Human Capital

Reviewed by Komal | Updated on Aug 27, 2020

What is Human Capital?

Human capital is an intangible asset or product that is not included in the balance sheet of a business. It can be defined as the economic value of the knowledge and skill of a worker. It includes attributes that employers value, such as loyalty and punctuality, schooling, training, knowledge, expertise, safety, and other stuff.

It is understood by the concept of human capital that not all work is equal. Yet employers can improve the quality of that capital by investing in the employees through schooling, expertise, and skills. Such an attempt increases the economic value to both employers and the economy as a whole.

Human capital is critical because efficiency and, therefore, profitability are perceived to increase. The more a company invests in its workers (i.e. in their training and education), the more successful and efficient it can be.

Understanding the 'Human Capital'

It is often said that an organization is just as good as its people. Central to its success are executives, staff, and members who make up the human resources of a company.

Usually, human capital is handled by the human resources (HR) department of an organization. This department supervises the procurement, management, and development of staff.

Other directives include planning and strategy of the workforce, recruitment, training, development of employees, and reporting and analysis.

How to Calculate Human Capital?

Although human capital is based on employee skills and knowledge investment through education, it is easy to calculate these investments in human capital. The total profits can be calculated by HR managers before and after any investment.

Any human capital return on investment (ROI) can be calculated by dividing the total profits of the company by its overall human capital investment.

Does Human Capital Depreciate?

Human capital, like anything else, is not resistant to depreciation. This is often calculated in compensation or the ability to remain in the workplace. Unemployment, illness, mental decline, or the inability to keep up with creativity are the most common ways in which human capital can depreciate.