Human resource management practice I also available by michael armstrong

Human capital defined

Human capital consists of the knowledge, skills and 

abilities of the people employed in an organization. 

As Wright and McMahan (2011: 101) explained:

Each individual in the organization has 

characteristics that comprise human capital.  

He/she also engages in the processing of 

information, interpretation and reaction to that 

information in making choices about how to feel 

and behave. The aggregation of human capital, 

we propose, constitutes the organization or unit’s 

‘human capital’.

Human  capital  constitutes  a  key  element  of  the 

market worth of a company. A research study con-

ducted in 2003 by CFO Research Services estimated 

that  the  value  of  human  capital  represented  over  

36 per cent of total revenue in a typical organization.

The significance of the term was emphasized by 

Schultz (1961), who defined it as follows.

Human capital defined – Schultz  

(1961: 1)

Although it is obvious that people acquire  

useful skills and knowledge, it is not obvious that 

these skills and knowledge are a form of capital, 

that this capital is in substantial part a product of 

deliberate investment, that it has grown in Western 

countries at a much faster rate than conventional 

(non-human) capital, and that its growth may well 

be the most distinctive feature of the economic 

system.

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