Human Capital

Essay by nelpilayUniversity, Master's January 2006

download word file, 12 pages 4.0


The organisations can no longer try and convince themselves that change is an option. It is inevitable and, to survive, organisations must accept it and move forward. On that note, there is a definite shift in priorities and values in the corporate world. There is a growing interest in people as the corporate asset is part of this shift in values.

Human Capital Theory

Human Capital is the most valuable asset an organisation can hold today. It is seen increasingly as a key determinant of economic performance (Fitzsimons, 1999). Human capital is defined as the attributes of a person who are adding value to the organisation by being productive in some economic context which can either make an organisation fly or fall (Purcell & Ahlstrand, 1994). These collective sums of attributes include life experience, knowledge, inventiveness, energy and enthusiasm that people choose to invest in their work (Beardwell & Holden, 1997).

Gary Becker in his book Human Capital defines human capital theory as activities that increase future consumption possibilities by increasing the resources in people (Sorensen, 2000). The central argument of the human capital theory is that training is regarded as an investment in human capital, where the expectation of a higher future productivity level becomes the reason for undertaking training (Sorensen, 2004). Human capital can be categorised into two basic forms i.e. general and specific (Spencer, 2004). The investment aspect is essential in the human capital theory. The acquisition of human capital through training and education is an investment in the sense that the individual foregoes current income for increased potential earnings in the future (Pfeffer, 1998). Investment in specific human capital will increase an employee's productivity, but only at the work place where the employee is attached to. Investment in general human capital, on the other hand,