Human Capital Model
- Treats people’s skills, knowledge, and experience as a form of capital that can be invested in and developed.
- Investing in education or employee training increases an individual’s or firm’s economic value, productivity, and earning potential.
- Employer investment in training can also improve performance and help reduce turnover.
Definition
Section titled “Definition”The human capital model is a framework that explains the relationship between an individual’s skills, knowledge, and experience and their ability to generate economic value. It views human beings as a form of capital, with skills and abilities representing a valuable resource that can be invested in and developed over time.
Explanation
Section titled “Explanation”Under this model, individuals and organizations can increase economic returns by investing in skills and knowledge. For individuals, investments such as education and training raise labor-market value and potential earnings. For organizations, providing training and development increases the value of their workforce, which can lead to higher productivity, improved performance, and reduced employee turnover.
Examples
Section titled “Examples”Individual investment in education and training
Section titled “Individual investment in education and training”By pursuing higher education and acquiring specialized skills, individuals can increase their value in the labor market and earn higher wages. For example, a person who earns a college degree in engineering is likely to be able to command a higher salary than someone who only has a high school diploma, due to the added knowledge and expertise gained through their studies.
Employer investment in employees
Section titled “Employer investment in employees”Companies often invest in their employees by providing training and development opportunities, such as access to professional development courses, mentoring programs, and other forms of support that help workers improve skills and advance in their careers. By investing in employees, firms increase the value of their human capital, which can lead to improved productivity and higher profits.
Use cases
Section titled “Use cases”- For individuals: Emphasizes investing in one’s own skills and abilities to increase labor-market value, earning potential, and career prospects.
- For organizations: Highlights the importance of investing in employee training and development to improve skills, productivity, and retention.
Related terms
Section titled “Related terms”- Labor market
- Productivity
- Wages
- Turnover
- Training and development
- Professional development courses
- Mentoring programs