human capital

(noun)

Human capital is the stock of competencies, knowledge, and social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural, and psychological complexity as they interact in explicit and/or economic transactions.

Examples of human capital in the following topics:

  • Development of Human Resources

    • "Human capital" is sometimes used synonymously with human resources, although human capital typically refers to a more narrow view (i.e., the knowledge the individuals embody and can contribute to an organization).
    • Human resources development (HRD) as a theory is a framework for the expansion of human capital within an organization through the development of both the organization and the individual to achieve performance improvement.
    • Training and development (TD), the development of human expertise for the purpose of improving performance
    • Organization development (OD), empowering the organization to take advantage of its human resource capital.
    • TD alone can leave an organization unable to tap into the increase in human, knowledge, or talent capital.

  • HR Metrics

    • The roles of human resource programs are to manage the employees of companies to increase the human capital in a company.
    • "The business world is dominated by people who look at metrics, and the HR world needs to play in that space… if you can measure manufacturing efficiency with Six Sigma, why not use similar analytics to measure human capital performance" (Grossman, 2006).
    • A new measure that can be introduced is the measurement of human capital; "human-capital metrics can provide meaningful correlations that help predict behavior and human-capital investment demands well ahead of the annual budget".
    • "HR metrics might measure efficiency, or the time and cost of activities; human-capital metrics measure the effectiveness of such activities.
    • They can range from something simple and standard such as employee turnover to something creative that measures the effects of human capital increases, customer satisfaction increases, etc.

  • Principles of Organization Design

    • Organizational design is more than just an exercise in creating an organization chart as it integrates the human capital resources and the operational processes of an organization and aligns them with its vision, mission, and goals.
    • Staffing or human capital management has become increasingly important as it now represents a potential competitive advantage in the global economy.
    • Good human capital management includes programs that best align individuals with organizational processes and expectations.
    • From the human capital perspective, good organizational design should clearly outline how to group people together to perform their tasks, ensure that all interested parties understand the logic behind the organizational design, and define how the individual's performance contributes to delivering high-quality programs and services to the marketplace.

  • Providing employee voice and influence

    • For one, strong employee voice and influence mechanisms are an important part of a High-Performance Human Resource System in which the human resources of the firm are coordinated and "designed to maximize the quality of human capital in the organization" (Becker & Huselid, 2001).
    • Voice and influence mechanisms allow employees to give input and to contribute their expertise to business success; these mechanisms allow firms to get the most benefit from the skills of their human capital.
    • Many different participation systems can be implemented to authentically get employee input and to capitalize on the benefits associated with employee influence.
    • In this way, an organization can attend to its most important stakeholders, the employees, and garner return on its investment in its human capital.

  • Additional costs that result from waste

    • Expenses associated with laying off employees (or negative job growth in general) include loss of investment in human capital and skills (particularly in individuals that have been unemployed for a long time), social and economic deprivation (rises in crime, depression, divorce, family break-ups, poor health, lower life expectancy, etc.), and a reduction in regional and national economic growth potential (particularly from the one–two punch of fewer tax revenues along with increased government spending designed to spur growth).
    • Stuart Hart, author of Capitalism at the Crossroads and a pioneer in thefield of ‘Inclusive Commerce', discovered through his research that most business strategies focus exclusively on the 800 million or so people that make up the industrial world while effectively ignoring the 4–5 billion people that comprise the bottom of the economic pyramid.
    • (Hart, Stuart, Capitalism at the Crossroads) Contrary to popular belief, the world's poorest countries have had zero or negative economic growth since the early 1980s and the years between 1990 and 1999 mark the slowest growing decade the world economy has seen in the past 40 years.

  • Defining Globalization

    • Globalization is the process by which the international exchange of goods, services, capital, technology and knowledge becomes increasingly interconnected.
    • This empowers domestic economies to gain a larger array of products, services, human capital, investment, and knowledge through leveraging external markets.
    • What minimized globalization historically was the enormous time and capital investment in travel, creating 'trade spheres' around countries/civilizations that demonstrated potential trade proximity.

  • Ethical Barriers

    • Nevertheless, countries continue to face challenges around ethical trading and business practices, especially regarding economic inequalities and human rights violations.
    • Capital markets involve the raising and investing money in various enterprises.
    • Although some argue that the increasing integration of these financial markets between countries leads to more consistent and seamless trading practices, others point out that capital flows tend to favor the capital owners more than any other group.
    • Likewise, owners and workers in specific sectors in capital-exporting countries bear much of the burden of adjusting to increased movement of capital.
    • The anti-globalization movement is a worldwide activist movement that is critical of the globalization of capitalism.

  • Equity Finance

    • The equity, or capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders.
    • Firms need to acquire capital from others to operate and grow.
    • From a firm's perspective, they must pay for the capital it obtains from others, which is called its cost of capital.
    • This theory is linked to observation of human behavior and logic: capital providers expect reward for offering their funds to others.
    • If an investment's risk increases, capital providers demand higher returns or they will place their capital elsewhere.

  • The Disadvantages of Mixed Economies

    • Marxian socialists argue that because social democratic programs retain the capitalist mode of production they also retain the fundamental issues of capitalism, including cyclical fluctuations, exploitation and alienation.
    • Social democratic programs intended to ameliorate capitalism, such as unemployment benefits or taxation on profits and the wealthy, create contradictions of their own through limiting the efficiency of the capitalist system by reducing incentives for capitalists to invest in production.
    • Others contrast social democracy with democratic socialism by defining the former as an attempt to strengthen the welfare state and the latter as an alternative socialist economic system to capitalism.
    • The democratic socialist critique of social democracy states that capitalism could never be sufficiently "humanized" and any attempt to suppress the economic contradictions of capitalism would only cause them to emerge elsewhere.

  • Socialism and Planned Economies

    • In socialism, planning refers to production of use-value directly (planning of production), while in capitalist mixed economies, planning refers to the design of capital accumulation in order to stabilize or increase the efficiency of its process.
    • While many socialists advocate for economic planning as an eventual substitute for the market for factors of production, others define economic planning as being based on worker-self management, with production being carried out to directly satisfy human needs.
    • Most notably, a command economy is associated with bureaucratic collectivism, state capitalism, or state socialism.
    • A socialist economic system would consist of an organization of production to directly satisfy economic demands and human needs, so that goods and services would be produced directly for use instead of for private profit driven by the accumulation of capital.