Human capital: Meaning (information, definition, explanation, facts)

Human capital is a way of defining and categorizing peoples' skills and abilities as used in employment and otherwise contribute to the economy. Some economic theories refer to it simply as labour, one of three factors of production, and consider it to be a commodity - easily interchangeable. But other conceptions are more sophisticated. The most well-known application of the idea of "human capital" in economics is that of Jacob Mincer and Gary Becker of the Chicago school. In this view, human capital is like "physical means of production," e.g., factories and machines: one can invest in it (via education, training, medical treatment) and one's income depends partly on the rate of return on the human capital one owns. Thus, human capital is a stock of assets one owns, which allows one to receive a flow of income, which is like interest earned.

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" that equate wages or salaries with interest on human capital. First, 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 (labor-power) and one's very human activity (practice) of working. Second, the free worker cannot sell human capital to realize an income; it's far from being a liquid asset. 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 submit to the authority of an employer who want to hire for a specific period of time. This 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. (See Das Kapital, volume III, ch. 29[1], pp. 465-6 of the International Publishers edition.)

Modern labor economics has criticized the simple Chicago-school theory that 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. This allows the theory to be tautologically true without explaining anything. Often, it is not the education or training that one has which determines the value of one's education, but the prestige of the credential or degree received. Someone who gets a degree from an elite school will likely get a higher income than one from a large government-funded one, even if they have exactly the same knowledge. Others point to the existence of market imperfections (which are especially rampant in labor markets) which imply the existence of non-competing groups or labor-market segmentation. In these theories, the "return on human capital" differs between different labor-market segments. Similarly, discrimination against minority or female employees imply different rates of return on human capital.

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 (and who will likely be willing to pay for it), whereas general human capital (such as literacy) is useful to all employers.

Other analysis, for instance in human development theory, differentiate social trust (social capital), sharable knowledge (instructional capital), and the individual leadership and creativity (individual capital) as three distinct capacities of a human applying him or her self in economic activity. The term human capital in human development theory, thus refers to ambiguous combinations of these. Interactions with the welfare, education and health care systems can be modelled even past retirement (whereas, according to classical and neoclassical analysis, human capital would be zero, as no "labour", "employment" or "goods" are now involved).

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, generally, their early care and education now 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.

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.

The rights of individuals to travel and opportunity, despite some historical exceptions such as the Soviet bloc and it's "Iron Curtain", seem to consistently outweigh the rights of nation-states that nurture and educate them. Thus, the problem continues, and developed nations deny reparations are appropriate, necessary, or effective, as developing nations lose their talent.

This debate resembles, in form, that regarding natural capital.

See also social capital, instructional capital, individual capital, natural capital, capital (economics)