In some way, the idea of “human capital” is similar to Karl Marx’s concept of labor power: he thought in capitalism workers sold 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.
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, Labor power, and the activity of working.
2. A free worker cannot sell his human capital in one go; it is far from being a liquid asset, even more illiquid than shares and land. He does not sell his skills, but contracts to utilize those skills, in the same way that an industrialist sells his produce, not his machinery. The exception here are slaves, whose human capital can be sold, though the slave does not earn an income himself.
An employer must be receiving a profit from his operations, so that workers must be producing what Marx (under the labor theory of value) perceived as surplus-value, i.e., doing work beyond that necessary to maintain their labor power.[5] Though having “human capital” gives workers some benefits, they are still dependent on the owners of non-human wealth for their livelihood.
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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.[6]
[edit]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 unmeasurable 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. However, Austrian economist Walter Block theorizes that these variables are not the cause of gender wage gap. Thomas J. DiLorenzo summarizes Block’ s theory well: “marriage affects men and women very differently in terms of their future earning abilities, and is therefore an important cause of the male/female wage gap”.[7] Block alleges that there is no wage gap between unmarried men and women, but married men salaries are usually more than married women. These wages, he contends, are the opportunity cost of being a mother and raising children.[8]
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.
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 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).
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Human capital is central to debates about welfare, education, health care, and retirement..
[edit]Mobility between nations
Educated individuals often migrate from poor countries to rich countries seeking opportunity. This movement has positive effects for both countries: capital-rich countries gain an influx in labor, and labor rich countries receive capital when migrants remit money home. The loss of labor in the old country also increases the wage rate for those who do not emigrate. 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.
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.).
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. Theeconomic impact of immigration to Canada is generally considered to be positive.
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, particularly the communities with the most homogeneous populations. 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.
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The U.S. system of education was characterized for much of the 20th century by publicly funded mass secondary education that was open and forgiving[citation needed], academic yet practical[citation needed], secular[citation needed], 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. It is suggested by several economists, that there is a positive correlation between high school enrollment rates and GDP per capita. Less developed countries have not established a set of institutions favoring equality and role of education for the masses and therefore have been incapable of investing in human capital stock necessary for technological growth.
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 transcend the countries in which they are educated. 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.
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This debate resembles, in form, that regarding natural capital.
[edit]Classification
Human capital is an intangible asset as it is not owned by the firm that employs it. Basically, human capital arrives at 9am and leaves at 5pm. Human capital when viewed from a time perspective consumes time in one of key activities:
1. Knowledge (activities involving one employee),
2. Collaboration (activities involving more than 1 employee),
3. Processes (activities specifically focused on the knowledge and collaborative activities generated by organizational structure – such as silo impacts, internal politics, etc.) and
4. Absence (annual leave, sick leave, holidays, etc.).
[edit]Risk
When human capital is assessed by activity based costing via time allocations it becomes possible to assess human capital risk. Human capital risk occurs when the organization operates below attainable operational excellence levels. For example, if a firm could reasonably reduce errors and rework (the Process component of human capital) from 10,000 hours per annum to 2,000 hours with attainable technology, the difference of 8,000 hours is human capital risk. When wage costs are applied to this difference (the 8,000 hours) it becomes possible to financially value human capital risk within an organizational perspective.
Human capital risk accumulates in four primary categories:
1. Absence activities (activities related to employees not showing up for work such as sick leave, industrial action, etc.).
Unavoidable absence is referred to as Statutory Absence. All other categories of absence are termed “Controllable Absence”;
2. Collaborative activities are related to the expenditure of time between more than one employee within an organizational context. Examples include: meetings, phone calls, instructor led training, etc.;
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3. Knowledge Activities are related to time expenditures by a single person and include finding/retrieving information, research, email, messaging, blogging, information analysis, etc.; and
4. Process activities are knowledge and collaborative activities that result due to organizational context such as errors/rework, manual data transformation, stress, politics, etc.
