Human capital refers to the measure of skills, capacity, education and other factors of labor that determine earning potential and productivity of employees and community at large. It can also be termed as the collective knowledge, skills and other valuable intangible assets that people use to derive an economic value for their employers, families, and community at large.
According to Gary Becker (2008), human capital directly influences the production process. It determines the level of employees’ productivity though differently depending on the organization, situations, and tasks. In his view, although the role played by labor capital in productivity is complex, it is sensible to view it as an outcome represented using a unidimensional object like skills, level of knowledge and experience. The factors have a direct relationship with production function.
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Becker (1994) stated that training, education and medical care determine human capital and are critical factors of production. Increase in human capital has led to different levels of income among graduates. People with a higher level of education, experience and training on the job tend to perform better than those who are not. High productivity increases revenue hence human capital is a crucial factor that drives economic growth.
Prior to Becker’s theory in the 1960s when he analyzed the links between incomes and education, there was little work and ideas that explained how human capital abilities were connected to public policy and economic theory. Most economists of that time had a general practice that viewed labor as an undifferentiated number of workers, grouping the unskilled and skilled personnel. Organizations discussed nothing about factors of production. For instance, employers were pessimistic about training, hence such topics were never discussed.
A few economists emphasized on human capital though there was limited information about the subject (Fuchs, 1994). For example, Arthur Pigou, from Britain was the first economist to coin the terminology ‘human capital.’ He argued that the number of trained workers was declining causing a shortage of trained workers. Arthur insisted that companies needed to start training their staff because rivals would start poaching the best qualified due to the under-supply.
The theory of human capital by Becker emphasized on building all the factors of production. However, the society had policies and practices that challenged not only promotion of labor capital but also economic development. Discrimination was viewed as beneficial to the individual or institution that practiced it. Marxist explains this concept well in his theory that states discrimination is advantageous to people who discriminate. This policy contradicts Becker theory because employers lose out on valuable opportunities when they refuse to employ productive workers. In addition, some policies saw males progress more in education than ladies since they were viewed as an asset for household chores. The government had limited support and incentive for education, which was a major contributor to economic development.
Becker observed that discrimination has an impact on the victims and people practicing the approach. In his works, he exposed that discrimination depressed not only the income of black employees but also the revenue of white employers who decided not to hire qualified black people, as they had to pay for the lost opportunity. The approach created two costs: black workers were given lower wages while discriminating organization incurred more expense for similar productivity ( University of Chicago, 1982).
In his work, he predicted that with time, black workers would be able to leave environments where they were treated unequally and work disproportionately in places with equality. Due to a shortage of qualified staff, the aggression on black whites would reduce relative to a globe with the rise in demand of personnel. Eventually, employees would start being located randomly regardless of their sex, race, gender or any other factor that does not influence human labor productivity. Becker’s theory and economic model led to a reduction in social challenges to a stringent economic fundamental demand and supply.
Studies have indicated that the economic model and human capital theory by Becker has been mainstreamed in realms formerly thought to be impossible. For instance, in a paper developed by Stanford University, Murphy (2015) states that the attributes of the model based on equilibrium, rational, efficiency and maximizing individuals has spread in many areas and disciplines. The imperialistic ideas have transformed the society to tap skills, capacity, and potential that initially remained unnoticed.
References
Becker, G. S. (1994). Human capital revisited. In Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education (3rd Edition) (pp. 15-28). The University of Chicago Press.
Becker, G. S. (2008). Human capital. The concise encyclopedia of economics. Library of Economics and Liberty , 15.
Fuchs, V. R. (1994). Nobel laureate: Gary S. Becker: Ideas about facts. Journal of Economic Perspectives , 8 (2), 183-192
Murphy, K. M. (2015, June 15). How Gary Becker saw the scourge of discrimination. Retrieved February 22, 2018, from http://review.chicagobooth.edu/magazine/winter-2014/how-gary-becker-saw-the-scourge-of-discrimination
University of Chicago. (1982). Report of the Commission on Graduate Education. Retrieved 02 19, 2018
