Write a short note on human capital. Guysss I Nedd it soon For My Project !
Answers
Human capital is the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.[1] Human capital theory is closely associated with the study of human resources management as found in the practice of business administration and macroeconomics. The original idea of human capital can be traced back at least to Adam Smith in the 18th century. The modern theory was popularized by Gary Becker, an economist and Nobel Laureate from the University of Chicago, Jacob Mincer, and Theodore Schultz. As a result of his conceptualization and modeling work using Human Capital as a key factor, the Nobel Prize for Economics, 2018, was awarded (jointly) to Paul Romer who founded the modern innovation-driven approach to understanding economic growth.
In the recent literature, the new concept of task-specific human capital was coined in 2004 by Robert Gibbon, an economist at MIT, and Michael Waldman, an economist at Cornell. The concept emphasizes that in many cases, human capital is accumulated specific to the nature of the task (or, skills required for the task), and the human capital accumulated for the task are valuable to many firms requiring the transferable skills. This concept can be applied to job-assignment, wage dynamics, tournament, promotion dynamics inside firms, etc.
Human capital refers to the production factors, coming from human beings, we use to create goods and services. Our knowledge, skills, habits, and social and personality attributes all form part of the human capital that contributes to the creation of goods and services. Our creativity also contributes. Factors of production are the four inputs required for the production of goods and services.
In other words, it is the collection of all our resources. It comprises all our knowledge, abilities, talents, skills, intelligence, training, judgment, and experience. It also includes our wisdom, individually, and collectively.
In a national economy, the term refers to how its population contributes towards wealth creation.
Capital refers to things made by humans that make other things, like machinery and equipment. Human capital may refer to investments made into human beings to improve production, like education, skills, experience, etc.
Human capital, alongside structural capital and relational capital, make up knowledge capital. In today’s economy, which is shifting towards a knowledge economy, the importance of human capital is growing rapidly.
“Human capital is available to generate material wealth for an economy or a private firm. In a public organization, human capital is available as a resource to provide for the public welfare.”
The term contrasts with social capital. Social capital looks at the value of the network of relationships between people, groups, and entities.
Human capital – our value throughout our career
Human capital also refers to the value of a person for a company. Specifically their value regarding being able to produce goods or provide services during the time span of their career.
Putting a monetary value directly on human capital is not possible. However, businesses and economists commonly measure the value of human capital as the current value of an individual’s future wage and salary income.
For example (example quoted from the Financial Times), let’s suppose Mary Smith began her 45-year career with a starting salary of $40,000. We’d expect her salary to increase annually by 3% (average). Therefore, using an 8% rate for the time value of money, her human capital at the beginning of her career would be $705,224.
The human capital value of most college graduates exceeds $1 million.
As we get older, our human value rises. It rises because over time we acquire more knowledge and skills. However, human capital value declines because we are closer to retirement as we get older.
When people retire and give up any future employment, their human value drops to zero.
This type of capital is our single most valuable asset. We should all protect it with disability income insurance and life insurance.
Examples of human capital include a professional football (US: soccer) player’s ability to score goals and a software engineer’s skill in writing computer programs. It also includes an opera singer’s beautiful voice and a doctor’s accuracy and speed in diagnosing ailments in patients.
Two kinds of human capital
There are two kinds of human capital: general and specific.
General: this refers to knowledge and skills that several different employers find useful. Examples include expertise in accountancy, marketing, or personnel management.
Specific: skills that only one employer might be interested in. For example, John Doe Cranes Inc. has proprietary equipment that can only be operated by people with special training. Therefore, those with that training will only be of interest to John Doe Cranes Inc. Additionally, people with those skills will just be interested in crane companies.
Human resource development, part of human resource management, involves training and developing employees. It is an important factor in maintaining competitiveness.
Warren Buffett, an American business magnate, investor, and philanthropist, said the following:
“Investing in yourself is the best thing you can do. Anything that improves your own talents, nobody can tax it or take it away from you.”
“They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen.”
“But if you’ve got talent yourself, and you’ve maximized that talent, you’ve got a tremendous asset that can return ten-fold.”