Article about Human Capital and Human Resources Management theory. What is Human Capital and Human Resources in the 2020 and the 21th century? Education and Certification programs. 15 minutes of reading.
The theory of human capital was born when classical economic theory emerged in the 18th century. The initial accumulation of industrial capital gives a powerful impetus to the social knowledge that economic science originates from. At the beginning of industrial production, living physical force is simply replaced by the machine as a source of energy and later as a function substitution.
Adam Smith, first in the Wealth of Nations, made a brilliant guess by the analogy between investing in physical capital and investing economic resources to improve the skills of the workforce. When investing in machinery, Smith argues, the expectation is to increase gross profit. When spending money to improve the quality of the workforce, the goal is again the same; providing more growth, though through human investment.
Human capital is an expression of the impact on the original human material
Human capital is an expression of the impact on the original human material, thereby achieving a new quality of labor as a factoring service. Each such impact multiplies human strength, develops experience and changes productivity.
As a phenomenon, human capital emerged long before knowledge had spoken of it. In order to be able to better clarify human capital, it is necessary to clarify the properties of a living human personality. It is inseparable from it, and very often they are identical because the basic form of human capital is the individual himself.
People are inherent in the accumulation and transfer of experience and knowledge, as well as the accumulation of these resources over time. At the same time, they are symbols of the prosperity of the human nation. By its deep nature, human capital is presented as a substrate of knowledge, competence, skill, motivation, health, and experience, but it is acquired within the vital activity of individuals. Read about investment in Human Resources by the businesses.
In general, each person is unique. It has innate qualities, hereditary characteristics, foundations, predeterminations in the field of physiological and intellectual status. M. Friedman argues that the hereditary characteristics of the individual are more important than the inheritance of wealth through kinship. Thus, human capital not only identifies with the individual, but he can also express his own self-movement as a process of development.
Studying human capital
When studying human capital, some natural scientific characteristics of the population should be included as a specific feature of human capital. They relate to gender, age, mental, moral and social health, the conservation of available genetic resources as wealth, the prevention of degeneration and other degeneration of the human environment. General and specialized on-the-job training or self-study form respectively general and specific human capital. This is done at the level of the basic organization and can be both formal and informal. The investment process has these two possible characteristics and it is generally a grave mistake to confine investment programs to formal education alone.
Investment process in human capital
As a basic category, capital is a factor of production resulting from previous human activity that can provide growth in the course of its operation. The formation of capital goes through its internal stages and metamorphoses. The general formula of capital is multiplied or multiplied by wealth.
In terms of human capital, things are similar, except that they have another object of accumulation and growth that is related to the living individual. It is characterized by accumulation processes and growth, which makes it an analog of a capital structure of a special kind. In this case, the analogy with physical capital is, in principle, even imperative, because these are processes that have similar characteristics.
The analogy here is that in both variants there is some effect that provides for the growth and growth of the respective resource. The first is the physical elements of capital, of industrial capital in particular, and in terms of human capital, is the impact on the original human material. Whenever available human material is subject to the influence, and even the accumulation of experience from life itself, it is a matter of forming human capital. The individual is the substrate of wealth, and of the highest order because the accumulation processes here lead to the development of intelligence, which is the basis of all other products of human activity. The impact on this available substance is also the consumption of resources monetary, intellectual, physiological, temporal, and others that embody or express wealth in various forms. The aim is again, as a result of the subsequent impact, to obtain some new quality, ie to gain growth.
Depreciation of human capital.
Every single economic asset is not eternal, it is subject to wear and tear and the result of natural and other processes, worn out over time and inevitably destroyed. Particularly characteristic in this respect are fixed assets, which have a life span over time.
The general economic theory of the depreciation regime is universal and can be applied as a classic to a more specific matter relating to human capital. The analogy with physical capital is quite possible and acceptable, as long as it is not forgotten that this is a depreciation of a living human organism, then depreciation processes related to knowledge, information and only then its technical carriers.
Investments in an individual are of such a nature that they can have a lasting economic presence throughout their lives, even afterward. Under normal conditions, this can be one period of 40 years or more. Now, at the beginning of the 21st century, it is considered that for countries with developed market structures, it is normal to change the main field of personality realization up to three times in the course of a working career. In any case, this is also associated with the inevitable depreciation processes.
The analogy of depreciation processes related to human capital may begin with the fact that knowledge is also aging. Typically, specialist literature refers to cycles of 4 to 6 years. There is growing information congestion that places the need for selection and a new philosophy for dealing with the avalanche.
The depreciation of human capital is not only the aging of knowledge. It can also be seen as a reduction in the physiological capabilities of individuals over the age and life cycle criteria.
One person may forget his or her mother tongue if he/she does not practice constantly. Similarly, knowledge is lost when routine activities need to be undertaken over time. For example, there are many activities that require intense training of the body, of the relevant organs and systems.
Gross investment in human capital should reflect the total investment cost, including the depreciation of capital as such. The market is constantly dynamizing and restructuring the environment, and in the transition from one structure to another, different professions fall away and knowledge and experience are rendered meaningless under the pressure of historical time.
Human capital and knowledge
The untamed human spirit of exploring our environment knows no bounds. Making new discoveries is a real challenge that makes sense of the lives of many. At the same time, this is also a feature of human nature itself and is, therefore, one of the aspects of human capital.
It is characterized by the entrepreneurial nature and at the same time the continuity of the processes that provide the opportunity for accumulation. Human capital is characterized by the accumulation of knowledge, whereby one accomplished goal follows another, and so to infinity. The opportunity to invest in man is not only a genetic trait but also an acquired trait with millennia and experience. Knowledge is infinite, as is nature itself. This also determines the inexhaustible human ambition to discover and cultivate useful properties for itself.
The construction of the individual and human capital takes place over time. The accumulation of knowledge is different in intensity over time. It is also different in quality. Very interesting are the issues related to the integrity of human capital accumulation. The objectivity of the trend towards increasing the length of compulsory education can historically be proven. The more underdeveloped the society was, the more the mass education had more modest functions and goals.
Initially, societies started with 2-3 years of training. Nowadays, the educational process is related to at least 12-13 years of education in developed societies. Thus, the first 20 years of a person’s life are devoted only to investing in human capital.
The problem of the upper boundary of mass and compulsory education is too topical for society.
Human capital is an important resource of society
Preserving human capital in a society is a problem that needs to be addressed with a specific strategy, including corporate and organizational HR strategy amongst businesses. There needs to be national goals and concepts to achieve them.
Any historical progress or transition to a new state of society is preceded by massive investments in man. A literate nation is able to solve new and qualitatively different tasks compared to the period before mass education became widespread.
By its nature, human resources are people employed in the economy of the country with their general and specific knowledge, professional and business skills, work habits, attitudes and personal qualities that make it possible for it to carry out effective economic activity. They are that philosophical stone that makes every economic unit, every enterprise what it is and what sets it apart from the others. The preparation of employees, managers, and managers, their willingness to give their full strength and ability to achieve the goals of the enterprise in which they work, depends on the quality of production and productivity, the ability of the enterprise to meet the challenges of the market and its competitive ability.
The population of each country is the main and sole source of human capital and human resources
The population of each country is the main and sole source of human capital and human resources. It is an important factor in the development of the production and social progress of society. Its number, demographic and qualification composition, value orientation and motivation, degree of participation in economic activity depend to a great extent on the dynamics and efficiency of economic growth.
Different for each stage is both the capacity of the population to develop production and the specific needs of production in the labor force in the required quantity and quality. The degree of correspondence between these two factors largely determines the equilibrium of the economic system, including the equilibrium in the labor market.
The dual nature of the population as a producer and consumer of tangible goods and services occupies an important place in various theories of macroeconomic development.
The need to take into account this duality, its specificity, distinguishes the study of labor factors from other factors of economic growth. In general, the greater the restriction of economic systems on the population and its able-bodied part, and the higher the level of the economic potential of the nation, the greater the need to take into account the specificity of the human factor as a producer and consumer of material and spiritual goods and services.
The population is an important condition and factor for economic growth. It determines the scale and structure of both labor supply in the labor market and demand in the commodity market.
Therefore, the size, structure, standard of living of the work potential are both a goal in the development of every society and an important resource, a factor for that development.
For the progressive development of the population, for raising its living, cultural and technical level, as well as for its fuller and more effective realization in society, production, implementation of the achievements of science and technology are organized, the material and technical is expanded and improved. the base of the social infrastructure, the management of the economy and the conducted social and demographic policy are being improved.
Socio-economic development, dynamics, and equilibrium
The socio-economic development, dynamics, and equilibrium are influenced by a number of factors and conditions that are closely linked. Conditions for economic prosperity favor one or the other development and influence of factors and are the natural environment for their manifestation.
Among them is the population, among other general conditions for economic development – the size of the country and its geographical position, natural resources and state of the environment, climate, international political and economic environment, social and political climate, the accumulated national wealth, the achievements of the country. science and technology and opportunities for their implementation in production, etc.
The population as a condition for economic growth can be seen mainly as predetermining the supply and demand of goods, services, and labor.
Economic growth factors
Economic growth factors are the link between the conditions in which economic development takes place. Labor resources and, above all, the workforce employed are one of the important factors for economic growth along with capital (basic productive assets) and technical progress. The labor factors of economic growth include both the quantity of labor and its qualitative composition and the degree of effective use.
The size and structure of the population
The size and structure of the population significantly determine the quantity and demographic structure of the workforce employed. The total population is not determinant of economic activity, since only a part of it participates in the production process, manifests itself as a factor of economic growth. With their size and structure, the population of each country directly determines the labor potential, ie. the nation’s potential labor resources.
Potential labor resources
Potential labor resources are determined by the number and composition of the country’s population, and above all by its able-bodied population. An immediate source of labor resources is the population of the statutory working age who is willing and able to work, the population of working age (young people in working age and the population of working age) and the able-bodied among foreign nationals residing in the country.
The active population of the country, or potential labor resources, is reduced by the size of the working-age population who is not able-bodied (disabled and retired), by young people leaving their military service and by migrants from outside the country. As a result of these adjustments, the existing economically active population is established, which represents an immediate labor force for economic development and predetermines labor supply in the labor market.
The degree of use of this population for economic development, its labor activity and employment rate, its correspondence in quantitative, qualitative and structural terms to the needs of production and management, determine the dynamics and balance of economic growth.
Nature of economic development
Depending on the nature of economic development, the available active population differs more or less from the active employment, which is the actual productive force directly producing material and spiritual values, the gross domestic product of the country. The deviation is the size of the unemployed population, with those who are of working age who are willing but unable to find a job because of the current imbalance between labor supply and demand in the labor market.
Human Resources Certification
The labor force or size of the economically active population depends on a number of demographic and economic factors, but also on such factors as duration and scope of education, the standard of living and social security, level of education and vocational qualifications and human resources certifications.
Demographic factors determine the size and structure of the population, including the working-age population – the majority of the economically active population. Some of the demographic factors are related to the natural and others to the mechanical movement of the population. The first includes birth rates, deaths, marriages, etc., their level and long-term trends of development.
The increase in the economically active population and the labor
The increase in the economically active population and the labor supply are, first and foremost, contributed to by the increase in the population and the improvement of its age structure. In this morality, both the increase in fertility and matrimony are affected, as well as the reduction of mortality (especially of the infant and working-age population) and of divorce. The specific magnitude and orientation in the development of these factors by the natural movement of the population predetermine, on equal terms, the present and future numbers and structure of the labor resources and the active population of the country.
Reproduction of labor resources
The reproduction of labor resources is a complex and lengthy process that is inextricably linked to the reproduction of the population. In essence, these are two inseparable processes, since labor resources are part of the population.
The number and structure of the population determine the number of labor resources, and therefore the processes of their reproduction need to be considered in close connection. In turn, the number and demographic structure are shaped by a complex set of social, economic, socio-political, psychological and other factors.
The mechanical movement of the population (migration), both between the different regions of the country and to other countries, directly influences the actively employed population, unemployment and economic development, the reproduction of the population, the present and future labor resources.
The extent of this influence is determined not only by the size and directions of migration processes but also increasingly by the structure of migration – half-age and educational and vocational qualification.
The processes related to the natural and mechanical movement of the population directly affect its age structure, its reproduction opportunities, the distribution of gross domestic product and the development of the economy.
The age structure of the population, the intensity and the directions of its change determine its active characteristic rejuvenation or aging. In terms of normal reproduction, production, and economic growth, the former is more favorable.
It has a higher share of the younger generations and of people of working age in the total population, which share is growing and significantly exceeds that of the older age groups. With a high number and proportion of young people, ie. the working-age population is characterized by the demographic situation in most developing countries where the birth rate is very high.
The situation is relatively better in terms of the number and proportion of young people and in countries with very low infant mortality rates. A more immediate result for the economically active population, its size, and structure, its employment and labor supply are the size and share of the working-age population.
Other things being equal, the greater its size and degree of participation in production, the higher the economic performance, financial resources and resources of the country for the implementation of its social policy and social security of the disabled population. These opportunities are many times greater with high labor productivity and efficient use of the potential capabilities of the able-bodied population.
Young People, Education and Labor
Higher numbers and share of the younger generations or the working-age population, all other things being equal, reduce the country’s potential labor and labor supply, require more government spending on education and sport, scholarships and more. In this case, the share in the gross domestic product of the expenditures for the maintenance of education incl. MBA – Master of Business Administration and social assistance for the students is higher. However, limited economic growth at this stage (both in terms of labor and financial resources) will be offset or multiplied in the future when that generation becomes employable and acquires higher education and training. In this way the investments made in it become productive, they become investments for future economic development.
The impact of the aging population on economic development is complex and diverse. The higher share of the population in the high age groups (in working age) reduces the potential labor and labor force, significantly increases the need for health and social care development, multiplies the financial resources for social security, and their share in the gross domestic product increases.
Distribution of the gross domestic product and the opportunities for economic development
In terms of the distribution of gross domestic product and the opportunities for economic development, it can be said that the social security funds of the growing incapacitated population are non-productive investments. Therefore, all things being equal, the structure of the population and the directions of its change are important for the progressive and dynamic development of society. These problems are severe in the face of recession or long-term stagnation in the economy and high unemployment.
Population aging and potential labor resources
Population aging has an impact on a number of factors related to the size and structure of potential labor resources and their employment in the economic system. Along with the direct impact on the number and structure of the able-bodied population, it reflects on the mobility, ability, and desire to develop innovative processes, restructuring and technological renewal of production.
The slowly increasing and aging population impedes mobility, and structural and technological renewal processes, under all other conditions, can be delayed by the presence of an aging workforce in a number of industries and businesses. In addition, the aging population, the reduction in the number and share of the younger generation limit both labor and labor supply and quality restructuring of the employed, the increase in the share of those with higher education and professional qualifications.
The opportunities for different sex-age groups to be economically active and to participate in production are different. These differences are predetermined both by demographics and socio-psychological factors, as well as by the development and capabilities of the two economic and educational systems.
The participation of the population of statutory working age is crucial in the potential labor resources of each country and at every stage. In terms of economic development and its effectiveness, it is also the most able-bodied part of the population, especially in the 30-50 age group.
Therefore, the level of participation of this part of the population in the economy of the country is essential for the level of labor productivity and the results of economic activity. From this point of view, it is unfavorable for society if a significant part of this population is unemployed, especially for a longer period. In the latter case, it loses more or less its professional qualifications.
The level of employment of the population in the age group between 30 and 50 years varies by gender as well as by individual subgroups. Of particular importance, in this case, are the statutory retirement age in individual sectors and activities, the level of development and the employment rate of the population in them.
The expansion and re-categorization of the various types of activities increase the number and share of the population of the most active working age, retiring and leaving the economic sphere. All things being equal, this also increases the burden on social security funds.
In periods of high unemployment, it is almost impossible for him to continue his employment, especially since in these cases, it is very common to practice early retirement in restructuring industries and activities.
Another factor that reduces the potential population of this age group to participate in production is the mortality rate, morbidity, occupational disability. For example, these are the main factors in our country along with the factor of early retirement in the first and second categories of labor, which reduces the level of male labor participation.
The employment rate of the population
The employment rate of the population between 25 30 and 50 55 is relatively lower, which is also considered to be of working age. The reasons for this are different. The first group is influenced by the lower employment rate of women who raise and raise children and have long-term leave who have not yet started their work.
Factors such as fertility, matrimony, age of marriage and prevailing birth rate, social security of families and mothers, level of education and vocational qualification, the unemployment rate in the country at a given stage are specifically affected.
Since a small number of mothers of this age have not started their work after graduation (most often in higher and higher education) and are registering for the first time in the labor market, they have a very low chance of finding a suitable job, many smaller than those of young people of the same age group.
The use of frequent leave by mothers, caused by the relatively high incidence of infants in our country, makes women of this age group unwanted job applicants, condemns them to long-term unemployment, and makes use of other forms and employment regimes useful for society and for ourselves.