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Human Capital Development


The research paper focuses on human capital development in the firm, and industry, importance of human capital, and methods of investing in human capital. Human capital refers to stock of competences, knowledge, and personality attributes that are embodied in the ability to perform labor so to produce economic value. Human capital is the attribute that a worker gains through education, and experience he acquires. Many economic theories refer to human capital as workforce. It is one of the three factors of production and is termed as a fungible resource. Adam smith defined four types of human capital. This is because he viewed human capital from a different perspective. He viewed human capital as useful machines, and instruments of trade.

He also viewed human capital as a building material. This is because human capital is a means of procuring revenue, and improving land. Adam smith defined human capital as the useful abilities acquired by members of the society. The process of acquiring talents always cost as real expense. Smith defined this expense acquired during the acquisition process as capital fixed, and realized. He further argued that the talents benefit the person, and his society as a well. After the person has acquired the knowledge he is considered to be a machine and instrument of trade which helps in production, and abridges labor. Though the instrument costs some expenses, it repays the expenses with a profit. This is the reason why human capital is important in the industry. Smith argues that, the productive power of labor, skills, and the way it is directed affects division of labor. According to smith there is a great connection between human capital, and division of labor

 Origin of the term human capital

The idea of human capital was developed by A.W.Lewis in 1954. Lewis wrote the book economic development with unlimited supply of labor in 1954, and this idea led to development of the term human capital. The term was not used until Arthur Cecil pigou first discussed it. From Arthur’s idea the distinction between human capital as investment and material capital was made (Herrin 2008). The use of the term human capital in the modern neoclassical economics was developed by Jacob Mincer. Mincer in 1958 wrote an article on investment in human capital, and personal income distribution in the journal of political economy. The application of the term human capital in economics uses Mincer, and Gary Becker suggestions. Becker in 1964 published a book entitled human capital. According to Becker’s idea, human capital is compared to physical means of production. He compares human capital to factories, and machines. This is because one can invest in human capital in different ways. One can invest in human capital through educating people, training people in an organization, and providing medical services. The output one gets from the investment depends on the amount of human capital one has invested. Thus, human capital is important in production as people utilize human capital as a form of labor in the industry. The output of human capital in the industries depends on how one has invested on human capital (Herrin 2008)

 Human capital development in the firm

Many industries face problems today because they do not know how to invest well in human capital. This is because the industries do not value the workforce they have. Others do not treat their employees’ well (Gashi 2009). In order to ensure human capital is utilized well in a firm; the firm should develop programs to cater for workforce in the company. The firm can use employee training programs to provide training to workforce, or human capital in the firm. Training programs are important as they help employees improve their skills, and knowledge. This make employees perform better, and increase productivity in the firm. The firm can also utilize performance programs to measure employee performance. This is important as it helps the firm in identifying employees who need assistance so as to improve their skills. The firm can also use motivation programs to motivate employees (Schultz 2008). The motivation should be done in the right manner without any discrimination. This is to ensure that the employees are performing well.

This in turn increases productivity in the firm. The firm can invest in human capital through medical programs. The employees in the firm are provided with enough medical attention. This ensures the firm has healthy employees, and it also increases productivity. The firm should invest well in human capital by providing training programs, performance programs, and motivation program. This ensures that the firm has invested well in human capital, and in return the firm gets good profits. Poor investment in human capital can affect the firm negatively (Schultz 2008). This is because the employees do not perform well, and lowers productivity. Poor invest of human capital affects the profits in the firm, and the employees turn over.

Employees leave the firm to look for better paying jobs. This affects the production in the firm. Thus, proper investment in human capital is important for the firm as it ensures proper productivity, and profits (Currie &National bureau of economic research 2008). Human capital is important in the firm as it has several benefits. Human capital ensures continuity of a firm. Though a firm is a single business entity it needs employees, and other stakeholders for it to survive. Without employees the firm ceases to exist. Hence, human capital ensures continuity of a firm, and its activities. Another importance of human capital is provision of competitive advantage. Human capital allows a firm to compete well in the market. This is because the firm has skilled employees who can adapt change quickly. This in turns increases productivity in the firm. For example, if the firm introduces new technology and process, it requires skilled employees to adapt change quickly, and implement the technology well so as to compete with competitors well. If the firm does not have skilled human capital then the competitors will introduce the same technology, and take advantage of the technology. Thus, the firm should invest well in human capital (Schultz 2008)


Human capital is important for survival of the firm. The firm should invest well in human capital so as to increase productivity, and profit. The firm should invest in training programs, performance programs, and health care programs so as to improve employee productivity.


Currie,J.,&National bureau of economic research.Healthy, wealthy, and wise: socioeconomic status, poor health in childhood, and human capital development.National Bureau of Economic Research, 2008

Gashi,A.Human Capital Development: Employer-Provided Training.Lap Lambert Academic Publishing, 2009

Herrin,A.Human capital and development in the Philippines.PublisherPhilippine Institute for Development Studies, 2008

Schultz, T.Handbook of development economics, Volume 4.Elsevier, 2008


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