Human capital

Last updated
Human capital infographic Human capital.png
Human capital infographic

Human capital is the stock of habits, knowledge, social and personality attributes (including creativity) embodied in the ability to perform labour so as to produce economic value. [1]

A habit is a routine of behavior that is repeated regularly and tends to occur subconsciously.

Knowledge is a familiarity, awareness, or understanding of someone or something, such as facts, information, descriptions, or skills, which is acquired through experience or education by perceiving, discovering, or learning.

Social characteristic of living organisms

Living organisms including humans are social when they live collectively in interacting populations, whether they are aware of it, and whether the interaction is voluntary or involuntary.

Contents

Human capital is unique and differs from any other capital. It is needed for companies to achieve goals, develop and remain innovative. Companies can invest in human capital for example through education and training enabling improved levels of quality and production. [2]

Human capital theory is closely associated with the study of human resources management as found in the practice of business administration and macroeconomics.

Human resources are the people who make up the workforce of an organization, business sector, or economy. "Human capital" is sometimes used synonymously with "human resources", although human capital typically refers to a narrower effect. Likewise, other terms sometimes used include manpower, talent, labour, personnel, or simply people.

The original idea of human capital can be traced back at least to Adam Smith in the 18th century. The modern theory was popularized by Gary Becker, an economist and Nobel Laureate from the University of Chicago, Jacob Mincer, and Theodore Schultz. As a result of his conceptualization and modeling work using Human Capital as a key factor, the 2018 Nobel Prize for Economics was jointly awarded to Paul Romer, who founded the modern innovation-driven approach to understanding economic growth.

Adam Smith 18th-century Scottish moral philosopher and political economist

Adam Smith was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment, also known as ''The Father of Economics'' or ''The Father of Capitalism''. Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter, often abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage.

18th century Century

The 18th century lasted from January 1, 1701 to December 31, 1800. During the 18th century, elements of Enlightenment thinking culminated in the American, French, and Haitian revolutions. This was an age of violent slave trading, and global human trafficking. The reactions against monarchical and aristocratic power helped fuel the revolutionary responses against it throughout the century.

Gary Becker American economist

Gary Stanley Becker was an American economist and a Nobel laureate in economics. He was a professor of economics and sociology at the University of Chicago, and was a leader of the third generation of the Chicago school of economics.

In the recent literature, the new concept of task-specific human capital was coined in 2004 by Robert Gibbon, an economist at MIT, and Michael Waldman [3] , an economist at Cornell University. 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. [4] This concept can be applied to job-assignment, wage dynamics, tournament, promotion dynamics inside firms, etc. [5]

Robert Gibbons is an American economist, currently the Sloan Distinguished Professor of Management at Massachusetts Institute of Technology.

Massachusetts Institute of Technology University in Massachusetts

The Massachusetts Institute of Technology (MIT) is a private research university in Cambridge, Massachusetts. The Institute is a land-grant, sea-grant, and space-grant university, with an urban campus that extends more than a mile (1.6 km) alongside the Charles River. The Institute also encompasses a number of major off-campus facilities such as the MIT Lincoln Laboratory, the Bates Center, and the Haystack Observatory, as well as affiliated laboratories such as the Broad and Whitehead Institutes. Founded in 1861 in response to the increasing industrialization of the United States, MIT adopted a European polytechnic university model and stressed laboratory instruction in applied science and engineering. It has since played a key role in the development of many aspects of modern science, engineering, mathematics, and technology, and is widely known for its innovation and academic strength, making it one of the most prestigious institutions of higher learning in the world.

Cornell University Private Ivy League research university in Upstate New York

Cornell University is a private and statutory Ivy League research university in Ithaca, New York. Founded in 1865 by Ezra Cornell and Andrew Dickson White, the university was intended to teach and make contributions in all fields of knowledge—from the classics to the sciences, and from the theoretical to the applied. These ideals, unconventional for the time, are captured in Cornell's founding principle, a popular 1868 Ezra Cornell quotation: "I would found an institution where any person can find instruction in any study."

History

Arthur Lewis is said to have begun the field of development economics and consequently the idea of human capital when he wrote in 1954 "Economic Development with Unlimited Supplies of Labour." [6] The term "human capital" was not used due to its negative undertones until it was first discussed by Arthur Cecil Pigou:

Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels.

Arthur Cecil Pigou British economist

Arthur Cecil Pigou 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 chairs of economics around the world. His work covered various fields of economics, particularly welfare economics, but also included Business cycle theory, unemployment, public finance, index numbers, and measurement of national output. His reputation was affected adversely by influential economic writers who used his work as the basis on which to define their own opposing views. He reluctantly served on several public committees, including the Cunliffe Committee and the 1919 Royal Commission on Income tax.

There is such a thing as investment in human capital as well as investment in material capital. So soon as this is recognised, the distinction between economy in consumption and economy in investment becomes blurred. For, up to a point, consumption is investment in personal productive capacity. This is especially important in connection with children: to reduce unduly expenditure on their consumption may greatly lower their efficiency in after-life. Even for adults, after we have descended a certain distance along the scale of wealth, so that we are beyond the region of luxuries and "unnecessary" comforts, a check to personal consumption is also a check to investment. [7]

The use of the term in the modern neoclassical economic literature dates back to Jacob Mincer's article "Investment in Human Capital and Personal Income Distribution" in the Journal of Political Economy in 1958. [8] 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 of the "Chicago School" of economics. 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 on the human capital one owns. Thus, human capital is a means of production, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or fixed capital.

Some contemporary growth theories see human capital as an important economic growth factor. [9] Further research shows the relevance of education for the economic welfare of people. [10]

Adam Smith 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:

  1. useful machines, instruments of the trade;
  2. buildings as the means of procuring revenue;
  3. improvements of land;
  4. 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. [11]

Therefore, Smith argued, the productive power of labor are both dependent on the division of labor:

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour.

There is a complex relationship between the division of labor and human capital.

Background

Human capital is a collection of traits – all the knowledge, talents, skills, abilities, experience, intelligence, training, judgment, and wisdom possessed individually and collectively by individuals in a population. These resources are the total capacity of the people that represents a form of wealth which 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; (1) Intellectual Capital (2) Social Capital (3) Emotional Capital

It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural and psychological complexity as they interact in explicit and/or economic transactions. 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.

"Human capital" has been and continues to be criticized in numerous ways. Michael Spence offers signaling theory as an alternative to human capital. [12] [13] Pierre Bourdieu offers a nuanced conceptual alternative to human capital that includes cultural capital, social capital, economic capital, and symbolic capital. [14] These critiques, and other debates, suggest that "human capital" is a reified concept without sufficient explanatory power.

It was assumed in early economic theories, reflecting the context – i.e., the secondary sector of the economy was producing much more than the tertiary sector was able to produce at the time in most countries – to be a fungible resource, homogeneous, and easily interchangeable, and it was referred to simply as workforce or labor, one of three factors of production (the others being land, and assumed-interchangeable assets of money and physical equipment). Just as land became recognized as natural capital 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 labour or workforces could be easily modelled in aggregate began to be challenged in 1950s when the tertiary sector, which demanded creativity, begun to produce more than the secondary sector was producing at the time in the most developed countries in the world.

Clark's Sector model the for US economy 1850-2009 Clark's Sector model.png
Clark's Sector model the for US economy 1850–2009

Accordingly, much more attention was paid to factors that led to success versus failure where human management was concerned. The role of leadership, talent, even celebrity was explored.

Today, most theories attempt to break down human capital into one or more components for analysis [16] [17] [18] – usually called "intangibles". Most commonly, social capital, 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 or social resilience and related concepts like celebrity or fame, as distinct from the talent that an individual (such as an athlete 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 habits or systems with the instructions they compile and manage, or the "intellectual capital" 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 is often concerned with questions of how to model human beings as a capital asset. 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. [19] 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. [20] [21]

In 2010, the OECD (the Organization of Economic Co-operation and Development) 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. [22] 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 has annually published its Global Human Capital Report, which includes the Global Human Capital Index (GHCI). [23] In the 2017 edition, 130 countries [24] 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. [24]

World Bank Human Capital Index

In October 2018, the World Bank 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. [25] The World Bank's 2019 World Development Report on The Changing Nature of Work [26] showcases the Index and explains its importance given the impact of technology on labor markets and the future of work.

Human Capital Index ranking (top 50 countries) [27]
  1. Flag of Singapore.svg  Singapore 0.88
  2. Flag of South Korea.svg  South Korea 0.84
  3. Flag of Japan.svg  Japan 0.84
  4. Flag of Hong Kong.svg  Hong Kong , SAR of China 0.82
  5. Flag of Finland.svg  Finland 0.81
  6. Flag of Ireland.svg  Ireland 0.81
  7. Flag of Australia (converted).svg  Australia 0.80
  8. Flag of Sweden.svg  Sweden 0.80
  9. Flag of the Netherlands.svg  Netherlands 0.80
  10. Flag of Canada (Pantone).svg  Canada 0.80
  11. Flag of Germany.svg  Germany 0.79
  12. Flag of Austria.svg  Austria 0.79
  13. Flag of Slovenia.svg  Slovenia 0.79
  14. Flag of the Czech Republic.svg  Czech Republic 0.78
  15. Flag of the United Kingdom.svg  United Kingdom 0.78
  16. Flag of Portugal.svg  Portugal 0.78
  17. Flag of Denmark.svg  Denmark 0.77
  18. Flag of Norway.svg  Norway 0.77
  19. Flag of Italy.svg  Italy 0.77
  20. Flag of Switzerland.svg   Switzerland 0.77
  21. Flag of New Zealand.svg  New Zealand 0.77
  22. Flag of France.svg  France 0.76
  23. Flag of Israel.svg  Israel 0.76
  24. Flag of the United States.svg  United States 0.76
  25. Flag of Macau.svg  Macau , SAR of China 0.76
  26. Flag of Belgium (civil).svg  Belgium 0.76
  27. Flag of Serbia.svg  Serbia 0.76
  28. Flag of Cyprus.svg  Cyprus 0.75
  29. Flag of Estonia.svg  Estonia 0.75
  30. Flag of Poland.svg  Poland 0.75
  31. Flag of Kazakhstan.svg  Kazakhstan 0.75
  32. Flag of Spain.svg  Spain 0.74
  33. Flag of Iceland.svg  Iceland 0.74
  34. Flag of Russia.svg  Russia 0.73
  35. Flag of Latvia.svg  Latvia 0.72
  36. Flag of Croatia.svg  Croatia 0.72
  37. Flag of Lithuania.svg  Lithuania 0.71
  38. Flag of Hungary.svg  Hungary 0.70
  39. Flag of Malta.svg  Malta 0.70
  40. Flag of Slovakia.svg  Slovakia 0.69
  41. Flag of Luxembourg.svg  Luxembourg 0.69
  42. Flag of Greece.svg  Greece 0.68
  43. Flag of the Seychelles.svg  Seychelles 0.68
  44. Flag of Bulgaria.svg  Bulgaria 0.68
  45. Flag of Chile.svg  Chile 0.67
  46. Flag of the People's Republic of China.svg  China 0.67
  47. Flag of Bahrain.svg  Bahrain 0.67
  48. Flag of Vietnam.svg  Vietnam 0.67
  49. Flag of the United Arab Emirates.svg  United Arab Emirates 0.66
  50. Flag of Ukraine.svg  Ukraine 0.65

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 in September 2018. Finland 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 had the lowest at less than 1·6 years. [28]

Measuring the human capital index of individual firms is also possible: a survey is made on issues like training or compensation, [29] and a value between 0 (worst) and 100 (best) is obtained. Enterprises which rank high are shown to add value to shareholders. [29]

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. [30] The growth of tangible monetary capital is not always linear due to the shocks of business cycles. During the period of prosperity, monetary capital grows at relatively higher rate while during the period of recession 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. [31] The current generation is qualitatively developed by the effective inputs of education and health. [32] 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.

India

In India, rate of human capital formation has consistently increased after Independence due to qualitative improvement in each generation. In the second decade of the 21st century, the third generation of India's population is active in the workforce of India. This third generation is qualitatively the most superior human resource in India. It has developed the service sector of India with the export of financial services, software services, [33] tourism services and improved the invisible balance of India's balance of payments. The rapid growth of the Indian economy in response to improvement in the service sector is evidence of cumulative growth of human capital in India. This year(2019) India had ranked 158 out of 195 countries

Importance

The concept of human capital has relatively more importance in labour-surplus countries. These countries are naturally endowed with more of labour due to high birth rate under the given climatic conditions. The surplus labour in these countries is the human resource available in more abundance than the tangible capital resource. This human resource can be transformed into human capital with effective inputs of education, health and moral values. The transformation of raw human resource into highly productive human resource with these inputs is the process of human capital formation. The problem of scarcity of tangible capital in the labour surplus countries can be resolved by accelerating the rate of human capital formation with both private and public investment in education and health sectors of their national economies. The tangible financial capital is an effective instrument of promoting economic growth of the nation. The intangible human capital, on the other hand, is an instrument of promoting comprehensive development of the nation because human capital is directly related to human development, and when there is human development, the qualitative and quantitative progress of the nation is inevitable. [34] This importance of human capital is explicit in the changed approach of United Nations [35] towards comparative evaluation of economic development of different nations in the world economy. The United Nations publishes the Human Development Report [36] on human development in different nations with the objective of evaluating the rate of human capital formation in these nations.

The statistical indicator of estimating human development in each nation is Human Development Index (HDI). It is the combination of "Life Expectancy Index", "Education Index" and "Income Index". The life expectancy index reveals the standard of health of the population in the country; the education index reveals the educational standard and the literacy ratio of the population; and the income index reveals the standard of living of the population. If all these indices have a rising trend over a long period of time, it is reflected in a rising trend in HDI. Human capital is measured by health, education and quality of standard of living. Therefore, the components of HDI, viz, Life Expectancy Index, Education Index and Income Index, are directly related to human capital formation within the nation. HDI is indicator of positive correlation between human capital formation and economic development. If HDI increases, there is a higher rate of human capital formation in response to a higher standard of education and health. Similarly, if HDI increases, per capita income of the nation also increases. Implicitly, HDI reveals that the higher is human capital formation due to good levels of health and education, the higher is the per capita income of the nation. This process of human development is the strong foundation of a continuous process of economic development of the nation for a long period of time. This significance of the concept of human capital in generating long-term economic development of the nation cannot be neglected. It is expected that the macroeconomic policies of all the nations are focused towards promotion of human development and subsequently economic development.

Human capital is the backbone of human development and economic development in every nation. Mahroum (2007) suggested that at the macro-level, human capital management is about three key capacities: the capacity to develop talent, the capacity to deploy talent, and the capacity to draw talent from elsewhere. Collectively, these three capacities form the backbone of any country's human capital competitiveness. Recent U.S. research shows that geographic regions that invest in the human capital and economic advancement of immigrants who are already living in their jurisdictions help boost their short- and long-term economic growth. [37] There is also strong evidence that organizations that possess and cultivate their human capital outperform other organizations lacking human capital (Crook, Todd, Combs, Woehr, and Ketchen, 2011).

Intangibility and portability

Human capital is an intangible asset, 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:

  1. Knowledge (activities involving one employee),
  2. Collaboration (activities involving more than 1 employee),
  3. Processes (activities specifically focused on the knowledge and collaborative activities generated by organizational structure – such as silo impacts, internal politics, etc.) and
  4. Absence (annual leave, sick leave, 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. 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

An advertisement for labour from Sabah and Sarawak, seen in Jalan Petaling, Kuala Lumpur. Sabah Sarawak labour advert Kuala Lumpur.JPG
An advertisement for labour from Sabah and Sarawak, seen in Jalan Petaling, Kuala Lumpur.

In some way, the idea of "human capital" is similar to Karl Marx's concept of labor power: he thought in capitalism 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.

  1. The worker must actually work, exert his or her mind and body, to earn this "interest." Marx strongly distinguished between one's capacity to work, labor power, and the activity of working.
  2. 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 from his operations, so that workers must be producing what Marx (under the labor theory of value) perceived as surplus-value, i.e., doing work beyond that necessary to maintain their labor power. [38] 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 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. [39]

Neo-Marxist economists such as Bowles 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.

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:

  1. 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";
  2. 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.;
  3. Knowledge Activities are related to time expenditures by a single person and include finding/retrieving information, research, email, messaging, blogging, information analysis, etc.; and
  4. Process activities are knowledge and collaborative activities that result due to organizational context such as errors/rework, manual data transformation, stress, politics, etc.

Corporate finance

In corporate finance, human capital is one of the three primary components of intellectual capital (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. [40] 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. [16] [17] [18]

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, 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 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. An example of this is discrimination against minority or female employees.

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, health care, and retirement..

In 2004, "human capital" (German : Humankapital) was named the German Un-Word of the Year by a jury of linguistic scholars, who considered the term inappropriate and inhumane, as individuals would be degraded and their abilities classified according to economically relevant quantities. [41]

"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". [42] 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". [42]

See also

Notes

  1. Claudia Goldin, Department of Economics Harvard University and National Bureau of Economic Research. "Human Capital" (PDF).Cite web requires |website= (help)
  2. Kenton, Will. "Human Capital". Investopedia. Retrieved 2019-03-28.
  3. Michael Waldman's profile at the Johnson School of Management
  4. Gibbons, Robert; Waldman, Michael (May 2004). "Task-Specific Human Capital". American Economic Review. 94 (2): 203–207. doi:10.1257/0002828041301579. ISSN   0002-8282.
  5. Gibbons, Robert; Waldman, Michael (2006-01-01). "Enriching a Theory of Wage and Promotion Dynamics inside Firms" (PDF). Journal of Labor Economics. 24 (1): 59–107. doi:10.1086/497819. ISSN   0734-306X.
  6. W. Arthur Lewis (1954) "Economic Development with Unlimited Supplies of Labour." [ permanent dead link ]
  7. Pigou, Arthur Cecil (1928). A Study in Public Finance. London: Macmillan. p. 29.
  8. Mincer, Jacob Studies in Human Capital. 1. "Investment in Human Capital and Personal Income Distribution". Edward Elgar Publishing, 1993.
  9. Hanushek, Eric; Woessmann, Ludger (2008). "The Role of Cognitive Skills in Economic Development" (PDF). Journal of Economic Literature . 46 (3): 607–668. CiteSeerX   10.1.1.507.5325 . doi:10.1257/jel.46.3.607.
  10. Rindermann, Heiner (March 2008). "Relevance of education and intelligence at the national level for the economic welfare of people". Intelligence. 36 (2): 127–142. doi:10.1016/j.intell.2007.02.002.
  11. Smith, Adam: An Inquiry into the Nature And Causes of the Wealth of Nations Book 2 – Of the Nature, Accumulation, and Employment of Stock; Published 1776.
  12. Spence, Michael (1973). "Job Market Signaling". Quarterly Journal of Economics . 87 (3): 355–374. doi:10.2307/1882010. JSTOR   1882010.
  13. Spence, Michael (2002). "Signaling in Retrospect and the Informational Structure of Markets" (PDF). American Economic Review . 92 (3): 434–459. doi:10.1257/00028280260136200.
  14. The Forms of Capital: English version published 1986 in J.G. Richardson's Handbook for Theory and Research for the Sociology of Education, pp. 241–258.
  15. "Who Makes It? Clark's Sector Model for US Economy 1850–2009" . Retrieved 29 December 2011.Cite web requires |website= (help)
  16. 1 2 "Archived copy". Archived from the original on 2013-02-16. Retrieved 2013-02-18.Cite uses deprecated parameter |dead-url= (help); Cite web requires |website= (help)CS1 maint: archived copy as title (link)
  17. 1 2 Paolo Magrassi (2002) "A Taxonomy of Intellectual Capital", Research Note COM-17-1985, Gartner
  18. 1 2 Sveiby, Karl Erik (1997). "The Intangible Asset Monitor". Journal of Human Resource Costing and Accounting. 2 (1).
  19. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson Prentice Hall. p. 5. ISBN   978-0-13-063085-8.
  20. "Do Colleges and Universities Increase Their Region's Human Capital?".Cite news requires |newspaper= (help) JournalistsResource.org, retrieved June 18, 2012
  21. Abel, Jaison R.; Deitz, Richard (2012). "Do Colleges and Universities Increase Their Region's Human Capital?". Journal of Economic Geography . 12 (3): 667. doi:10.1093/jeg/lbr020.
  22. The Economist (May 27th 2010). on the web at http://www.economist.com/node/16219687?story_id=16219687
  23. "The Global Human Capital Report 2017". World Economic Forum. Retrieved 30 November 2018.
  24. 1 2 "Índice de Capital Humano 2017" (PDF). Observatorio de Competitividad. Retrieved 30 November 2018.
  25. "Not pounds and pence - here's a different way to measure our wealth", BBC, 11.10,2018
  26. World Bank World Development Report 2019: The Changing Nature of Work.
  27. WORLD DEVELOPMENT REPORT 2019
  28. Lim, Stephen; et, al. "Measuring human capital: a systematic analysis of 195 countries and territories, 1990–2016". Lancet. Retrieved 5 November 2018.Cite news requires |newspaper= (help)
  29. 1 2 "What is Human Capital Index ?". Community for Human Resource Management. Retrieved 30 November 2018.
  30. David Allison. "Human Capital: The most overlooked Asset Class". Investopedia.
  31. Becker, Gary (1994). Human Capital: A theoretical and empirical analysis with special reference to Education. The University of Chicago Press.
  32. Hansen, W. Lee (1970). Education, Income and Human Capital.
  33. Bagde, Surendrakumar. "Human Capital and Economic Development in India" (PDF). Archived from the original (PDF) on 2016-10-12. Retrieved 2018-12-04.Cite uses deprecated parameter |dead-url= (help); Cite web requires |website= (help)
  34. Haq, Mahbub ul (1996). Reflection on Human Development. Delhi: Oxford University Press.
  35. UN. "Official website".Cite web requires |website= (help)
  36. Human Development Report, UNDP. "HDR".Cite web requires |website= (help)
  37. "Brookings Institution, Investing in the Human Capital of Immigrants, Strengthening Regional Economies, September 2012". Archived from the original on 2014-03-01. Retrieved 2012-11-02.Cite uses deprecated parameter |dead-url= (help); Cite web requires |website= (help)
  38. Marx, Karl. Capital , volume III, ch. 29 pp. 465–6 of the International Publishers edition
  39. The Emancipation Question in New-York Daily Tribune, January 17 and 22, 1859 Archived 2008-07-31 at the Wayback Machine
  40. Maddocks, J. & Beaney, M. 2002. See the invisible and intangible. Knowledge Management, March, 16-17.
  41. Spiegel Online: Ein Jahr, ein (Un-)Wort! (in German).
  42. 1 2 Composite indices — HDI and beyond,http://hdr.undp.org/en/statistics/indices/ Archived 2013-11-14 at the Wayback Machine , retrieved July 27, 2013

Related Research Articles

Labour economics functioning and dynamics of the markets for labour

Labour economics seeks to understand the functioning and dynamics of the markets for wage labour.

Economy of Mauritius economy of the country

The economy of Mauritius refers to the economic activity of the island nation of Mauritius.

Sustainable development is the organizing principle for meeting human development goals while simultaneously sustaining the ability of natural systems to provide the natural resources and ecosystem services upon which the economy and society depend. The desired result is a state of society where living conditions and resources are used to continue to meet human needs without undermining the integrity and stability of the natural system. Sustainable development can be defined as development that meets the needs of the present without compromising the ability of future generations.

Economic growth increase in production and consumption in an economy

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

This aims to be a complete article list of economics topics:

Economic development is the process by which the economic well-being and quality of life of a nation, region or local community are improved. The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for centuries. "Modernization", "Westernization", and especially "industrialization" are other terms often used while discussing economic development.

In economics, capital consists of assets that can enhance one's power to perform economically useful work. For example, in a fundamental sense a stone or an arrow is capital for a caveman who can use it as a hunting instrument, while roads are capital for inhabitants of a city.

The knowledge economy is the use of knowledge to create goods and services. In particular, it refers to a high portion of skilled workers in the economy of a locality, country, or the world, and the idea that most jobs require specialized skills. In particular, the main personal capital of knowledge workers is knowledge, and many knowledge worker jobs require a lot of thinking and manipulating information as opposed to moving or crafting physical objects. It stands in contrast to an agrarian economy or an industrialized economy. Knowledge economy emphasizes the importance of skills in a service economy, the third phase of economic development, also called a post-industrial economy. It is related to the terms information economy, which emphasizes the importance of information as non-physical capital, and digital economy, which emphasize the degree to which information technology facilitates trade. For companies, intellectual property such as trade secrets, copyrighted material, and patented processes become more valuable in a knowledge economy than in earlier eras.

Employment is a relationship between two parties, usually based on a contract where work is paid for, where one party, which may be a corporation, for profit, not-for-profit organization, co-operative or other entity is the employer and the other is the employee. Employees work in return for payment, which may be in the form of an hourly wage, by piecework or an annual salary, depending on the type of work an employee does or which sector they are working in. Employees in some fields or sectors may receive gratuities, bonus payment or stock options. In some types of employment, employees may receive benefits in addition to payment. Benefits can include health insurance, housing, disability insurance or use of a gym. Employment is typically governed by employment laws, organisation or legal contracts.

Endogenous growth theory economic theory

Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces. Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic growth. The theory also focuses on positive externalities and spillover effects of a knowledge-based economy which will lead to economic development. The endogenous growth theory primarily holds that the long run growth rate of an economy depends on policy measures. For example, subsidies for research and development or education increase the growth rate in some endogenous growth models by increasing the incentive for innovation.

Productivity describes various measures of the efficiency of production. Often, a productivity measure is expressed as the ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit of input, typically over a specific period of time. Most common example is the (aggregate) labour productivity measure, e.g., such as GDP per worker. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and/or data availability. The key source of difference between various productivity measures is also usually related to how the outputs and the inputs are aggregated into scalars to obtain such a ratio-type measure of productivity.

Articles in economics journals are usually classified according to the JEL classification codes, a system originated by the Journal of Economic Literature. The JEL is published quarterly by the American Economic Association (AEA) and contains survey articles and information on recently published books and dissertations. The AEA maintains EconLit, a searchable data base of citations for articles, books, reviews, dissertations, and working papers classified by JEL codes for the years from 1969. A recent addition to EconLit is indexing of economics-journal articles from 1886 to 1968 parallel to the print series Index of Economic Articles.

Development theory

Development theory is a collection of theories about how desirable change in society is best achieved. Such theories draw on a variety of social science disciplines and approaches. In this article, multiple theories are discussed, as are recent developments with regard to these theories. Depending on which theory that is being looked at, there are different explanations to the process of development and their inequalities

Human development is the science that seeks to understand how and why the people of all ages and circumstances change or remain the same over time. It involves studies of the human condition with its core being the capability approach. The inequality adjusted Human Development Index is used as a way of measuring actual progress in human development by the United Nations. It is an alternative approach to a single focus on economic growth, and focused more on social justice, as a way of understanding progress.

Outline of economics Overview of and topical guide to economics

The following outline is provided as an overview of and topical guide to economics:

Education economics academic discipline

Education economics or the economics of education is the study of economic issues relating to education, including the demand for education, the financing and provision of education, and the comparative efficiency of various educational programs and policies. From early works on the relationship between schooling and labor market outcomes for individuals, the field of the economics of education has grown rapidly to cover virtually all areas with linkages to education.

The following outline is provided as an overview of and topical guide to social science:

National human resource development is the planned and coordinated process of enhancing human resources in one or more political states or geographic regions for economic and/or social purposes. NHRD has been recognized as a policy priority and undertaken as an activity by various divisions of the United Nations, national country governments, organizations involved in international development,. Specific human resources targeted by NHRD policy or practice typically include personal characteristics like knowledge, skills, and learned abilities and aspects of physical and psychological wellbeing; examples of NHRD interventions include ensuring that general education curricula include knowledge critical to employability and wellbeing, assisting employers in implementing effective on-the-job training programs that promote both greater effectiveness and workplace empowerment, and working to benefit specific populations by, for example, aligning vocational education and training with maternal health services and nutritional support.

References