What is Human Capital?

Definition: Human capital is an economic concept that analyze human resources as a resource that produces income. It is a notion that categorize talent and skills as assets that can be developed and enhanced to get more value from them.

What Does Human Capital Mean?

The term human capital was invented by Theodore Schultz, a University of Chicago economist that defined the workforce of any given company as a precious resource that had to be build up and nurtured in order to increase its profitability and productiveness. By developing training and educational programs within personnel, the company can further develop their skills or equip teach them new abilities that will allow them to do their job more effectively.

These programs are classified as an investment, even if they are not reflected as such in the balance sheet. Since it is impossible to establish a value for the human capital, it is considered to be an intangible asset that all companies possess. Nevertheless, investing in education and training is not always profitable. The employee’s loyalty and commitment with the company will determine if the investment is worthwhile, since some staff members can depart from the company after the educational programs are concluded, therefore reducing the company’s return on investment.

Example

Goliat Systems is a web hosting company that offer its services to small and mid-size businesses desiring a presence on the internet. The company is currently developing its Technical Support Team and the managers decided it would be beneficial to hire a Customer Service Consultant to train them to serve clients more productively. Goliat is a company that is recognized for its ongoing efforts to further develop its personnel, aiming to develop their potential as much as possible.

This investment policy has made Goliat one of the top hosting supplier in its market segment, with more than 30% of market share within the U.S. market. Their goal is to acquire at least 50% of the market through an outstanding Technical Support feature that will increase the company’s credibility among the tech community.