Human Capital Definition
Written by True Tamplin, BSc, CEPF®
Updated on January 11, 2021
Define Human Capital In Simple Terms
Human capital refers to the economic value of an employee’s skills and experience.
This counts things like education, training, intelligence, health, and even qualities like loyalty and punctuality that offer some value to an employer.
Human capital is considered an intangible asset, and thus it is not listed on a company’s balance sheet; however, it is perceived to have a real relationship with productivity and profitability.
What Does Human Capital Mean In Finance?
The concept of human capital recognizes that not all labor is equal in value; however, employers can increase their human capital through things like training programs and education.
Because human capital is linked to productivity, the more a company invests in its employees, the more profitable they will be.
Because increased productivity also correlates with economic growth, many consider investing in human capital to be a prime way to increase economic prosperity.
Cost of Human Capital
Like any asset, human capital is subject to depreciation over time.
The most common ways for human capital to depreciate in value are through unemployment, injury, mental decline, or the inability to keep pace with innovation.
Depreciation of human capital is often measured through wages or the ability to stay in the workforce.