what is human capital 
the term human capital refers to the economic value of a worker s experience and skills human capital includes assets like education training intelligence skills health and other things employers value such as loyalty and punctuality as such it is an intangible asset or quality that isn t and can t be listed on a company s balance sheet human capital is perceived to increase productivity and thus profitability the more investment a company makes in its employees the chances of its productivity and success become higher understanding human capitalan organization is often said to only be as good as its people from the top down which is why human capital is so important to a company it is typically managed by an organization s human resources hr department which oversees workforce acquisition management and optimization its other directives include workforce planning and strategy recruitment employee training and development and reporting and analytics the concept of human capital recognizes that not all labor is equal but employers can improve the quality of that capital by investing in employees this can be done through the education experience and abilities of employees all of this has great economic value for employers and for the economy as a whole since human capital is based on the investment of employee skills and knowledge through education these investments in human capital can be easily calculated hr managers can calculate the total profits before and after any investments are made any return on investment roi of human capital can be calculated by dividing the company s total profits by its overall investments in human capital for example if company x invests 2 million into its human capital and has a total profit of 15 million managers can compare the roi of its human capital year over year yoy in order to track how profit is improving and whether it has a relationship to the human capital investments special considerationshuman capital tends to migrate especially in global economies that s why there is often a shift from developing places or rural areas to more developed and urban areas some economists have dubbed this a brain drain or human capital flight this describes the process that keeps certain areas underdeveloped while others become even more developed there is a strong relationship between human capital and economic growth which is why it can help boost the economy that s because people come with a diverse set of skills and knowledge this relationship can be measured by how much investment goes into people s education some governments recognize that this relationship between human capital and the economy exists and so they provide higher education at little or no cost people who participate in the workforce with higher education will often have larger salaries which means they can spend more like anything else human capital is not immune to depreciation this is often measured in wages or the ability to stay in the workforce the most common ways human capital can depreciate are through unemployment injury mental decline or the inability to keep up with innovation consider an employee who has a specialized skill if they go through a long period of unemployment they may be unable to keep these levels of specialization that s because their skills may no longer be in demand when they finally reenter the workforce an individual s human capital may depreciate if they can t or won t adopt new technology or techniques conversely the human capital of someone who does adopt them will history of human capitalthe idea of human capital can be traced back to the 18th century adam smith referred to the concept in his book an inquiry into the nature and causes of the wealth of nations in which he explored the wealth knowledge training talents and experiences of a nation adams suggested that improving human capital through training and education leads to a more profitable enterprise which adds to the collective wealth of society according to smith that makes it a win for everyone 1in more recent times the term was used to describe the labor required to produce manufactured goods but the most modern theory was used by several different economists including gary becker and theodore schultz who invented the term in the 1960s to reflect the value of human capacities 2schultz believed human capital was like any other form of capital to improve the quality and level of production this would require an investment in the education training and enhanced benefits of an organization s employees 3criticism of human capital theoriesthe theory of human capital has received a lot of criticism from many people who work in education and training in the 1960s the theory was attacked primarily because it legitimized bourgeois individualism which was seen as selfish and exploitative the bourgeois class of people included those of the middle class who were believed to exploit those of the working class the theory was also believed to blame people for any defects that happened in the system and for making capitalists out of workers 