What Is Human Capital? (With Types And Ways To Increase It)
By Indeed Editorial Team
Published 25 April 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Many companies rely on their employees and their skills to add value to the company's work and make it successful. Efficient employees with valuable skills and experience usually have a higher human capital. Knowing more about human capital can help you develop it and become a valuable employee. In this article, we discuss the answer to "What is human capital?", explore its types and its importance, see the factors that determine human capital and learn how to increase human capital as an employee.
What is human capital?
Knowing the answer to "What is human capital?" can help you understand the concept better. Human capital refers to an employee's skills, talents, knowledge and personal qualities. These are the factors that usually contribute to a workplace. They help the employee provide value to an organisation and make it more productive. These factors may include an employee's educational background, personality, ability to follow a schedule or punctuality. Most employers desire to hire and invest in employees that can provide such qualities to the company.
Types of human capital
While human capital refers to the culmination of employees' intangible qualities, there are two distinct types of human capital:
General human capital
General human capital includes the qualities that make an employee generally eligible to work in various roles across different industries. This may include an employee's strong work ethic that can be valuable for the organisation. Employees can typically work on these qualities to develop and improve them over time. Honesty and attention to detail are also examples of such skills, as they can benefit a variety of work environments. These qualities can build high general human capital among employees of an organisation.
Specific human capital
Specific human capital refers to the skills and attributes of an employee that makes them eligible to work in specific positions or organisations. These skills directly relate to the role of the employee. For example, if a job seeker is interested in pursuing a career in law as an advocate, they may require specific education and certifications to become eligible for that position. Along with this, they may also require other skills that can help them perform better at their job. With the correct training and support, job seekers can learn new skills to improve their specific human capital.
Importance of human capital
Human capital is important because its measurements can help in improving and increasing an organisation's productivity. Employers often prefer candidates with an established combination of assets and skills that best suit specific positions or industries. Assessing human capital can help organisations ensure their employees contribute to the economic success of the company. In an effort for companies to save money on training, for example, job seekers can improve an organisation's profitability if their human capital and skills align with the organisation's goals.
Human capital can also be beneficial for the economy of a country. Governments provide higher education at little or no cost through scholarships, which can help many achieve advanced education. This can enable potential job seekers to learn and prepare better for a job. Job seekers with higher human capital may receive a higher salary, which can encourage higher spending. This can indirectly contribute to economic growth.
Read more: Different High Income Skills
Factors that determine human capital
There are various factors that determine the human capital of an employee. These factors include:
Skills and qualifications
An employee's skill set and qualifications are among the primary factors that determine their human capital. These factors may apply to both general human capital and specific human capital. For example, if an employee is working as a software engineer, they may require specific software development or testing skills to perform their job efficiently. These may come from pursuing education in a subject related to the field and through various certifications. Though many employees develop their skills through years of work experience, the skills and qualifications they can initially bring into a new position reflect their human capital.
A job seeker's educational background can determine their human capital. This usually applies to general human capital, where minimum educational qualification can make them eligible for multiple positions. Many employers ask candidates to have a minimum educational qualification, regardless of the field of study. They may ask this along with experience in the field, or to someone who is just starting their professional career. Where a person attended school and their highest degree achieved may also contribute to their human capital.
Though an employee's knowledge about individual subjects is intangible, their intelligence can significantly contribute to their human capital. If an employee has an extensive background in a specific area of expertise, they can contribute to the organisation through their intelligence and understanding of these topics. This may also allow them to examine problems at work and propose quick and effective solutions. An employee's intelligence may increase their human capital with time as they learn more about their field become more knowledgeable.
The social skills of employees can also contribute to their human capital positively. Good social skills can be beneficial in multiple ways to an employee and the organisation. They can be useful in specific job roles. For example, a business developer may benefit from strong social skills while interacting with potential clients of the company. A human resource manager may use social skills to introduce new rules to the company's employees in a positive manner. If an employee is sociable and personable, these assets can positively impact their human capital.
Emotional intelligence and judgement
Human capital varies among employees based on their own unique qualities and perspectives. An employee's emotional intelligence and sense of judgment are additional assets that influence their ability to work, ultimately impacting their human capital. For example, a person that works calmly under pressure may effectively work in a fast-paced and high-stress environment, which can be beneficial for the success and productivity of that organisation. Besides, the ability to judge an outcome and make positive adjustments to the work accordingly can contribute to an employee's human capital.
An employee's personality can contribute to their human capital in many ways. It is a quality that comes naturally, as opposed to other skills that an employee can learn and develop. For example, skills like empathy or active listening are typically the skills that an employee may inherit. These skills can be useful in industries like teaching or health care, as professionals may require communicating with students or patients calmly. This can help employees contribute positively to the organisation and their human capital.
The overall work ethic of an employee, and how they approach their work, can also impact their human capital. For example, their ability to consistently log in at work on time or to take initiative if they anticipate a problem are elements that positively contribute to someone's strong work ethic. An employee's commitment and dedication to their job can positively influence their human capital.
How to increase human capital
Companies may provide various means to their employees to develop skills that contribute to their human capital. Here are some proactive steps you may take to increase your human capital:
1. Learn a new skill
Learning a new skill can be a great way to increase human capital. You can learn a general skill like public speaking, or a specific skill that can help you perform better at your job. For example, if you work in a business development position, you can learn a new language that may help you interact with foreign clients directly. This may increase your human capital and make you a valuable asset to the company.
2. Specialise your experience
It is possible to increase human capital by specialising in a specific area of expertise. Having a specialised position in any industry can make it easier to possess unique skills that you can use to complete specific tasks. Specialising in a specific field can increase your human capital because your distinct knowledge, background and training can assist organisations in meeting their operational and economic goals.
3. Attend training
You can increase your human capital by attending various training depending on your role and the company's requirements. For example, if the company is implementing new software, you may attend internal and external training to learn that software. This can help you develop your proficiency, which can be beneficial to the company. This can, in turn, help you increase your human capital.
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