Human capital refers to the value human beings contribute towards achieving the set goals of a given organization.
In other words, human capital is the value that human beings possess in the form of skills and abilities which can then be used to produce a desired output.
Examples of human capital include knowledge, qualifications, education, expertise, work ethic, technical skills, communication skills, and work ethic.
These qualities can be considered as “assets” which means they have the potential to generate a profitable or satisfying output through human labor.
Early modern proponents of the concept of Human Capital were Schultz and Becker in the 1960s. They are credited for the Human Capital Theory. Before them, Karl Marx had theorized that people traded their “labor power” in exchange for income.
Human Capital in Sociology – Definition and Explanation
In his paper titled The Complementary Roles of Human and Social Capital, Tom Schuller submits that:
“Human capital focuses on the economic behavior of individuals, especially on the way their accumulation of knowledge and skills enables them to increase their productivity and their earnings and in so doing, to increase the productivity and wealth of the societies they live in.”
Felix Maringe in International Encyclopedia of the Social and Behavioral Sciences (2015), supports this notion that the fundamental argument for investing in education is that it leads to economic growth through increased productivity, social stability, and healthier lifestyles.
In other words, a continuous investment in education and skills will result in a flourishing society through increased productivity.
The emphasis here is on the economic value of the acquired education, skills and knowledge.
Apart from education, health is a key driver of development. For example, countries that suffer from limited or unequal access to health or educational resources also suffer from depressed economies.
Human Capital Examples
- Health – This is the physical and mental well-being of an individual.
- Education – Refers to the knowledge acquired through formal or informal education.
- Skillset – These are technical or special skills that are necessary in solving problems.
- Intelligence – This can be in the measured as Intelligence (IQ), Emotional Intelligence (EQ) and Social Intelligence.
- Punctuality – This refers to the additional quality of being time conscious.
- Technical Skills – These are the hard skills employees bring to the workforce, such as their ability to operate machinery, program a computer, write project reports, and so on.
- Communication Skills – This refers to your ability to communicate, usually in a professional setting, and includes email etiquette, public speaking, and so on.
- Mindset – This generally refers to your levels of positivity and resilience when working on tasks.
- Productivity – The more value a worker can fit into an hour of work, the more productive they are. This is a central measure of human capital.
- Loyalty – This refers to the level of support or allegiance the employer has to the company. A loyal employee will be more inclined to work hard and stay with the company longer.
- Leadership Skills – As an employee works their way up the ranks in their career, they will increasingly need to demonstrate their ability to lead lower-ranked emplyees.
- Work Ethic – This refers to a person’s moral commitment to their job. A person with work ethic will follow the rules, do their best at work, and respect their place of employment.
- Experience and Expertise – A person’s experience and expertise tends to correlate with their productivity, a shorter learning curve in a new job, and ability to identify efficiencies.
- Interpersonal /Teamwork Skills – In contemporary service-based workplaces, ability to communicate with both clients and colleagues is increasingly important.
- Digital Literacy – Ability to work with computers is increasingly important in 21st Century workplaces.
The physical and mental well-being of a person is one of the most important aspects of human capital.
This is because a fully healthy individual can add value to the society or organization by utilizing all the other skills and knowledge listed in the previous section.
Health is a kind of human capital as well as an input to producing other forms of human capital (Hoyt Bleakley, 2010). Being unhealthy depresses the ability to work productively and/or the ability and incentives to invest in human capital.
As a result, every other human capital investment is ultimately dependent on the health condition of the person. Without physical, emotional and mental fitness, the majority, if not all, of the human capital functions are essentially worthless.
General or specialized knowledge are the products of formal or/and informal education.
Education is a vital asset of human capital as it facilitates the transfer and preservation of information or knowledge.
From early childhood learning to the highest level of education, the main goal of education is to acquire knowledge, which is a necessity for simple, everyday human life and even the most sophisticated tasks and projects.
Leroy Almendarez (2010) is of the notion that the human capital theory rests on the assumption that formal education is instrumental and necessary to improve the productive capacity of a population.
In short, human capital theorists argue that an educated population is a productive population.
Another product of education as a function of human capital is the ability to communicate effectively. Nowadays, communication is considered a necessary life skill.
In addition to education, specialized skills are also a valuable form of human capital.
There are different types of skills which range from technical, analytical, decision-making and problem-solving skills.
All these, when coordinated, are essential for an organization to attain its set goals. in today’s business world, phrases like ‘skilled,’ ‘semi-skilled,’ and ‘unskilled’ are often used to describe the various levels of skillsets in any given field. For example, ‘skilled computer programmer’ or ‘unskilled general workers.’
Intelligence can be described as the measure of one’s intellectual abilities. In psychology, are three common types of intelligence namely, Intelligence quotient, emotional intelligence and social intelligence.
- Intelligence quotient (IQ) refers to one’s ability to solve complex math problems, comprehension and memorizing things.
- Emotional intelligence refers to the ability to interact with other human beings in a peaceful and mutually respectful manner.
- Social intelligence quotient measures a person’s ability to create and maintain connections with other human beings in a social setup, otherwise known as “networking.” Creativity may also fall under the category of intelligence as intellectual or cognitive capital.
Time awareness, like communication, is an integral part of the production process. Time is the primary measure of progress and, ultimately, value.
One might be familiar with the common statement; “time is money.” Therefore, a punctual workforce translates to efficiency and timely achievement of set goals. this makes punctuality a critical human capital.
Criticism of Human Capital Theory
While there has been a widely accepted consensus among scholars, institutions and governments that human capital is a necessary aspect for productivity, it has not been totally immune to criticism.
- Questionable correlation between education and productivity: Simon Marginson (2019) argues that the Human capital theory assumes a direct, single and linear passage between education and productivity without demonstrating how exactly education augments productivity.
- Human capital in capitalist societies is classist: There is not enough explanation for the disparity in earnings between white-collar and blue-collar workers. Generally, blue-collar workers have very high value (human capital) but relatively low wages.
- Human value shouldn’t be distilled to their productivity: Another criticism would perhaps come from a moral point of view. According to German Philosopher, Immanuel Kant, there is need to always respect humans as autonomous beings, not objects. For Kant, it is wrong to use human beings as ‘means to an end.’ By considering human beings as ‘capital’, organizations are, in a way, objectifying them, using them as means to achieve their goals and this can be considered morally reproachable from a Kantian perspective.
However, in spite of these criticisms, human capital is still considered a useful asset in influencing productivity and human progress across different sectors.
This is why communities and governments are still heavily investing in education, health and development of diverse skills in their societies.
Other Forms of Capital in Sociology
Education and health tend to be the most prominent forms of human capital investment. In many organizations, human capital is considered an asset as it contains value that can be positively tapped to influence productivity.
In capitalist thought, this productivity transmutes into better and healthier standards of living.
Almendarez, L. (2010). Human Capital Theory: Implications for Educational Development. Paper presented at the Second conference of Belize Country Conference November, 2010. University of West Indies, Kingston, Jamaica.
Bleakley H. (2010). Health, Human Capital, and Development. Annual review of economics, 2, 283–310. https://doi.org/10.1146/annurev.economics.102308.124436
Goldin, C. (2016). Human Capital. In C. Diebolt & M. Haupert (eds.), Handbook of Cliometrics. Berlin: Springer-Verlag. doi: https://doi.org/10.1007/978-3-642-40406-1_23
Maringe, F. (n.d.). Human capital theory. Human Capital Theory – an overview | ScienceDirect Topics. Retrieved October 24, 2022, from https://www.sciencedirect.com/topics/social-sciences/human-capital-theory
Marginson, S. (2019). Limitations of human capital theory. Studies in Higher Education. 44(2): 287-301 doi: https://eric.ed.gov/?id=EJ1203231