically, individuals arrive at 9am and leave at 5pm (in the conventional office model) taking most of their knowledge and relationships with them.
Human capital when viewed from a time perspective consumes time in one of these key activities:
# Knowledge (activities involving one employee),
#
Collaboration
Collaboration (from Latin ''com-'' "with" + ''laborare'' "to labor", "to work") is the process of two or more people, entities or organizations working together to complete a task or achieve a goal. Collaboration is similar to cooperation. The ...
(activities involving more than 1 employee),
# Processes (activities specifically focused on the knowledge and collaborative activities generated by organizational structure – such as silo impacts, internal politics, etc.) and
# Absence (annual leave,
sick leave
Sick leave (or paid sick days or sick pay) is paid time off from work that workers can use to stay home to address their health needs without losing pay. It differs from paid vacation time or time off work to deal with personal matters, because ...
, holidays, etc.).
Despite the lack of formal ownership, firms can and do gain from high levels of training, in part because it creates a
corporate culture or vocabulary teams use to create cohesion.
In recent economic writings the concept of
firm-specific human capital, which includes those social relationships, individual instincts, and instructional details that are of value within one firm (but not in general), appears by way of explaining some labour mobility issues and such phenomena as
golden handcuffs
Golden handcuffs, a phrase first recorded in 1976, refers to financial allurements and benefits that have the objective to encourage highly compensated employees to remain within a company or organization instead of moving from company to company ...
. Workers can be more valuable where they are simply for having acquired this knowledge, these skills and these instincts. Accordingly, the firm gains for their unwillingness to leave and market talents elsewhere.
Marxist analysis

In some way, the idea of "human capital" is similar to
Karl Marx
Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...
's concept of
labor power
Labour power (; ) is the capacity to work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do the work, i.e. labour power, and the physical act of working, i.e. labour ...
: he thought in
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...
workers sold their labor power in order to receive income (wages and salaries). But long before Mincer or Becker wrote, Marx pointed to "two disagreeably frustrating facts" with theories that equate wages or salaries with the interest on human capital.
# The worker must actually ''work'', exert their mind and body, to earn this "interest." Marx strongly distinguished between one's ''capacity'' to work,
labor power
Labour power (; ) is the capacity to work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do the work, i.e. labour power, and the physical act of working, i.e. labour ...
, and the activity of working.
# A free worker cannot sell his human capital in one go; it is far from being a liquid asset, even more illiquid than shares and land. He does not sell his skills, but contracts to utilize those skills, in the same way that an industrialist sells his produce, not his machinery. The exception here are slaves, whose human capital can be sold, though the slave does not earn an income himself.
An employer must be receiving a
profit
Profit may refer to:
Business and law
* Profit (accounting), the difference between the purchase price and the costs of bringing to market
* Profit (economics), normal profit and economic profit
* Profit (real property), a nonpossessory inter ...
from his operations, so that workers must be producing what Marx described as
surplus-value
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and ...
, i.e., doing work beyond that necessary to maintain their
labor power
Labour power (; ) is the capacity to work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do the work, i.e. labour power, and the physical act of working, i.e. labour ...
. Though having "human capital" gives workers some benefits, they are still dependent on the owners of non-human wealth for their livelihood.
The term appears in Marx's article in the ''
New-York Daily Tribune
The ''New-York Tribune'' (from 1914: ''New York Tribune'') was an American newspaper founded in 1841 by editor Horace Greeley. It bore the moniker ''New-York Daily Tribune'' from 1842 to 1866 before returning to its original name. From the 1840s ...
'' "The Emancipation Question," January 17 and 22, 1859, although there the term is used to describe humans who act like a capital to the producers, rather than in the modern sense of "knowledge capital" endowed to or acquired by humans.
Neo-Marxist
Neo-Marxism is a collection of Marxist schools of thought originating from 20th-century approaches to amend or extend Marxism and Marxist theory, typically by incorporating elements from other intellectual traditions such as critical theory, ps ...
economists have argued that education leads to higher wages not by increasing human capital, but rather by making workers more compliant and reliable in a corporate environment. The reasoning of which being that higher education creates the illusion of a meritocracy, thus justifying economic inequality to the benefit of capitalists, regardless of whether the educated human capital actually provides additional labor value.
Risk
When human capital is assessed by activity-based costing via time allocations it becomes possible to assess human capital risk. Human capital risks can be identified if HR processes in organizations are studied in detail. Human capital risk occurs when the organization operates below attainable operational excellence levels. For example, if a firm could reasonably reduce errors and rework (the process component of human capital) from 10,000 hours per annum to 2,000 hours with attainable technology, the difference of 8,000 hours is human capital risk. When wage costs are applied to this difference (the 8,000 hours) it becomes possible to financially value human capital risk within an organizational perspective.
Risk accumulates in four primary categories:
# Absence activities (activities related to employees not showing up for work such as sick leave, industrial action, etc.). Unavoidable absence is referred to as Statutory Absence. All other categories of absence are termed "Controllable Absence";
# Collaborative activities are related to the expenditure of time between more than one employee within an organizational context. Examples include: meetings, phone calls, instructor led training, etc.;
# Knowledge Activities are related to time expenditures by a single person and include finding/retrieving information, research, email, messaging, blogging, information analysis, etc.; and
# Process activities are knowledge and collaborative activities that result due to organizational context such as errors/rework, manual data transformation, stress, politics, etc.
Corporate management
In
corporate management, human capital is one of the three primary components of
intellectual capital Intellectual capital is the result of mental processes that form a set of intangible objects that can be used in economic activity and bring income to its owner (organization), covering the competencies of its people (human capital), the value relat ...
(which, in addition to tangible assets, comprise the entire value of a company). Human capital is the value that the employees of a business provide through the application of skills, know-how and expertise.
[Maddocks, J. & Beaney, M. 2002. See the invisible and intangible. Knowledge Management, March, 16–17.] It is an organization's combined human capability for solving business problems. Human capital is inherent in people and cannot be owned by an organization. Therefore, human capital leaves an organization when people leave. Human capital also encompasses how effectively an organization uses its people resources as measured by creativity and innovation. A company's reputation as an employer affects the human capital it draws.
Criticism
Some
labor economists have criticized the Chicago-school theory, claiming that it tries to explain all differences in wages and salaries in terms of human capital. One of the leading alternatives, advanced by
Michael Spence and
Joseph Stiglitz
Joseph Eugene Stiglitz (; born February 9, 1943) is an American New Keynesian economist, a public policy analyst, political activist, and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2 ...
, is "signaling theory". According to signaling theory, education does not lead to increased human capital, but rather acts as a mechanism by which workers with superior innate abilities can signal those abilities to prospective employers and so gain above average wages.
The concept of human capital can be infinitely elastic, including unmeasurable variables such as personal character or connections with insiders (via family or fraternity). This theory has had a significant share of study in the field proving that wages can be higher for employees on aspects other than human capital. Some variables that have been identified in the literature of the past few decades include, gender and nativity wage differentials, discrimination in the work place, and socioeconomic status.
The prestige of a
credential
A credential is a piece of any document that details a qualification, competence, or authority issued to an individual by a third party with a relevant or ''de facto'' authority or assumed competence to do so.
Examples of credentials include aca ...
may be as important as the knowledge gained in determining the value of an education. This points to the existence of
market imperfections such as non-competing groups and
labor-market segmentation. In segmented labor markets, the "return on human capital" differs between comparably skilled labor-market groups or segments.
Following Becker, the human capital literature often distinguishes between "specific" and "general" human capital. Specific human capital refers to skills or knowledge that is useful only to a single employer or industry, whereas general human capital (such as literacy) is useful to all employers. Economists view firm-specific human capital as risky, since firm closure or industry decline leads to skills that cannot be transferred (the evidence on the quantitative importance of firm specific capital is unresolved).
Human capital is central to debates about
welfare,
education
Education is the transmission of knowledge and skills and the development of character traits. Formal education occurs within a structured institutional framework, such as public schools, following a curriculum. Non-formal education als ...
,
health care
Health care, or healthcare, is the improvement or maintenance of health via the preventive healthcare, prevention, diagnosis, therapy, treatment, wikt:amelioration, amelioration or cure of disease, illness, injury, and other disability, physic ...
, and
retirement
Retirement is the withdrawal from one's position or occupation or from one's active working life. A person may also semi-retire by reducing work hours or workload.
Many people choose to retire when they are elderly or incapable of doing their j ...
.
In 2004, "human capital" () was named the
German Un-Word of the Year by a jury of linguistic scholars, who considered the term inappropriate and
inhumane
Cruelty is the intentional infliction of suffering or the inaction towards another's suffering when a clear remedy is readily available. Sadism can also be related to this form of action or concept. Cruel ways of inflicting suffering may involv ...
, as individuals would be degraded and their abilities classified according to economically relevant quantities.
Spiegel Online: ''Ein Jahr, ein (Un-)Wort!''
(in German).
"Human capital" is often confused with human development. The UN suggests "Human development denotes both the process of widening people's choices and improving their well-being".[Composite indices — HDI and beyond, http://hdr.undp.org/en/statistics/indices/ , retrieved July 27, 2013] The UN Human Development indices suggest that human capital is merely a means to the end of human development: "Theories of human capital formation and human resource development view human beings as means to increased income and wealth rather than as ends. These theories are concerned with human beings as inputs to increasing production".
See also
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Notes
References
* Géza Ankerl: L'épanouissement de l'homme dans la perspective de la politique economique. Sirey, Paris 1966.
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* Samuel Bowles & Herbert Gintis
Herbert Gintis (February 11, 1940 – January 5, 2023) was an American economist, behavioral scientist, and educator known for his theoretical contributions to sociobiology, especially altruism, cooperation, epistemic game theory, gene-culture co ...
(1975). "The Problem with Human Capital Theory – A Marxian Critique," ''American Economic Review'', 65(2), pp. 74–82,
* Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J. 2011. Does human capital matter? A meta-analysis of the relationship between human capital and firm performance. Journal of Applied Psychology, 96(3): 443–456.
* Seymour W. Itzkoff (2003). ''Intellectual Capital in Twenty-First-Century Politics''. Ashfield, MA: Paideia,
* Brian Keeley (2007).
OECD Insights; Human Capital
'.
* Sami Mahroum (2007). Assessing human resources for science and technology: the 3Ds framework. Science and Public Policy 34 (7), 489–499.
* Sherwin Rosen (1987). "Human capital," The New Palgrave: A Dictionary of Economics, v. 2, pp. 681–90.
* Mark V. Siegler, ''An Economic History of the United States: Connecting the Present with the Past'' (Springer, 2017) see chapter 11 for a survey of the impact of education on the economy.
External links
National intangible capital NIC 2016 database / Findings and results for human capital
OECD Insights: Human Capital – a primer
{{DEFAULTSORT:Human Capital
Intellectual capital
Education economics
Human capital flight from Iran
Human resource management
Public administration