Comparison and Implications of Human Capital Theory at the Individual, Organization, and Country Levels (2014)

INTRODUCTION According to human capital theory, education level is positively correlated with income. It specifies a particular mechanism by which education increases skills; in turn, acquired skills increase productivity, resulting in higher productivity being rewarded through higher earnings (Becker, 1993). It shows a positive correlation between age and earnings whereby older workers earn more because they have more on-the-job experience or training. Education and on-the-job training are said to make workers more productive and they are paid more because of their increased productivity. On-the-job training can provide general human capital (i.e., skills and knowledge transferable to other firm settings) or specific human capital (i.e., skills and knowledge only useful in the particular firm) (Becker 1993). The notion of human capital theory provides us with important insight about the relationship between education and earnings and the factors related to education and earnings (e.g., age, type of training, costs, labor markets, etc.). Based on these insights, we can classify three implications of human capital theory at the individual, organization, and country levels. At the individual level, human capital theory explains basically a supply-side theory, which analyzes individual data consisting of the supply-side of the labor market. At the organization level, demand-side theory takes into account the analysis of firm related phenomena (e.g., productivity, investment, turnover, etc.). There is a comprehensive perspective at the country level, where both supply- and demand-side theory should be equally considered in national policy making. With respect to individuals, understanding of human capital theory can increase their investment motivation and decrease failure in the labor market. For human resource development professionals, a more economic view of training and development is required to apply investment activities and gain benefits with a minimal investment risk. With regards to government policy makers, implementing human capital theory provides a wider scope for considering the extent to which policies, such as education reform, government training policy, equal employment opportunity legislation, affirmative action, and pay equity arrangements, can provide a more efficient and equitable use of human resources. The purpose of this paper is to present human resource development professionals with information about significant factors related to human capital investment. It will help human resource development professionals understand what considerations they should make before investing in human capital. Based on a perspective of the individual, organization, or country, human resource development professionals may react differently in human capital investment. This paper will present the differences between three perspectives in human capital investment that are necessary to make good investment decisions. To achieve this purpose, the paper includes two challenges to human capital theory. First, it will theorize the basic frameworks of human capital to provide a theoretical foundation for further analysis in human capital investment. Secondly, it will identify considerable factors in human capital investment related to three levels of perspective--individual, organization, and country. At the same time, it will present how human capital theory can be applied in an investment decision for the three respective levels. THEORETICAL FRAMEWORKS OF HUMAN CAPITAL THEORY Becker (1962) introduced the basic notion of human capital. He states that the theory of human capital can be defined as skills acquisition, and that skills acquisition can be achieved through education and training. Education is the most important way to obtain human capital, and training is another important method to invest in human capital. For example, individuals invest in human capital by spending their money (e. …