Factors Affecting Human Capital

An intangible asset, human capital is the workforce a company employs. Human capital is a combination of employee competencies and their commitment to the organization for which they work. According to University of Chicago professor Gary S. Becker, economists may refer to a workforce as “human capital” because their combination of skills, health, values and knowledge are regarded as an asset.

The abilities an individual has and her capability to expand upon them can help her create a positive gain in human capital. Competences are more than just skills because employees have the power to gain new knowledge and generate new skills with training. The sharing of competencies does not make them scarcer; instead, the opposite effect occurs. For example, a doctor can gain a level of human capital with training and education, but then develops a greater gain in human capital over time with continued practice and experience. In addition to formal education, a worker can increase her human capital at work, through different experiences and with training. According to Becker, economic growth depends on the abilities of workers to gain new competences through education and training.

One of the most important factors in the development of human capital is knowledge, according to Gordon Marshall, author of “A Dictionary of Sociology.” However, knowledge is only effective when an individual receives an education that does not include incompetent teachers, outdated materials and teaching methods that do not cater to the needs of the student. Becker states that education is an investment in human capital, and individuals in the U.S. with a postsecondary education can earn a higher income. Knowledge can help an individual further increase his competences. When combined with empathy, knowledge can also help generate goodwill, another human capital asset that is intangible.

A company that invests in its employees also places an investment in human capital. When employees receive the tools, support, structure and knowledge needed, they can increase their human capital and adapt better to the changes in their respective industries. Organizational development helps employees strive for a similar goal, create an environment of collaboration and trust and improve problem-solving techniques. Organizational development is an ongoing process that a company can use to create gains in human capital and positive employee development.

Human capital risks can begin with the influence of families. Becker states that parents can affect a child’s level of education, habits, values, work habits and motivation to do well. However, risks in human capital can also happen when a company operates below industry standards. These risks may occur when a company does not meet employee needs or provide the tools necessary to increase productivity. Other risk factors include employee absences, constant group activities that hinder productivity and activities that cause poor work quality or errors.