The term human capital was invented by Theodore Schultz, a University of Chicago economist that defined the workforce of any given company as a precious resource that had to be built up and nurtured in order to increase its profitability and productivity. By developing training and educational programs within personnel, the company can further develop their skills or equip teach them new abilities that will allow them to do their job more effectively. These programs are classified as an investment, even if they are not reflected as such in the balance sheet. Since it is impossible to establish a value for the human capital, it is considered to be an intangible asset that all companies possess. Nevertheless, investing in education and training is not always profitable. The employee’s loyalty and commitment with the company will determine if the investment is worthwhile, since some staff members can depart from the company after the educational programs are concluded, therefore reducing the company’s return on investment.
In a nutshell :
- Human capital is an intangible asset not listed on a company's balance sheet.
- Human capital is said to include qualities like an employee's experience and skills.
- Since all labor is not considered equal, employers can improve human capital by investing in the training, education, and benefits of their employees.
- Human capital is perceived to have a relationship with economic growth, productivity, and profitability.
- Like any other asset, human capital has the ability to depreciate through long periods of unemployment, and the inability to keep up with technology and innovation.