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Human capital

Svet Alina Group: 109A

"The most valuable of all capital is that invested in human beings. Alfred Marshall, Principles of Economics

Human capital is the stock of

competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.

Human capital is a key for business growth and the growth of an economy.

Human capital theory

Human Capital theory has been proposed by Schultz (1961) and developed extensively by Becker (1964). It suggests that education or training raises the productivity of workers by imparting useful knowledge and skills, hence raising workers future income by increasing their lifetime earnings. It postulates that expenditure on training and education is costly, and should be considered an investment since it is undertaken with a view to increasing personal incomes.

Sources of human capital:

Innate ability Schooling


Pre-labour market inuences

The method to create the human capital can be categorized into two types:
The first is to utilize human as labor force in the classical economic perspective. This meaning depicts that economic added-value is generated by the input of labor force as other production factors such as financial capital, land, machinery and labor hours.

The other is based on the assumption that the investment of physical capital may show the same effectiveness with that of human capital on education and training. The human capital expansively includes the meaning of human as creator who frames knowledge, skills, competency, and experience originated by continuously connecting between self and environment.

Building human capital is clearly a complex challenge requiring actions at three levels:
Firstly, the government which has an important role to play in ensuring that policies and institutions succeed in linking skills to productivity, employment, and development. Secondly, enterprises have role in providing workplace-based learning and training programmes that developing enterprise specific competencies.

Thirdly, individuals also have a responsibility for their own development through further education, training and lifelong learning opportunities.

Human capital investment

Human capital investment is the process companies use to develop employees. Businesses invest in employee training to improve business operations, which increases overall employee efficiency. Human capital investments such as education and training are, therefore, a main concern for individuals, firms and governments. It is extremely important in order for a business to thrive in today's marketplace, and also for economic improvement. The most important aspects of a company are great products, great service, great relationships and a solid reputation. Without great people, none of these can exist.

The importance of Human capital

Human capital is the most valuable asset to any organization. Employing individuals who have the necessary expertise, judgment, and ability to function within their assigned roles allows the business to operate at maximum efficiency. Human capital is generally considered as a positive contributor in the economic growth.

The quantity and quality of human capital is essential to the operation of just about any type of public or private enterprise, prosperity and competitiveness of nations.