What is Human Capital? Everything You Need to Know
By the time we've been alive two or so decades, many of us will have picked up some skills, possibly a little work experience, hopefully some sense of direction. We might even find we are now reasonably attractive to an employer. We have become human capital.
But what is human capital? Why can’t we just be “staff” or “a potential employee”, or some other designation that doesn't sound so unsavoury that it was once named German Un-Word of the Year? (In 2004, a jury of linguistic scholars voted to banish the word Humankapital from the German lexicon. They said it minimized people's abilities and reduced them to mere economic quantities.)
What is human capital & how did it begin?
Three centuries ago, there lived a political economist called Adam Smith, and to him the key to business success was clear. Production depended on four types of fixed capital: tools, buildings, land and the “acquired and useful abilities of all the inhabitants or members of the society”.
Working humans had become a form of capital, like natural capital or economic capital. But this mechanistic analysis didn’t pass into common usage until after 1928, when English economist Arthur Cecil Pigou immortalized it in a book. "There is such a thing as investment in human capital as well as investment in material capital,” he wrote.
Why human capital is a good thing
In the 1960s, the term human capital was made popular by two American economists, Gary Becker and Jacob Mincer, who used it to describe the mixture of skills, knowledge, experience, habits and personality in each of us that can be put to productive use. At that time people did not know what is human capital or if there's any capital by that name.
Human capital isn't just beneficial to the person involved and the company they work for; countries stand to gain as well. A creative and productive workforce contributes more to the long-term economic success of a nation than virtually any other resource, says the World Economic Forum in its annual Human Capital Report.
The boost to national prosperity is easy to see. This chart shows the close correlation between how much a country invests in its workforce and the strength of its GDP.
