EPF4 Impact of Human Capital

Nick Hemann

What is human capital?

Human capital is the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.
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One of the most common ways to invest in human capital is to receive higher education.

What is the impact of human capital on production costs?

Many economists these days consider human capital as a valuable factor of production. They know that education is an important part of increasing economic growth and potential. The more skilled the workers, the higher quality of work that they will produce. Because they are more valuable to the company and are generally more productive, they help to lower production costs. Increases in productivity tend to lower costs. For example, if four workers can accomplish the same amount of work as six workers, this is an increase in productivity which saves the company the wages of two workers.

What is the relationship between a person's own human capital and his or her resulting income potential?

In general, it appears that the more human capital that an individual possesses, the more potential that he or she has for an increased income. People with a greater knowledge and skill set are more valuable to the company that new, unskilled workers. They will make a great deal of money for the company or organization, and will retain their jobs, and therefore their money, for a longer period of time, thus increasing income potential.