What is Human Capital?

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Human capital is a simple concept on the surface, but understanding all of the factors involved and how to effectively apply them can be a real challenge for companies. Essentially, this term describes the quantifiable economic value of employees in the context of business operations. Since its introduction decades ago, this concept has been expanded and implemented in commercial operations across the United States and around the world. Many business leaders believe that it is an essential component for commercial success across various industries, although there are plenty of different ideas about how to best accomplish this.

History of the Concept

The concepts outlined in these theories aren’t necessarily new, but they were first put into modern form in a published paper authored by economics researcher Theodore Schultz in the 1960s. The original paper, titled “Human Capital: Policy Issues and Research Opportunities,” provides a detailed description and delineation of the factors that impact employee value. It also indicates how these factors correlated to long-term success in commercial enterprise as well as methodology for implementation.

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The Basics of Employee Value

Rather than treat all labor as an equal asset, this perspective instead focuses on the differential in value based on education, experience, and accommodation in the workplace. The basis of the theory is that investing in individual employees can yield significant returns for companies much like investing money into new equipment or properties. This concept can be applied to almost any level of an organization, from entry-level or temporary employees all the way up to senior management and leadership positions.

Implication for Human Resources

Some of the initiatives associated with employee capital have the potential to disrupt many modern workplace institutions and traditions, including the conventional role of human resources. Rather than existing solely to protect companies from liability, HR departments can also play a crucial role in increasing the economic value of workers, according to a recent Forbes article. Businesses that embrace this mentality and fully utilize their HR personnel may be able to seize opportunities that provide a competitive advantage.

How Businesses Can Shift Their Priorities

The most obvious ways that companies increase the value of their employees is through training and education opportunities. Usually, this extends beyond basic job training to include opportunities that allow workers to broaden their horizons and increase their productive potential. There is no perfect methodology for implementing these ideas, so companies often have to tailor their strategies to fit their size, location, industr, and specific operations. Prioritizing the human element can also attract talent to an organization by creating a work environment that also provides value to employees.

Modern companies face numerous challenges in their quest to create a stable work environment that is reliably profitable. Adapting operations and services to keep up with rapidly-evolving technology and regulations can be overwhelming on its own. However, understanding the true value of human capital and finding ways to increase it can be one of the single most important things a company can do to increase its chances of long-term scucess.

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