Human capital

Human capital 

One concept, human capital, stands out as a source of understanding into how the individual’s potential and the advancement of society interact in the complex web of economic and sociological theories. Human capital is a term that Nobel laureate Gary Becker first used in the 1960s to describe the idea that people’s skills, knowledge, and abilities are essential resources that drive economic growth, productivity, and innovation. The multidimensional terrain of human capital is explored here to understand its consequences and essence. We explore the world of human capital, starting with a basic understanding of its meaning and relevance and moving on to examine its historical development and the criticisms it has inspired.  

What is human capital? 

Human capital is the totality of a person’s knowledge, abilities, experiences, and other intangible traits contributing to economic and personal success. According to this idea, people must invest in their education, training, and healthcare to increase production and help the economy flourish. According to human capital theory, human capability development is just as important to advancing society as physical capital, such as infrastructure and machinery, in driving economic growth. 

Understanding human capital 

Recognising the value of education, training, healthcare, and other areas of personal development is a necessary step in understanding human capital. With the help of formal education, people can develop fundamental knowledge, analytical abilities, and specialised knowledge that make them useful assets in various fields. Their capacity for adapting to changing market demands is improved through ongoing learning and training. A person’s human capital also includes good health, emotional intelligence, and effective communication abilities. 

For financial companies, human capital is a crucial asset since it has a direct influence on their profitability and competitiveness. Finance specialists with the right education and experience may increase profits, cut losses, and promote new developments in the industry. Additionally, in a financial climate that is always changing, it is crucial to continuously build human capital via education and training to ensure adaptation to shifting market circumstances and regulatory regimes. 

History of human capital 

The idea of human capital has its roots in ancient societies that valued knowledge and talents passed down through the generations. However, researchers like Adam Smith and Alfred Marshall, who highlighted the significance of education and training in economic development, are responsible for the current formulation of the human capital theory.  

Theodore Schultz’s groundbreaking work helped popularise the phrase in the middle of the 20th century, and Gary Becker expanded on it. Their contributions made it possible to comprehend the financial benefit of investing in people. 

Criticism of human capital 

Although the theory of human capital has received much support, it has also come under fire several times. Critics contend that seeing people as little more than economic entities ignores the more comprehensive facets of human well-being, such as happiness, personal development, and cultural advancement.  

As those from underprivileged origins frequently lack the resources to invest in education and training, creating a cycle of limited options, the idea also runs the risk of perpetuating inequality. Furthermore, sceptics challenge the presumption that equal economic advantages result from human capital growth for all. 

Examples of human capital 

Numerous and varied examples of human capital demonstrate its ubiquitous influence across communities and industries: 

  • Education and professional training 

An educated workforce makes a significant contribution to innovation and economic expansion. Professionals with specialised knowledge, like surgeons, engineers, and software developers, are good examples of how it increases productivity and advances society. 

  • Healthcare and wellness 

Increased productivity results from people’s improved ability to participate actively in the workforce. Access to high-quality healthcare and preventative measures enhances human capital as a whole. 

  • Entrepreneurship 

Entrepreneurs enrich the business scene with their original concepts, innovation, and leadership abilities. Economic growth is aided by their capacity to spot market gaps and add value. 

  • Social and emotional intelligence 

Effective communication, emotional intelligence, and interpersonal skills are essential in professional and social settings. Teamwork, leadership, and negotiation are often areas where people with good social skills flourish. 

  • Research and innovation 

Technology advances are driven by scientists, researchers, and inventors who expand our understanding of the world and open new career options. 

  • Cultural and artistic contributions 

Through preserving cultural history, stimulating creativity, and instilling critical thinking, artists, writers, musicians, and other cultural figures improve society. 

Frequently Asked Questions

The term “human capital risk” describes the possible threats to an organisation posed by elements affecting its personnel skills, knowledge, health, and engagement. This risk, which impedes productivity, innovation, and overall business performance, might be brought on by a lack of talent, poor training, personnel turnover, or health-related problems. Strategic planning and investments in the well-being and development of employees are necessary to address the risk to human capital. 

Enhancing human capital entails lifelong learning, skill development, and personal growth. To improve your expertise, look into education, training, and certifications. Develop soft skills like adaptation and communication. Participate in internships or voluntary work to gain real-world experience. Join a network to meet other professionals and keep up with business developments. Put your health and well-being first if you want to maintain long-term productivity. 

The economy and human capital are closely linked. A country’s productivity, innovation, and economic growth are substantially influenced by its workforce’s skills, knowledge, and health. A talented and educated workforce may drive businesses, draw capital, and stimulate technical developments, accelerating economic growth. Higher productivity and improved global competitiveness result from investments in human capital through education and training. 

Human capital formation improves people’s abilities, skills, and knowledge through instruction, training, and medical treatment. It entails investing in people’s growth, boosting their productivity and economic potential. By cultivating a talented and capable workforce, this human capital formation benefits the individual and supports social progress, innovation, and general prosperity. 

Information on a person’s abilities, education, training, work experience, and personal characteristics makes up human capital. It offers perceptions of the potential and capabilities of a workforce. Organisations can use this information to make educated hiring, development, and talent management choices. By utilising human capital information, businesses may proactively align their personnel with goals, increase efficiency, and spur innovation. It is an essential component of efficient organisational development and human resource management. 

Related Terms

    Read the Latest Market Journal

    Deciphering the Updates: Understanding the latest CPF Changes

    Published on Mar 5, 2024 16 

    The latest changes to the Central Provident Fund (CPF), as unveiled in the 2024 Budget...

    Weekly Updates 4/3/24 – 8/3/24

    Published on Mar 4, 2024 23 

    This weekly update is designed to help you stay informed and relate economic and company...

    Weekly Updates 26/2/24 – 1/3/24

    Published on Feb 28, 2024 62 

    This weekly update is designed to help you stay informed and relate economic and company...

    All-in-One Guide to Investing in China via ETFs

    Published on Feb 27, 2024 439 

    Start trading on POEMS! Open a free account here! Why China? In the vast landscape...

    Navigating the Post-Inflation Landscape in 2024: Top 10 US Markets Key Events to Look out for

    Published on Feb 23, 2024 450 

    Start trading on POEMS! Open a free account here! In 2023, the United States experienced...

    From Boom to Bust: Lessons from the Barings Bank Collapse

    Published on Feb 23, 2024 62 

    Barings Bank was one of the oldest merchant banks in England with a long history...

    Decoding FX CFD 2.0

    Published on Feb 20, 2024 70 

    This article is aimed at availing information and knowledge essential to intermediate forex traders. It...

    Weekly Updates 19/2/24 – 23/2/24

    Published on Feb 19, 2024 89 

    This weekly update is designed to help you stay informed and relate economic and company...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066