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What is human capital?

Human Capital

Human capital definition refers to the quality of employees as an intangible asset of a business. Examples of human capital include employees’ experience, skills and talents. Although it has a direct relationship with economic growth, productivity, and profitability, it cannot be listed on a company's balance sheet.

Like all other assets, human capital also depreciates with time due to emerging technology, innovations and the employees’ age. Businesses can always strengthen their human capital by investing in training, education and benefits.

To better understand the human capital meaning, let’s look at it through the lens of how human capital affects economic growth.

Human capital is perceived to increase a company’s growth, productivity and profitability. High-quality human capital can boost the economy as a whole. Additionally, a workforce with diverse skills and knowledge often has higher salaries, which converts into higher spending. 

Greg Becker, an American economist, was arguably the biggest pioneer of the human capital theory. In his 1975 paper Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, Becker noted that investing in people could boost the overall productivity of a business.  

On the other hand, human capital assets like education, training, intelligence, skills, health and loyalty are all intangible assets. These assets cannot be listed on a balance sheet, nor compared or measured. 

However, a company or business can make a significant investment in increasing human capital by education or providing opportunities to boost productivity, which could improve profitability.

Managing and measuring human capital is the work of an organisation's human resources (HR) department. They engage in overseeing workforce acquisition, management and optimization, which includes training and development, reporting and analytics

How to invest in human capital?

Human capital risk is the gap between a company’s human capital requirements and existing human capital.

Employers can invest in enhancing employee skills and knowledge through education. This can be easily calculated. The HR managers can calculate the total revenue before and after the investment, and the resulting return on investment (ROI).

Meanwhile, there are different types of human capital such as knowledge capital, social capital and emotional capital. 

  • Knowledge capital

To increase knowledge capital employers can invest in employees’ education such as paying for a masters degree and arranging skill-based workshops. 

  • Social capital

Social capital refers to the employees’ networks and relationships within society. It can be boosted by organising events for employees to socialise, as well as establishing a strong professional network between employees and making sure they are respected members of the society. 

  • Emotional capital

Emotional capital involves employees’ level of emotional intelligence, creativity, problem-solving skills, critical thinking, and other soft skills. The emotional capital can be built by conducting relevant sessions and workshops. For example, organising mental health webinars about topics such as corporate burnout, imposter syndrome, stress resilience, and many more.  

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