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. In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services Fungibility is the property of a good or a Commodity whose individual units are capable of mutual substitution In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services Other conceptions of labor dispense with these assumptions.

Contents 1 Origin of concept 2 Knowledge and capital 3 Human capital and labor power 4 Debates about the concept 5 Mobility between nations 6 See also 7 Notes 8 References 9 External links

Origin of concept

Heinz Kremer 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.

“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. On a national level, a country's ability to learn from the leader is a function of its stock of "human capital". Furthermore, human capital can be acquired through formal schooling and on-the-job training.

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. Arthur Cecil Pigou ( November 18, 1877 &ndash March 7, 1959) was an English Economist. 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]

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. Neoclassical economics is a term variously used for approaches to Economics focusing on the determination of prices outputs and income distributions in markets Economics is the social science that studies the production distribution, and consumption of goods and services. Jacob Mincer (1922–2006 was a father of modern Labor economics. 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. Gary Stanley Becker (born December 2, 1930) is an American Economist and a Nobel laureate. 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. In Economics, capital or capital Goods or real capital refers to items of extensive value 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. In Finance, rate of return ( ROR) also known as return on investment ( ROI) rate of profit or sometimes just return, is Thus, human capital is a means of production, into which additional investment yields additional output. Means Of Production is a compilation of Aim 's early 12" and EP releases recorded between 1995 and 1998 Human capital is substitutable, but not transferable like land, labor, or fixed capital.

Knowledge and capital

The introduction of the term is explained and justified 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 can be 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). Labour power (in German Arbeitskraft, or labour force is a crucial concept used by Karl Marx in his critique of capitalist Political economy Capitalism is the Economic system in which the Means of production are owned by private Persons and operated for Profit and where 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. Technology transfer requires knowledgeable managers and engineers who are able to operate new machines or production practices borrowed from the leader. Therefore, a country's ability to learn from the leader is a function of its stock of "human capital". Human capital can be acquired through formal schooling, on the job training, etc.

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. Labour power (in German Arbeitskraft, or labour force is a crucial concept used by Karl Marx in his critique of capitalist Political economy
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 utilize 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. In Economics and Finance, the profit rate is the relative profitability of an investment project of a capitalist enterprise or of the capitalist economy Surplus value is a concept created by Karl Marx in his critique of Political economy, where its ultimate source is unpaid Surplus labor e. , doing work beyond that necessary to maintain their labor power. Labour power (in German Arbeitskraft, or labour force is a crucial concept used by Karl Marx in his critique of capitalist Political economy ^[2] Though having "human capital" gives workers some benefits, they are still dependent on the owners of non-human wealth for their livelihood.

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. Labour economics seeks to understand the functioning of the Market and dynamics for labour. 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 Capital. Some variables that have been identified in the literature of the past few decades include, gender and nativity wage differentials, discrimination in the work place, and socioeconomic status.

The prestige of a credential may be as important as the knowledge gained in determining the value of an education. Credentialism is a negative term used to describe a primary reliance on credentials for purposes of conferring jobs or social status. This points to the existence of market imperfections such as non-competing groups and labor-market segmentation. Market failure is a concept within economic theory wherein the allocation of goods and services by a Free market is not efficient. Overview Labor Market Segmentation is classified as the core Neo-classical economic theory, this Economic system sees a Market labor which consists 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. Unlike most discrimination policies discrimination between, which is the discernment of qualities and recognition of the differences focused here discrimination against is

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. "Social welfare" redirects here For other uses see Welfare A social welfare provision refers to any program which seeks to provide Education encompasses both the Teaching and Learning of Knowledge, proper conduct, and technical competency Health care is the prevention treatment and management of illness and the preservation of mental health through the services offered by the medical, Nursing 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. A pension is a steady income given to a person upon Retirement, typically in the form of a guaranteed annuity.

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.). A brain drain or human capital flight is a large emigration of individuals with technical skills or knowledge, normally due to conflict, lack of opportunity A brain drain or human capital flight is a large emigration of individuals with technical skills or knowledge, normally due to conflict, lack of opportunity Individual capital, also known as human capital, comprises inalienable or personal traits of persons tied to their bodies and available only through their own The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located This article is about the country For a topic outline on this subject see List of basic France topics. The United States of America —commonly referred to as the 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. Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page The economic impact of immigration to Canada is generally considered to be a positive. The economic impact of immigration is an important 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. The 20th century is often revered as the "human capital century" by scholars such as Claudia Goldin. During this period a new mass movement toward secondary education paved the way for a transition to mass higher education. 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. These advances produced a need for more skilled labor, which caused the wages of occupations that required more education to considerably diverge from the wages of ones that required less. This divergence created incentives for individuals to postpone entering the labor market in order to obtain more education. The “high school movement” had changed the educational system for youth in America. With minor state involvements, the high school movement started at the grass-roots level with the help from communities. Particularly the communities with more equal distribution of wealth and more homogeneous population. As a year in high school added more than ten percent to an individual’s income,post-elementary school enrollment and graduation rates increased significantly during the 20th century. The U. S. system of education was characterized for much of the 20th century by a set of virtues that included publicly funded mass secondary education that was open and forgiving, academic yet practical, secular, gender neutral, and funded by small, fiscally independent districts. 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. During the Cold War, the term Communist Bloc (or Soviet Bloc) was used to refer to the Soviet Union and countries it either controlled or that were 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.

This debate resembles, in form, that regarding natural capital. Natural capital is the extension of the economic notion of capital (manufactured means of production to environmental goods and services

See also

• Capital (economics)
• capital accumulation
• Capitalize or expense
• Five Capitals
• Human Capital Management
• Human development theory
• Individual capital
• Instructional capital
• Intellectual capital
• Labour power
• Natural capital
• Not Just For Profit
• Social capital

Notes

References

• 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. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 1560 - The Treaty of Berwick, which would expel the French from Scotland, is signed by England and the Congregation
• 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. The New Palgrave A Dictionary of Economics (1987 is a 4-volume reference edited by John Eatwell, Murray Milgate and Peter Newman 2, pp. 681-90.
• Seymour W. Itzkoff (2003). Intellectual Capital in Twenty-First-Century Politics. Ashfield, MA: Paideia, ISBN 0-913993-20-4

External links

• New papers and articles on human Capital, a free Newsletter edited by the RePEc academic Project
• The Human Capital Institute
• Human Capital Management Blog
• Human Capital, The Concise Encyclopedia of Economics.

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