What Is Human Capital?

What is human capital? Human capital is a concept used by social scientists to describe personal attributes that are useful to the production process. These attributes include employee knowledge, skills, know-how, and good health. They also include incentives systems. Human capital includes both the knowledge and skills of an employee and their education level. As an employer, you can increase your human capital by creating incentives that reward these attributes. Here are some examples of incentives. The first one is a reward system.


The term human capital was first used by Theodore Schultz in 1963 in reference to education. Becker’s theory of human capital states that education and experience add up to income. In a knowledge-driven economy, generation and exploitation of knowledge is a primary path to wealth creation. Knowledge is a powerful tool to improve productivity and increase competences. Moreover, it increases goodwill. Hence, it is important to invest in education and train people to become knowledge-based.

Learning capability is the underlying mechanism of the relationship between social capital and human capital. As a result, organizations with high levels of social capital are more likely to strengthen their learning capability and utilize their resources more effectively, accelerate product renewal, and alter their administrative mode. Developing this capacity requires the organization to invest in a learning environment that fosters human capital. Learning capabilities are the basis of organizational innovation. In order to achieve higher levels of organizational capability, organizations should invest in human and social capital.


While the concept of human capital isn’t as tangible as a physical asset, it is essential for businesses to understand and maximize the value of the skills and talents of their employees. Without the proper training and experience, a worker will be less productive and efficient than someone who does have such skills. Consequently, investing in training workers with limited computer experience can benefit a business in the long run. But how do companies know if they are investing in the right resources?

One key area for policy makers to focus on is the full utilization rate of human capital. Despite the fact that women have made great strides in education and training, there is still a gender gap. In addition to this, the skills of future workers may not be fully utilized. This can lead to underutilization of their skills and cognitive abilities. To compensate for such underutilization, the human capital index can be calculated for 160 countries.


In the Human Capital Theory, medical care, migration, and information on prices are considered to be part of human capital. Healthcare can help to extend a person’s life, reduce the length of sickness, and increase the amount of time a person can work. For example, an individual may experience a week-long illness and recover within two days of receiving antibiotics. That translates to four extra days of work, which increases the economy.

The recent COVID-19 outbreak threatens to erase a decade’s worth of human capital gains. Countries across the world are fighting to contain the virus, save lives, and rebuild their economies. In the United States, most children have been forced to miss school, and one cohort of students may lose $10 trillion in lifetime earnings. Meanwhile, in low and middle-income countries, essential health services are being disrupted and the epidemic may result in even higher numbers of stunted children.

Incentive systems

Incentives systems are designed to motivate employees to work harder and achieve more. There are many types of incentive systems, from those that reward productivity and quality to those that are purely financial. Incentives are used in almost every field of work, from manual labor to management and executive positions. Some common forms are discussed below. Read on to find out which type of incentive system will best suit your company. We will discuss why a specific system will work for your company.

Employee incentives can come in the form of salary increases, profits sharing, and other forms of compensation. They may be part of the compensation structure or above it. Regardless of the type of incentive, it is a good idea to plan them as a part of your human capital strategy. Employee incentives may be based on salary or a percentage of profits before taxes. You may also want to direct a portion of the incentive to a retirement program for employees.

Corporate culture

Experts have identified different forms of corporate cultures and a typology of those cultures, based on a standardized questionnaire. Corporate cultures differ in their approach to authority and inequality. One type is the caring culture; the other is the authority culture. The types are reflected in the characteristics of companies like Whole Foods, Disney, and Zappos. While other types are based on results, safety, and stability, such as those of financial firms GSK and Lloyd’s of London.

Employees don’t necessarily expect perks, but they do appreciate them when offered. While employees do not expect perks, those companies that offer them tend to have higher culture scores. Other factors that predict a higher culture score include company-sponsored social events and team-building exercises. These activities can range from picnics to happy hours. These are relatively inexpensive ways to reinforce the corporate culture. However, companies should not neglect the importance of corporate culture.

Return on investment

Human Capital ROI is a key measurement that determines how much money a company spends on its people. Using a human capital metric can help you see where your human capital spending is outperforming your competitors. Human Capital ROI can be calculated in several ways. For example, it can be calculated in terms of revenue per employee. A high ROI would mean that your workforce costs less than half of what your competitors spend. Other metrics, such as workforce size and cost, can help you measure your ROI as well.

The cost of implementing a training program, for example, must be divided by the value of the additional product that will result from the training. The result is the return on investment of human capital, which is a cost-effective measure of ROI for HR efforts. Using human capital ROI can help HR professionals evaluate the value of their efforts and measure their impact on the bottom line. HR professionals can also subscribe to a weekly newsletter about ROI to stay abreast of developments in human capital.

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