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Encyclopedia > Human capital

Human capital refers to the stock of productive skills and technical knowledge embodied in labor. Many early economic theories refer to it simply as labor, one of three factors of production, and consider it to be a fungible resource -- homogeneous and easily interchangeable. Other conceptions of labor dispense with these assumptions. In economics, factors of production are resources used in the production of goods and services, including land, labor, and capital. ... Fungibility is the degree to which all instances of a given commodity are considered interchangeable. ... Classical economics distinguishes between three factors of production which are used in the production of goods: Land or natural resources - naturally-occurring goods such as soil and minerals. ...

Contents

Origin of concept

Adam Smith defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters). The four types were: 1) useful machines, instruments of the trade; 2) buildings as the means of procuring revenue; 3) improvements of land and 4) human capital. For other persons named Adam Smith, see Adam Smith (disambiguation). ...


“Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labour, and which, though it costs a certain expense, repays that expense with a profit.”


Therefore, human capital (as defined by Smith) and the productive power of labour are both dependent on the division of labour – The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour. There is a complex relationship between the division of labour and human capital.


In short, Smith saw human capital as skills, dexterity (physical, intellectual, psychological, etc) and judgment. Life helps a lot.


A. W. Lewis is said to have begun the field of Economic Development and consequently the idea of human capital when he wrote in 1954 the "Economic Development with Unlimited Supplies of Labour." The term 'Human Capital' was not used due to its negative undertones until it was first discussed by Arthur Cecil Pigou,: "There is such a thing as investment in human capital as well as investment in material capital. So soon as this is recognised, the distinction between economy in consumption and economy in investment becomes blurred. For, up to a point, consumption is investment in personal productive capacity. This is especially important in connection with children: to reduce unduly expenditure on their consumption may greatly lower their efficiency in after-life. Even for adults, after we have descended a certain distance along the scale of wealth, so that we are beyond the region of luxuries and "unnecessary" comforts, a check to personal consumption is also a check to investment [1] Arthur Cecil Pigou (November 18, 1877 – March 7, 1959) was an English economist, known for his work in many fields and particularly in welfare economics. ...


The use of the term in the modern neoclassical economic literature dates back to Jacob Mincer's pioneering article "Investment in Human Capital and Personal Income Distribution" in The Journal of Political Economy in 1958. The best-known application of the idea of "human capital" in economics is that of Mincer and Gary Becker of the "Chicago School" of economics. Becker's book entitled Human Capital, published in 1964, became a standard reference for many years. In this view, human capital is similar to "physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's outputs depend partly on the rate of return on the human capital one owns. Thus, human capital is a means of production, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or fixed capital. Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ... If you have read a couple of research papers in Labor Economics, you would have already came across a couple of Mincerian Equations, where a list of human capital variables as well as others are used to explain how wage is determined in a statistical estimation. ... Gary Stanley Becker (born December 2, 1930) is an economist and a Nobel laureate. ... The Chicago school of economics is a school of thought favoring free-market economics practiced at and disseminated from the University of Chicago in the middle of the 20th century. ... Capital has a number of related meanings in economics, finance and accounting. ... In economics the rate of return on investment refers to the benefits to an investor (the profit) relative to the cost of the initial investment. ... Means of production (abbreviated MoP; German: Produktionsmittel), are the combination of the means of labor and the subject of labor used by workers to make products. ...


Knowledge and capital

The introduction of the term is explained and booger by the unique characteristics of knowledge. Unlike physical labor (and the other factors of production), knowledge is:

  • Expandable and self generating with use: as doctors get more experience, their knowledge base will increase, as will their endowment of human capital. The economics of scarcity is replaced by the economics of self-generation.
  • Transportable and shareable: knowledge is easily moved and shared. This transfer does not prevent its use by the original holder. However, the transfer of knowledge may reduce its scarcity-value to its original possessor.

Human capital and labor power

In some way, the idea of "human capital" is similar to Karl Marx's concept of labor power: to him, under capitalism workers had to sell their labor power in order to receive income (wages and salaries). But long before Mincer or Becker wrote, Marx pointed to "two disagreeably frustrating facts" with theories that equate wages or salaries with the interest on human capital. Karl Heinrich Marx (May 5, 1818 – March 14, 1883) was a 19th century philosopher, political economist, and revolutionary. ... Labor power (in German: Arbeitskraft, or labor force) is a crucial concept used by Karl Marx in his critique of political economy. ... For other uses, see Capitalism (disambiguation). ...

  1. The worker must actually work, exert his or her mind and body, to earn this "interest." Marx strongly distinguished between one's capacity to work, Labour power, and one's very human activity of working.
  2. A free worker cannot sell his human capital to receive money revenues; it is far from being a liquid asset. He does not sell his skills, but contracts to utilise those skills. Even a slave, whose human capital can be sold, does not earn an income him- or herself; instead, the slave-owner gets the income. Under capitalism, to earn income, a worker must agree to the labor conditions (including obedience to the rules and directives) of an employer who wants to hire for a specific period of time.

The latter means that the employer must be receiving an adequate rate of profit from his or her operations, so that workers must be producing surplus-value, i.e., doing work beyond that necessary to maintain their labor power. [2] Though having "human capital" gives workers some benefits, they are still dependent on the owners of non-human wealth for their livelihood. According to Karl Marx, there is a clear distinction between labor and labor-power in economics. ... In economics, the profit rate refers to the relative profitability of an investment project or of a capitalist enterprise or for the capitalist economy as a whole. ... The production of surplus value, from Karl Marxs Capital in Lithographs, by Hugo Gellert, 1934 Surplus value is a concept created by Karl Marx in his critique of political economy, where its ultimate source is claimed to be unpaid surplus labour performed by the worker for the capitalist, serving... Labor power (in German: Arbeitskraft, or labor force) is a crucial concept used by Karl Marx in his critique of political economy. ...


The term appears in Marx's article in the New-York Daily Tribune article "The Emancipation Question," January 17 and 22, 1859, although there the term is used to describe humans who act like a capital to the producers, rather than in the modern sense of "knowledge-capital" endowed to or acquired by humans.[3]


Debates about the concept

Some labor economists have criticized the Chicago-school theory, claiming that it tries to explain all differences in wages and salaries in terms of human capital. The concept of human capital can be infinitely elastic, including unmeasureable variables such as personal character or connections with insiders (via family or fraternity). This theory has had a significant share of study in the field proving that wages can be higher for employees on aspects other than Human Captial. Some variables that have been identified in the literature of the past few decades include, gender and nativity wage deferentials, discrimination in the work place, and socioeconomic status. Labour economics seeks to understand the functioning of the market for labour. ...


The prestige of a credential may be as important as the knowledge gained in determining the value of an education. This points to the existence of market imperfections such as non-competing groups and labor-market segmentation. In segmented labor markets, the "return on human capital" differs between comparably skilled labor-market groups or segments. An example of this is discrimination against minority or female employees. Credentialism is the bias of over-reliance on credentials regardless of qualification. ... Market failure is a term used by economists to describe the condition where the allocation of goods and services by a market is not efficient. ... Manifestations Slavery Racial profiling Lynching Hate speech Hate crime Genocide (examples) Ethnocide Ethnic cleansing Pogrom Race war Religious persecution Gay bashing Blood libel Paternalism Police brutality Movements Policies Discriminatory Race / Religion / Sex segregation Apartheid Redlining Internment Anti-discriminatory Emancipation Civil rights Desegregation Integration Equal opportunity Counter-discriminatory Affirmative action Racial...


Following Becker, the human capital literature often distinguishes between "specific" and "general" human capital. Specific human capital refers to skills or knowledge that is useful only to a single employer or industry, whereas general human capital (such as literacy) is useful to all employers. Economists view firm specific human capital as inherently risky, since firm closure or industry decline lead to skills that cannot be transferred (the evidence on the quantitative importance of firm specific capital is unresolved).


Human capital is central to debates about welfare, education, health care and retirement. ... A physician visiting the sick in a hospital. ... Retirement is the point where a person stops employment completely. ...


Mobility between nations

There is a global debate regarding the fair distribution of human capital. This is most pointed with respect to educated individuals, who typically migrate from poorer places to richer places seeking opportunity, making 'the rich richer and the poor poorer'. When workers migrate, their early care and education generally benefit the country where they move to work. And, when they have health problems or retire, their care and retirement pension will typically be paid in the new country. This article does not cite any references or sources. ...


African nations have invoked this argument with respect to slavery, other colonized peoples have invoked it with respect to the "brain drain" or "human capital flight" which occurs when the most talented individuals (those with the most individual capital) depart for education or opportunity to the colonizing country (historically, Britain and France and the U.S.A.). Even in Canada and other developed nations, the loss of human capital is considered a problem that can only be offset by further draws on the human capital of poorer nations via immigration. However, the economic impact of immigration to Canada can be described as mixed at best. This article is about the emigration term. ... A brain drain or human capital flight is an emigration of trained and talented individuals for other nations or jurisdictions, due to conflict or lack of opportunity or health hazards where they are living. ... Individual capital comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, enterprise, courage, capacity for moral example, non-communicable wisdom, invention or empathy, non-transferable personal trust and leadership. ... For other uses, see United States (disambiguation) and US (disambiguation). ... The economic impact of immigration to Canada is a much-debated topic in Canada. ...


During the late 19th and early 20th centuries, human capital in the United States became considerably more valuable as the need for skilled labor came with newfound technological advancement. New techniques and processes required further education than the norm of primary schooling, which thus led to the creation of more formalized schooling across the nation. This early insight into the need for education allowed for a significant jump in US productivity and economic prosperity, when compared to other world leaders at the time.


The rights and freedom of individuals to travel and opportunity, despite some historical exceptions such as the Soviet bloc and its "Iron Curtain", seem to consistently outweigh the rights of nation-states that nurture and educate them. One must also remember that the ability to have mobility with regards to where people want to move and work is a part of their human capital. Being able to move from one area to the next is an ability and a benefit of having human capital. To restrict people from doing so would be to inherently lower their human capital. During the Cold War, the Eastern Bloc (or Soviet Bloc) comprised the following Central and Eastern European countries: Bulgaria, Romania, Hungary, East Germany, Poland, Albania (until the early 1960s, see below), the Soviet Union, and Czechoslovakia. ...


This debate resembles, in form, that regarding natural capital. Natural capital, as described in the book Natural Capitalism, is a metaphor for the mineral, plant, and animal formations of the Earths biosphere when viewed as a means of production of oxygen, water filter, erosion preventer, or provider of other ecosystem services. ...


See also

Human Capital Management is the art and science of managing an organisations most important asset - its people. ... Human development theory is an economic theory that merges older ideas from ecological economics, sustainable development, welfare economics, and feminist economics. ... Social capital, referring to connections within and between social networks, is a core concept in business, economics, organisational behaviour, political science, public health, and sociology. ... Intellectual capital makes an organization worth more than its balance sheet value. ... Instructional capital is a term used in educational administration, to reflect capital resulting from investment in producing learning materials. ... Individual capital comprises inalienable or personal traits of persons, tied to their bodies and available only through their own free will, such as skill, creativity, enterprise, courage, capacity for moral example, non-communicable wisdom, invention or empathy, non-transferable personal trust and leadership. ... Natural capital, as described in the book Natural Capitalism, is a metaphor for the mineral, plant, and animal formations of the Earths biosphere when viewed as a means of production of oxygen, water filter, erosion preventer, or provider of other ecosystem services. ... Capital has a number of related meanings in economics, finance and accounting. ... Labor power (in German: Arbeitskraft, or labor force) is a crucial concept used by Karl Marx in his critique of political economy. ... Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. ... This article or section does not cite any references or sources. ...

External links

  • New papers and articles on human Capital, a free Newsletter edited by the RePEc academic Project
  • The Human Capital Institute [1]

References

  1. ^ Pigou, Arthur Cecil A Study in Public Finance, 1928, Macmillan, London, p. 29
  2. ^ Marx, Karl. Capital, volume III, ch. 29 pp. 465-6 of the International Publishers edition
  3. ^ The Emancipation Question in New-York Daily Tribune, January 17 and 22, 1859
  • Gary S. Becker (1964, 1993, 3rd ed.). Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. Chicago, University of Chicago Press. ISBN 978-0-226-04120-9.  (UCP descr)
  • Ceridian UK Ltd. (2007). "Human Capital White Paper" (PDF). Retrieved on 2007-02-27.
  • Samuel Bowles & Herbert Gintis (1975). "The Problem with Human Capital Theory--A Marxian Critique," American Economic Review, 65(2), pp. 74-82,
  • Sherwin Rosen (1987). "Human capital," The New Palgrave: A Dictionary of Economics, v. 2, pp. 681-90.
  • Seymour W. Itzkoff (2003). Intellectual Capital in Twenty-First-Century Politics. Ashfield, MA: Paideia, ISBN 0-913993-20-4

  Results from FactBites:
 
Human capital - Wikipedia, the free encyclopedia (1091 words)
Human capital is a way of defining and categorizing peoples' skills and abilities as used in employment and otherwise contribute to the economy.
In this view, human capital is similar to "physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's income depends partly on the rate of return on the human capital one owns.
Human capital is substitutable: it will not replace land, labor, or capital totally, but it can be substituted for them to various degrees and be included as a separate variable in a production function.
Human resources - Wikipedia, the free encyclopedia (1235 words)
The broad term human capital has evolved to contain the complexity of this term, and in macro-economics the term "firm-specific human capital" has evolved to represent the original meaning of term "human resources".
Advocating the central role of "human resources" or human capital in enterprises and societies has been a traditional role of socialist parties, who claim that value is primarily created by their activity, and accordingly justify a larger claim of profits or relief from these enterprises or societies.
An important controversy regarding labor mobility illustrates the broader philosophical issue with usage of the phrase "human resources": governments of developing nations often regard developed nations that encourage immigration or "guest workers" as appropriating human capital that is rightfully part of the developing nation and required to further its growth as a civilization.
  More results at FactBites »

 
 

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