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Human capital facts for kids

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Human capital is a way of talking about the valuable skills, knowledge, and health that people have. Think of it as the special abilities and talents that make someone good at their job or helpful to society. This includes things like your knowledge, skills, experience, good health, and education.

When people invest in their human capital, like by going to school or learning new skills, it often helps them earn more money later on. Companies also invest in their employees' human capital through training. This helps the company produce better goods or services.

In 2018, Paul Romer won the Nobel Prize for Economics. His work showed how human capital is a key part of how economies grow and become more innovative.

What is Human Capital?

Human capital is basically all the knowledge, skills, and abilities that people have. It's like a treasure chest of talents within a person. These resources are the total power of people that can be used to help a country or group reach its goals.

There are different types of human capital:

  • Knowledge Capital: This is what you know, like facts, information, and understanding.
  • Social Capital: This is about your connections and relationships with other people.
  • Emotional Capital: This includes your emotional skills, like being able to understand and manage your feelings, and get along with others.

Many experts believe that investing in human capital, especially through education, helps countries grow and become more productive. This is why governments often support education and job training programs.

History of Human Capital

The idea of human capital isn't new. Long ago, a famous thinker named Adam Smith talked about "the acquired and useful abilities of all the inhabitants." He meant that people's skills were a type of capital, just like machines or buildings.

Later, economists like Gary Becker, Jacob Mincer, and Theodore Schultz from the Chicago School made the term "human capital" very popular. They saw human capital like a "physical means of production" (like factories). You can invest in it through education or training, and it helps you produce more.

Adam Smith believed that the more skilled people were, the better they could work. He thought that improving workers' skills was like improving a machine. It costs money to train someone, but it pays off with more efficient work.

In the 1990s, the idea of human capital grew to include natural talents, physical fitness, and good health. These are all important for learning and succeeding.

Measuring Human Capital

It's important to measure human capital to see how well countries are doing. Here are some ways it's measured:

World Economic Forum Global Human Capital Index

Since 2012, the World Economic Forum has published a report called the Global Human Capital Index (GHCI). This index ranks countries based on how well they invest in their people's skills and abilities. In 2017, 130 countries were ranked. Norway was at the top, showing it invests a lot in its human capital.

World Bank Human Capital Index

The World Bank also has its own Human Capital Index (HCI), which started in 2018. This index looks at how much countries invest in education and health care for young people. It also considers how much knowledge and skills students actually gain from schooling, not just how many years they spend in school. This helps show how prepared young people are for future jobs.

Here are the top countries from the World Bank's Human Capital Index:

Human Capital Management

Human capital management (HCM) is how companies manage their employees to get the most out of their skills. This includes things like hiring, training, and helping employees grow. It's about making sure the company has the right people with the right skills.

How Human Capital Grows

Human capital is special because it can grow over time. When people learn new things and get more experience, their human capital increases. This growth is often steady because it's built on education and health.

For example, today's generation benefits from the research and improvements in education and health made by past generations. This means future generations can become even more skilled and productive. This continuous improvement is called the cumulative growth of human capital.

Human Capital in Companies

Human capital is an intangible asset. This means it's not something you can touch, like a building or a machine. It's also not owned by the company that employs the person. When an employee leaves a company, they take their knowledge and relationships with them.

Even though companies don't "own" human capital, they benefit a lot from having skilled and trained employees. Training can create a shared understanding and teamwork within a company. Sometimes, people learn skills that are only useful at one specific company. This is called "firm-specific human capital." It can make workers very valuable to that company.

Criticism of the Idea

Some people have criticized the idea of human capital. They argue that it tries to explain all differences in wages just by looking at skills and education. Other factors, like discrimination or a person's background, can also affect how much they earn.

For example, some believe that a school diploma might be important not just for the knowledge you gain, but also for the prestige it gives you. This means that the job market isn't always perfectly fair.

In 2004, the German word for "human capital" (Humankapital) was named the "German Un-Word of the Year." This was because some scholars felt the term was inhumane. They thought it reduced people to just their economic value.

It's important to remember that "human capital" is different from "human development." Human development is about making people's lives better and giving them more choices. Human capital is seen as a way to achieve that goal by increasing income and wealth.

Images for kids

  • Human capital

    Human capital infographic

  • Clark's Sector model

    Clark's Sector model for the US economy 1850–2009

See also

Kids robot.svg In Spanish: Capital humano para niños

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