Human capital theory: examining why skills alone fail to explain economic relationships

Human Capital

It has been well established that economic success is often related to the skills, knowledge, and abilities that individuals possess. (Keeley, 2007, p.3) The greater the ability and education a person has, the more success they can expect in their professional careers. This knowledge, training, and ability is referred to as "Human Capital" because a person's abilities often translate into economic success in the workplace. However, the concept of Human Capital is not only dependent upon a person's individual skills, but also access to training and education opportunities. Because these opportunities are often linked to a person's inherent economic and social standing, Human Capital resources are not always accessible to the people with the greatest skills. Therefore, those who do have access to Human Capital resources are not always the most skilled people, but the people with the best personal resources. In this way, the theory of Human Capital contains a fundamental flaw which often creates a gap between skills and economy.

Capital is a term that is associated with economics and is often equated with money, or something that has a similar value. But as researchers discovered that the greater the skills and education a person possesses, the greater the economic success they enjoyed, scientists began to view skills and education as a form of economic capital. This would include such things as schooling, additional periodic training courses, and even medical care. But because "you cannot separate a person from his or her knowledge, skills, health, or values," these things produce what is called "Human Capital." (Becker, 1993, p.16) In the modern world, Human Capital is considered to be an "intangible asset," meaning it is not a physical asset like oil, minerals, or forests; but is defined as the abilities and knowledge which can influence new products, research and development, networking, and other factors that can impact the economic success of a company. While physical capital still matters, intangible forms of capital "matter just as much and probably more." (Betcherman, 1998, p.2) Human Capital is important because it has been linked to the concept of "quality of work," which has been defined as one of the "key ingredients for economic prosperity." (Lowe, 2001) In other words, Human Capital: educations, skills, etc., are the types of intangible assets that are important for economic success.

Human Capital may be an important aspect of economic success, both for the company and the individual, but this type of capital is a mix between personal attributes, such as skills and talents, and education and training. This means that the best workers are those who have both inherent skills as well as education and training; but because of the nature of the educational system, the people with the best inherent skills are not always the people who receive the education and training. One example is higher education, especially colleges and universities, which are extremely expensive and therefore, limit their student base to those who can actually afford the tuition. And while government assistance is helpful in aiding underprivileged students to receive this education, cuts in federal programs "substantially raised their cost of a college education." (Becker, "Human Capital") In effect, without government assistance, low income people, regardless of their inherent skills, may not receive the education necessary to enhance their Human Capital. This has also been demonstrated to be the case with women, as many women do not have access to extra education, especially after marriage. In fact, studies have demonstrated that "American Women were more likely than men to graduate form high school, but less likely to go to college." (Becker, "Human Capital") In effect, women and the poor are less likely to receive the training and education that could become a Human Capital asset for them and aid in their future economic success.