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What is human capital and how is it used?

What is human capital and how is it used?

Human capital is a broad term that describes an employee's knowledge, experience, and skills. In the fields of finance and economics, the concept of human capital is relatively new.

 It states that companies have an incentive to look for productive human capital and add to the human capital of their existing employees. In other words, human capital is a concept that recognizes that working capital is not homogeneous.

In the 1960s, economists Gary Becker and Theodor Schultz noted that education and training are investments that can increase productivity. As more and more physical capital accumulated in the world, the opportunity cost of attending school has declined. Education has become an increasingly important component of the workforce. The term has also been adopted by corporate finance and has become part of intellectual capital.

Intellectual and human capital are seen as renewable sources of productivity. Organizations try to grow these sources, hoping for added innovation or creativity. Sometimes a business problem requires more than just new cars or more money.

A possible downside of too much reliance on human capital is that it is portable. Human capital always belongs to the employee, not the employer. Unlike structural capital equipment, a human worker can leave the organization. Most organizations take steps to support their most valuable employees so they don't leave for other firms.

Not all economists agreed that human capital directly increases productivity. In 1976, Harvard economist Richard Freeman believed that human capital only acted as a signal of talent and ability; real performance came later through training, motivation, and capital equipment.He came to the conclusion that human capital wasn't really an element of production.

What causes human capital to depreciate?

Reads about what life events can cause an employee's human capital to depreciate, both in absolute terms and in comparison to other employees.

How do managers measure human capital?

Learn investing in Penny Stocks (ADAT, ANAD) hat human capital is, how managers measure it, and how managers measure the return on investment in human capital to value their investments.

How do firms improve the human capital of their employees?

Learn what human capital is, how a firm can benefit from improving human capital, and how a firm can improve the human capital of its employees.