Human Capital Theory - Essay Example

Human Capital Theory Introduction Human Capital Theory deals with the investments made in people. It is difficult to anticipate that all the people have equal productivity or efficiency. Organizations always look for productive and efficient employees to enhance the performance of the organization. Olaniyan & Okemakinde, (2008) mentioned that human capital theory refers to the increase in productivity and efficiency of workers by increasing the level of cognitive stock of economically productive human capability which is a product of innate abilities and investment in human beings (Olaniyan & Okemakinde, 2008, p. 158). Efficiency of a worker depends on many factors and the attitude of the worker is one among them. Attitude of the worker can be modified only through the modification of his cognitive activities and for that purpose human capital theory proposes training and education. Competences, knowledge and personality attributes to perform labor and to produce economic value is perceived to be different for different people and the labour-market segmentations are tied to race or gender or social class. People belonging to some specific classes or races are perceived as people with superior abilities. This paper briefly analyses, up to what extent, can Human Capital Theory provide a plausible explanation for inequalities in the labour market? Inequalities in the labor market and human capital theory Human capital theory believes that the expenditure on training and education should be considered as an investment since it is undertaken with a view to increasing personal incomes (Economy professor, n. d). Many people have the belief that education and training consumes heavy tolls of financial resources. At the same time it brings dividends to the country and the organization which provides training and education. For example, it is difficult to anticipate that a person may excel in IT sector without proper training even if he comes from an aristocratic family background. Training given on basic computer packages may help him to become accomplishes clerical jobs or data entry jobs. On the other hand more comprehensive training on software tools may make the same person capable of performing complicated project management tasks. In short, the productivity of a person depends on how well he was trained or educated to develop his skills. Most of the research on earning inequality uses individual level data (Skamoto, 1998, p.86). Human capital approach is used to explain wage differentials in organizations. It is difficult to pay same wage to two different jobs because of the difference in complexities involved in these two jobs. Moreover, some jobs might be more productive than the other. For example, a peon or a sweeper brings less productivity to the organization compared to a manager or an executive. So it is difficult for the organization to pay same wages to both the peon and the manager. At the same time equal wages should be provided to two people engaged in same profession. But in many cases, organizations perceive that a white may bring more productivity than a black even if both of them engage in same profession. Such assumptions are baseless as per human capital theory. Jacob Mincer (1962) and Gary Becker (1964) have argued that inequality exists, in part, because some workers are more productive than others. Productive workers are more productive, in part, because they have invested more in themselves in human capital (Herring, n. d, p.2). It is difficult to anticipate that two people may perform equally even if they have same level of education. Bu such inequalities in performance may not have any connection with the race, gender or social class. Such inequalities are purely because of the differences in intellectual levels, personality and attitudes. One my friends have told me a story about his experiences during his studies. He has told me that he had the experience of learning history classes under two different teachers, one was a university topper and the other was a teacher who failed to achieve his master degree I the first attempt. In my friends opinion, the classes taken by the second teacher (The one who failed to secure master degree in the first attempt), was by far the best compared to the first teacher (the university topper). In other words, academic credentials alone cannot be taken as the measure of productivity. Inequality occurs because (1) some people have more talent than others, (2) are willing to invest more in their human capital, (3) choose to work in jobs that pay higher monetary incomes, and (4) some employers have a taste for discrimination (Herring, n. d, p.2). Same levels of investments in the development of human capital need not yield same results always for different people. But such things may not have any connection with the gender or the social classes. We have many examples in which people coming from low social backgrounds performing well compare to their counterparts coming from higher social backgrounds and vice versa. Some people may not deliver their 100% efficiency or productivity because of their negative attitudes towards careers or earnings. Such people may not care much about the earnings because they may have other options revenue. In such cases, whatever the training or education given, they will not perform beyond certain levels. The attitude of the employers towards their employees may also influence the productivity. Some employers may extend generosity in dealing with their white employees whereas same things may not be extended to the black. Such employment discrimination also affects the productivity of the employees. These employers often fail to recognize the importance of intelligence and attitude over race, class or gender in determining the efficiency and productivity. Babalola (2003), argued that the knowledge acquired by previous generation has a significant role in shaping the knowledge of new generation (Olaniyan & Okemakinde, 2008, p. 158). Heredity and environment are the two biggest factors which are responsible for the shaping of a person. People belonging to the upper classes or aristocratic families may have the luxury of good heredity and environment to build up sound personality and attitudes which they may transfer to their successors. But the above argument cannot be applied to all the people as we have many examples in which less productive people came out from aristocratic families. It is a fact that the knowledge acquired by the older generation through experiences can help us immensely, at the same time there is no point in generalizing that the children of scientists will become scientists or children of politicians will become politicians. According to Smith (2000), white men are more likely to mobilize weak, white, male and their greater mobilization and influential ties helps to explain a substantial part of their wage advantage over white women and Latinos. But, their overall social resource advantage over black seems to be overstated (Smith, 2000). Many people have the belief that the white community has superior abilities compared to the black community in intelligence and social resources. But such claims are also meaningless. We have lots of examples in which blacks succeeded over whites. In the recent American presidential election itself, a person of black origin, Obama was more successful in influencing the people both from the white and black communities compares to the white candidate John McCaine. As per the recent UK statistics available, unemployment has achieved an all time high recently (See appendix). Global financial crisis and the subsequent destruction of industrial sector have contributed heavily to the unemployment problem. “Labor supply consists of people who are employed, as well as those people defined as unemployed or economically inactive, who can be considered to be potential labor supply” (UK National Statistics: Labor Market, n. d). Non-utilization of the expertise of educated or skilled personnel is definitely not good for the economic progress for a country. Human capital is the most important resource available on earth as all the other resources like, material, machine and money need the supervision of human resource for effective utilization. Idle human resources may result in immobilization of other resources. It is because of the above fact that all the countries are giving emphasize to human capital development through training and education. Conclusions Human capital theory deals with the efficiency and productivity of human resources. It argues that the investment made on developing the human productivity should be considered as an investment rather than the expenditure. The productivity and efficiency of a worker is not related to the race, class or gender, but it depends on the intelligence, attitudes and other cognitive aspects. The ethnicity or culture may not have much effect in developing the human capital. It is a fact that heredity and environment have significant effect in shaping the behavior of a person. At the same time in many cases people brought up in healthy environment were also failed to perform well. In short, the intellectual level, attitude, personality and the necessity for acquiring good living standards are the major determinants in controlling the productivity of a person rather than his class, race or gender. References 1. Economy professor, (n. d), Human capital theory, Retrieved on 6 March 2010 from http://www.economyprofessor.com/economictheories/human-capital-theory.php 2. Herring Cedric (n. d), African Americans and Disadvantage in the U.S. Labor Market, http://www.rcgd.isr.umich.edu/prba/perspectives/spring1995/cherring.pdf 3. Olaniyan. D.A & Okemakinde. T (2008), Human Capital Theory: Implications for Educational Development, European Journal of Scientific Research, ISSN 1450-216X Vol.24 No.2 (2008), pp.157-162, Retrieved on 6 March 2010 from http://www.eurojournals.com/ejsr_24_2_01.pdf 4. Skamoto Arthur, (1998), Labor Market Structure, Human Capital, and Earnings Inequality in Metropolitan Areas, Retrieved on 4 March 2010 from http://www.jstor.org/pss/2579101 5. Smith Sandra (2000), Mobilizing Social Resources: Race, Ethnic, and Gender Differences in Social Capital and Persisting Wage Inequalities, Retrieved on 6 March 2010 from http://www.jstor.org/pss/4121116 6. UK National Statistics: Labor Market (n. d)Retrieved on 6 March 2010 from http://www.statistics.gov.uk/hub/labour-market/index.html 7. UK National Statistics: Labor Market Topic guide to: Unemployment (n.d) http://www.statistics.gov.uk/hub/labour-market/people-not-in-work/unemployment/index.html Appendix Source: Labour Force Survey (UK National Statistics: Labor Market Topic guide to: Unemployment) Read More