Human capital: what is it, what benefits does it bring and how is it measured?

Businesses are made up of a collection of resources of a different nature, but the people themselves are probably the most valuable.

In this article we will a tour of the characteristics of human capital, its implications and what differentiates it from other elements that make up each organization, To find out what makes it so special.

    What is human capital?

    Human capital is all the people who make up an organization, Taking into account the skills, training and degree of efficiency in carrying out the tasks of each of them, because this is what brings quality to the work.

    We would therefore speak of one of the factors of production, which are generally conceived as three: land, labor and capital, human capital being a sub-category of the latter. Not to be confused with the labor factor, which would be the activity of the task itself.

    This is a technical definition that has since been simplified to refer to all of the company’s human resources. Business psychology, on the other hand, speaks of human capital as the value that everyone in it brings to the companyBecause they are the essential resource to be able to achieve the objectives set by the organization. When we talk about schools, the value lies in the skills, knowledge and ultimately the talent that makes the tasks possible.

    The conception of the term human capital corresponds to the American economists, Gary Becker and Theodore Schultz, And was developed in the 50s of the twentieth century. In their studies, they concluded that this factor was what explained the improvement in the economic level of societies, if we look at its correlation with the level of education of all its individuals, it is for this reason that we have started talking about investing in human capital, as was done with other material resources.

    These investments translate into greater economic growth through two different mechanisms. First, because the firm’s factors of production become more productive. Second, because by having more qualified personnel, production techniques are improved and therefore the company becomes more efficient when it comes to obtaining the products or services it markets. Human capital has become such an important concept that it has not ceased to be studied since.

      Conditional money transfers

      Evidence of the importance that human capital has acquired are conditional cash transfer programs or conditional resource transfer (TCM or TCR, respectively). These are programs implemented by a multitude of countries in which a series of monetary resources are invested in economically disadvantaged people, in exchange for a series of bonds such as schooling or regular attendance at the medical center.

      What is sought with the TCR is to increase the value of their human capital in the medium term, reach a generation of more skilled workers, With an education and skills that will enable them to obtain better jobs and therefore provide differential value that will produce economic growth for himself, for the company in which he works and by extension, for the nation that in initially made this disbursement, making an investment that finally sees the return.

      Conditional money transfer programs they are particularly encouraged in Latin American countries, Being a common measure in most of them. This human capital empowerment mechanism is also found in Asian countries, such as the Philippines, Indonesia, Cambodia and Bangladesh, among others. As for Africa, Egypt and Morocco would be the representatives of this policy. In the West, it’s not that common, but there are examples of RCT in powers like the US or UK.

      The problem with these programs is that they are highly dependent on the budgets made by each administrationThus, a reversal of the political landscape of a country can drastically end conditional transfers of resources, as with so many other programs when there is a shift from one government to another of the tendency opposite to this. that he was before. Such situations reduce the effectiveness of this mechanism and therefore endanger the improvement of human capital.

        equations

        At the technical level, in economics studies, there are a number of formulas to represent human capital and thus be able to analyze it by mathematical calculations.

        One of them is the Cobb-Douglas production function. In this equation, human capital is one of the key values ​​to be able to estimate the economic growth that a country will experience in the years to come, so these are extremely complex calculations in which human capital plays a key role.

        On the other hand, we find the Mincer equation, formulated by Jacob Mincer, Another economist. In this case, Mincer created a mathematical expression to be able to estimate the income level of a population based on the academic level achieved, which explains how the investment in human capital we talked about earlier works. And it is that, predictably, a population educated to the highest levels, in the future obtained much higher remuneration than another which is not.

        Jacob Mincer himself, along with Haim Ofek, studied the effect of the depreciation of human capital, a phenomenon that affects both this factor of production and others, such as physical capital, which are the materials at its disposal. .a business and they gradually wear out or become obsolete. In the case of people, something similar happens, because the knowledge acquired at each level of education also shows a rate of depreciation over time.

        This is due to the effect of forgetting, updating the content in the field of study in which the individual is moving, etc. To counter the effect of this depreciation of human capital, it is necessary to constantly retrain to keep up with new technologies and knowledge. Although the age effect is also a depreciating effect which at some point cannot be countered.

        Indices used to measure it

        To measure the human capital of different nations and to be able to make comparisons between them, there are mainly two indices.

        The first would be the Davos Forum, which reports annually on the value of human capital in the world. The global index is the Global Human Capital Index, or GHCI, and gives a score between 0 and 100 in each of the countries (more than a hundred are participating in this study). In recent years, the country with the best indicator was Finland, while the worst score was Mauritania.

        On the other hand, we would find the World Bank Human Capital Index, published by this entity for the first time in 2018. To construct this index, what is taken into account is the investment relative to the GDP of each country that has been allocated to education and health services for children and young people. The result is a value ranging from 0 to 1, and what it indicates is the difference (compared to 1, which would be the total) of the GDP that each country would have to invest because health and education were ideal.

        To better understand this, we’ll use a practical example. In this indicator, the HCI (Human Capital Index), Spain obtained a 0.74 during the 2019 financial year, occupying, therefore, the position number 32 in the general comparison with the rest of the countries. This figure means that Spain would have to invest 26% (obtained by subtracting 0.74 to 1) of GDP if it wanted health and education services for young people to be the best possible.

        While these are the two main clues, they are not the only ones. For example, we also find the expected human capital, an indicator designed by The Lancet, A medical journal major in UK. This index provides an estimate of the life expectancy of human capital, and was calculated from 1990 to 2016, for 195 different countries.

        As was the case with the GHCI, the country with the most positive value in recent years is Finland, with a figure of 28.4. On the other hand, Niger would be the country with the worst rate of all, obtaining only 1.6 years of life expectancy in human capital.

        Bibliographical references:

        • Chiavenato, I. (2011). Human Resource Management. The human capital of organizations. Mc Graw Hill.
        • Madrigal, BE (2009). Human and intellectual capital: its evaluation. Observatory of the work of the Venezuelan magazine.
        • Sen, A. (1998). Human capital and human capacity. Economy notebooks. Santafé from Bogotá.
        • Serrano, L. (1996). Human capital and productivity indicators. Journal of Applied Economics.
        • Villatoro, P. (2005). Conditional Money Transfer Programs: Experiences in Latin America. ECLAC Magazine.

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