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Human Capital

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Human capital is a measure of the economic value of a person's professional skills. It's also known as the human capital factor production of the work, which are the hours spent by people to produce goods or services.

The human capital of a person is calculated as the current value of all future benefits that person expects to get from his job until he stops working. This added to the financial capital represents the total wealth of a person.

Being a future amount, the human capital is greater the younger a person is, since an older person has already obtained those gains and has consumed them or saved them, now being part of their financial capital.

The amount of human capital isn't the same throughout life and is reduced as the years go by, but can be increased through investment. The education, experience and skills of an employee have an economic value.

In the world of investment, human capital is a very important concept, since it's taken as part of a person's total wealth and is taken into consideration to establish an appropriate asset allocation strategy. In general, human capital is usually considered as being assigned to fixed income (bonds), because the benefits come in the form of periodic income and don't have as much risk as equities (shares). Therefore, if a person wants to allocate half of their money to equities and the other half to fixed income, adding the factor of human capital should increase the allocation of their financial capital to equities and decrease that of fixed income.

Human capital as a factor of production

The concept of human capital was developed by Theodore Schultz and Gary Becker. They considered that it's like any other type of capital, which if invested in it can bring multiple benefits to society.

In their study they argue that much of the economic growth of societies can be explained by introducing the variable of human capital. Since until then it was not possible to explain the economic growth using the traditional factors of production, land, labor and capital.

Through investment in human capital, factor productivity is increased and technological progress is promoted. In addition, investing in it can obtain multiple benefits in other areas, such as social or scientific benefits, among other things.

Human capital in companies

The concept of human resources is used to designate the human capital of an organization. Companies are absolutely dependent on the capacity and talent of their employees, which are key for the company to achieve success.

Many times it's said that a company is as good as its employees are good, and that's why human resources departments pay close attention to the selection, management and optimization of staff.


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