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

Let's look at what human capital is, a concept associated with the value of people in an organization.

Companies are made up of a set of resources of different kinds, but probably the people themselves are the most valuable.

In this article we will a tour of the characteristics of human capital, its implications and what differentiates it from the rest of the elements that make up each organization.In this article we will take a look at what makes it so special.

What is human capital?

Human capital is the set of people that make up an organization.The human capital is the set of people who make up an organization, taking into account the skills, training and degree of efficiency in the performance of the tasks of each one of them, because it is what brings quality to the work.

Therefore, we would be talking about one of the factors of production, which are generally conceived as three: land, labor and capital, with human capital being a subcategory of the latter. It should not be confused with the labor factor, which would be the activity of the tasks themselves.

This is a technical definition that has subsequently been simplified to refer to the company's human resources as a whole. Business psychology, for its part, speaks of human capital as the value contributed to the company by the human resources. the value contributed to the company by all the people who make it up, since they are the indispensable resource for the company's success.The human capital of a company is the value that all its people bring to the company, since they are the indispensable resource for achieving the objectives set by the organization. When we talk about educational centers, the value lies in the skills, knowledge and, in short, the talent that makes the tasks possible.

The conception of the term human capital is the work of the American economists Gary Becker and Theodore Schultz.and was developed in the 50's of the 20th century. In their studies, they concluded that this factor was the one that explained the improvement at the economic level in societies, if we consider its correlation with the educational level of all its individuals, hence they began to talk 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 company'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 in obtaining the products or services it markets. Human capital became such an important concept that it has not ceased to be studied since then.

Conditional cash transfers

One proof of the importance that human capital has acquired is the conditional cash transfer programs, or conditional cash transfer (CCT or CCT, respectively). These are programs carried out by a multitude of countries in which a series of monetary resources are In these programs, a series of monetary resources are invested in economically disadvantaged people, in exchange for a series of obligations such as schooling or regular attendance at the medical center.

The aim of the TCRs is to increase the value of their human capital in the medium term, by achieving a generation of more qualified workers.The conditional cash transfer programs, with an education and skills that will enable them to achieve better jobs and therefore provide a differential value that will produce economic growth for themselves, for the company in which they work and, by extension, for the nation that initially made the disbursement, making an investment that is finally returned.

Conditional cash transfer programs are especially encouraged in Latin American countries, being a common measure in most of them.This is a common measure in most of them. We can also find this mechanism of human capital empowerment in Asian countries, such as the Philippines, Indonesia, Cambodia or Bangladesh, among others. In Africa, Egypt and Morocco are the representatives of this policy. In the West it is not so frequent, but there are examples of TCR in powers such as the USA and the United Kingdom.

The problem with these programs is that are highly dependent on the budgets of each administration.A change in the political landscape of a country can drastically put an end to conditional resource transfers, as happens with so many other programs when there is a change of government to one of the opposite tendency to the previous one. This type of situation diminishes the effectiveness of this mechanism and therefore endangers the improvement of human capital.

Equations

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

One of them is the Cobb-Douglas production function. In this equation, human capital is one of the key values for estimating the economic growth that a country will experience in the coming years, so these are extremely complex calculations in which human capital plays a fundamental role.

On the other hand, we find the Mincer equation, formulated by Jacob Mincer, another economist.another economist. In this case, Mincer created a mathematical expression to estimate the level of income that a population will obtain according to the academic level attained, which explains how the investment in human capital that we spoke of earlier works. And the fact is that, predictably, a population educated to the highest levels will obtain much higher earnings in the future than one that is not.

Jacob Mincer himself, together with Haim Ofek, studied the effect of the depreciation of human capital, a phenomenon that affects both human capital and other factors of production, such as physical capital, which are the materials that a company has and that progressively wear out or become obsolete. In the case of individuals, something similar occurs, since the knowledge acquired at each level of education the knowledge acquired at each educational level also shows a depreciation rate as time goes by, which is due to the effect of forgetfulness..

This is due to the effect of forgetting, the updating of contents in the field of study in which the individual moves, etc. To counteract the effect of this depreciation of human capital, what must be done is to constantly recycle oneself to keep abreast of new technologies and knowledge. Although the effect of age is also an effect that causes depreciation and, at a certain point, cannot be counteracted.

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 indexes.

The first is the Davos Forum that of the Davos Forum, which each year reports the value of human capital worldwide.. The global index is the Global Human Capital Index, or GHCI, and gives a score between 0 and 100 to each of the countries (more than one hundred participate in this study). In recent years, the country with the best indicator was Finland, while the worst score was for Mauritania.

On the other hand, we would find the World Bank's human capital index, published by this entity for the first time in 2018.. To build this index what is taken into account is the investment relative to the GDP of each country that has gone to educational and health services for children and youth. The result obtained is a value ranging from 0 to 1, and indicates the difference (with respect to 1, which would be the total) in GDP that each country would have to invest for both health and education to be ideal.

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

Although these are the two main indices, they are not the only ones. For example, we can also find expected human capital, an indicator devised by The Lancet, a leading UK medical journal.a leading UK medical journal. What this index provides is an estimated life expectancy for human capital, and it has been calculated from 1990 to 2016 for 195 different countries.

As was already the case with the GHCI, the nation with the most positive value in recent years has been Finland, providing a figure of 28.4. In contrast, 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 resources administration. The human capital of organizations. Mc Graw Hill.
• Madrigal, B.E. (2009). Human and intellectual capital: its evaluation. Observatorio Laboral Revista Venezolana.
• Sen, A. (1998). Capital humano y capacidad humana. Cuadernos de economía. Santafé de Bogotá.
• Serrano, L. (1996). Indicadores de capital humano y productividad. Revista de Economía Aplicada.
• Villatoro, P. (2005). Conditional cash transfer programs: experiences in Latin America. CEPAL Review.