Human Capital Literature Review

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Education, Skills and Human Capital Literature Review

An individual’s level of education and the skills they possess are considered to be two out of three components of human capital with the third being their early abilities (Blundell et al., 1999). A term that was once heavily criticised as it was perceived as relating people to ‘slaves and machines’, human capital is now used by social scientists on a daily basis (Becker, 1994). Similar to opening a bank account, buying shares in a company and a firm’s expenditure on productive machinery, investment in human capital can provide rewarding returns. The returns could be in the form of increased output where firms spend on training employees giving them the skills necessary to increase their
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In the introduction of this paper I briefly outlined the components that Blundell et al. believe make up someone’s human capital. The term can be defined as ‘any stock of knowledge or characteristics the worker (either innate or acquired that contributes to his or her “productivity”’ (Acemoglu and Autor, n.d.). This definition expresses that not only years of schooling contributes to the capital within oneself but acknowledges that natural abilities such as raw strength or physical quickness can also contribute to one’s productivity.

The term was initially devised as an analogy that compared investments in education and training - which increase productivity - to the investments in tangible capital stocks that can also be aimed to boost the productivity of the labour force. The investors that in invest physical and human capital invest in the hope that benefits such as productivity gains grow or increase over time. English, F. (2006), however, identifies a shortfall of this analogy. Unlike tangible capital stocks that can be resold on the market in exchange for monetary payments, human capital by nature cannot be sold as the capital itself is ‘embedded in the nervous system of a specific individual’ (English, 2006, p.
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Acemoglu and Autor (n.d) mention the five different perspectives of human capital belonging to a few well-known scholars. The first three views of human capital that Acemoglu and Autor (n.d) describe are The Becker view, Gardener view and, Schultz/Nelson-Phelps View. These three views do have their differences but they all share the idea that human capital is valued in markets due to its perceived profitability by firms. The fourth view (Bowles-Gintis view) is similar to previously mentioned views in regards to the fact that firms are willing to reward higher wages to educated employees as they are considered more useful since firms view them as more reliable and competent. The final view (Spence view) contrasts quite significantly from the other views. His view states that human capital present signals about workers’ inherent characteristics and are rewarded based on

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