Human Capital

Term that, in the business context, broadly refers to the value of employees in a manner that assesses them as more than fungible units of production. In assessing human capital, what is being considered is the range of benefits and value that employees, by virtue of their knowledge and their relationships both within an organization and in the broader commercial environment, as well as their goodwill and the goodwill of their friends and family, create for their employer.

The underlying idea is that if businesses consider their human capital as important, then internal actions that increase human capital, for example, training and education, team-building exercises or benefits and treatment that foster employee loyalty and reduce turnover will be easier to justify; the same businesses will press for broader economic changes that foster the growth of human capital in their economies, such as better education and training, health care, etc. The main problem with human capital is that it is difficult to quantify or value objectively, nor can it be listed as an asset on a company balance sheet. The term is closely related and often used interchangeably with Knowledge Capital and Intellectual Capital, though it is in principle different since knowledge capital can be seen as simply a component of both human capital and intellectual capital.

The leading proponent of the concept of Human Capital is the economist/sociologist Professor Gary S. Becker of the University of Chicago, who received the 1992 Nobel Prize for his work and authored Human Capital (Columbia University Press, 1964). Professor Becker’s work focuses to large degree on the broad importance of Human Capital to economies as a whole, in terms of its impact on economic growth and standards of living.

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