What Is Human Capital?

Human capital is the economic value of a worker's experience and skills. Human capital is further enhanced by education, training, intelligence, skills, health, and other qualities employers value, such as loyalty and punctuality. Human capital is an intangible asset not listed on a company's 澳洲幸运5官方开奖结果体彩网:balance sheet and perceived to increase productivity and profitability.

Theories of Human Capital

In the 18th century, economist Adam Smith referred to the concept in his book "An Inquiry into the Nature and Causes of the Wealth of Nations", in which he explored a nation's wealth, knowledge, training, talents, and experiences. Adams suggested that improving human capital through training and education leads to a more profitable enterprise.

In the 1960s, economist 澳洲幸运5官方开奖结果体彩网:Theodore Schultz analyzed the value of human capacities. Schultz compared human capital to other forms of capital that improve the quality and level of 澳洲幸运5官方开奖结果体彩网:production, and companies must invest in the education, training, and enhanced benefits of an organization's employees.

The terms "human capital" and "human resources" have been criticized as they reduce employees to other workplace resources like utilities or technology. Some employment support organizations like ADP advise using terms like "associates" or "people" to discourage the anonymous tone that the phrase "human capital" means for individuals with families and personal lives who come into the office.

Investing In Employees

Employees are typically managed by an organization's 澳洲幸运5官方开奖结果体彩网:human resources (HR) department, which oversees workforce acquisition, management, and optimization. Its other directives include workforce planning and strategy, 澳洲幸运5官方开奖结果体彩网:recruitment, employee training and development, and re𒈔porting and analytics.

Since human capital is based on improving employee skills and knowledge through education, these investments can be easily calculated. Any 澳洲幸运5官方开奖结果体彩网:return on investment (ROI) of human capital can be calculated by dividing the company’s total profits by its overall investments in human capital. All of this has great economic value for employers and the economy.

Companies that invest to improve employees and then show a profit can compare the ROI of human capital 澳洲幸运5官方开奖结果体彩网:year-over-year (YOY) to track how profit is improvꦗed and whether it relates to their investments in its workforce.

Human Capital and Economic Growth

There is a strong relationship between human capital and economic growth. Companies that invest in employees retain talented workers and see consistent earnings compared to industry peers. People who participate in the workforce with higher education will often have larger salaries, which means they can spend more in the local economy.

Like anything else, human capital is not immune to 澳洲幸运5官方开奖结果体彩网:depreciation. This is often measured in wages or the ability to stay in the workforce. The most common ways human capital can depreciate are 澳洲幸运5官方开奖结果体彩网:unemployment, injury, or loss of a specialized skill.

Human capital tends to migrate, especially in global economies. That's why there is often a shift from developing places or rural areas to more developed and urban areas. Some economists have dubbed this a 澳洲幸运5官方开奖结果体彩网:brain drain or human capital flight. This describes the process that keeps certain areas underdeveloped while others become even more developed.

The Bottom Line

Human capital is the economic value of a worker's abilities and skills. Companies can enhance their human capital through recruitment or training and by implementing management techniques that optimize the productivity of their existing workers. Maintaining and improving the value of human capital is usually the role of a company's HR department.