By: Tina Samuels
When people talk about capital, they're usually referring to goods that help a service or company deliver on their product. Capital can be money, durable goods, or even people. A company cannot make progress without employees. Employees are the heart of a business, without them there's no way that any product or service will reach the consumer.
The definition of human capital can be summarized as the collective of knowledge and skills possessed by employees. This is a basic definition that encompasses a larger aspect of what an employee is truly worth in relation to the company. Not counting personal loyalty to the company, in pragmatic terms it must be considered the actual knowledge, skills, and expertise of any employee.
Investing In Human Capital
When we speak of investing in human capital they mean hiring, training, and nurturing employees. Imagine a company as a garden. The business plan designs the plot, setting up an office tills the soil, and hiring quality employees is planting seeds. To get the most return or harvest, these seeds must be fertilized, and then cared for. Gardeners do not walk away from their plots and just hope for the best. This encourages growth of weeds, choking out the fruitful plants.
The job of human resources or managers is to cultivate and nurture these employees. Create a bountiful harvest of expertise among employees. This can be done through various methods. First, offer training to new employees. Second, once employees have finished their training, partner them with experienced employees to learn the ropes. By working in a team with established employees that have a good record, the new staff member learns the ins and outs of their job. Partnering with a ‘good citizen’ staff member can impress the good qualities of that veteran staff member on the new one.
Increasing the level of education for employees is another key strategy to improving the worth of your human capital. Some employers offer training programs during the year for their workers. This increases the knowledge of the job. But what if your employees want to progress up the career ladder? Other employers offer incentives for staff that take college courses in their field. Some go as far as paying for the courses. While you can't ensure that the employee will stay with your company forever, you can have the employees that enter employer-paid college course programs sign a contract. These contracts usually stipulate that the employee will continue to work for the employer for a set period of time after earning their degree.
Encouraging your employees with career building courses, on site training, and rewards for good work can go a long way to nurturing your human capital.
Why Is It Important?
Human capital is important because without employees a business would grind to a halt. While independent contractors or single person businesses do well, for companies that rely on employees, without human capital they would go bankrupt. If a company cannot supply their services or products, where will their profit come from?
Employees are the backbone and the life-blood of business. For countries where there is a lot of people - through immigration or by birth - human capital is the most important product. This human capital can be made more lucrative by the government helping ensure the education of all citizens. When human capital has a high worth the country increases its standard of living and also the gross domestic product. Being competitive globally can only be accomplished through increasing the worth of a resource's like human capital. The United Nations publishes a report annually on human development in nations around the world. This reports covers life expectancy, health, and education.
This is the same for businesses. Investing in the human capital element will increase the worth of a business. When employees are well educated or well trained, they consistently provide better production results. This can mean a more efficient production or a higher quality of work.
On a grand scale, human capital is important not only to business, but to the world. As people rely on technology, their knowledge can increase the items used to make lives easier. Technology and the sciences can enrich lives in countries where basic survival is difficult. By investing in the people who need education the most, their lives are improved, their countries gain ground in the global market, and at the very basis of this aspect – less people die from preventable disease or starvation. More people are added to the global bank of human capital.
No matter what the need, business or global, human capital is a driving force behind every economy. It just isn't possible to have any market in any form without people working on it. Recently there have been efforts to link education and human capital data together by linking unemployment data with student loan data in the United States. This is said to help find the problems behind mismatching of employers to employees. The data may point to human capital being too specific in job skills, creating a job to education mismatch in the market.
One interesting note is that Karl Marx spoke of human capital long before today's market existed. Marx believed that the only way human capital could have an increased 'worth' was to have an excess or surplus value. This means that a person would need to outwork others in his job or field to continue to have a large worth to his employer.