What Is Human Capital?

The purpose of this chapter is to lay a foundation to understanding human capital. While there are several definitions of human capital, the definition of utmost utility to truly understanding human capital is the one that refers to human capital as the knowledge, skills, abilities, and other characteristics (KSAOs) of individuals that can be put to productive use and that have economic value. The concept of human capital inherently distinguishes human capital from labor also known as manual or commoditized labor. Consequently, all “labor” in the “labor” market are not the same. Human capital is that “labor” in the labor market that requires investment for it to be productive. Since economic value changes with time, context, and space, what can be regarded as human capital is therefore not static. Although the concept of human capital may have been “unthinkable” at a time in the distant past, the idea that humans have economic value is no more alien or offensive. It has become widely accepted, just like other concepts similar to human capital. This chapter explains the concept of human capital, its history, limitations, criticisms, and approaches to its study.