What is Human Capital Theory

The main purpose of the chapter is to provide a contemporary view of human capital (HC) based on recent research and from a theoretical perspective. Based on this, the chapter demonstrates the significance of individual knowledge, skills, and qualifications—human capital—for organizational outcomes and consequently economic growth. Although the concept of HC can be traced back to the work of Schultz with a considerable body of literature, the inherent dilemma with HC is that, unlike the organizational capital that a firm possesses, HC is an intangible asset that can simply leave and never return. Recently, an emerging stream of literature has attempted to unify both the individual and organizational level perspectives of HC and examine how they are related to competitive advantage. Given these considerations, in this chapter, HC will be viewed as a bridging concept where HC serves as a link between human resource (HR) practices and organizational performance in terms of building a worker as an asset. The chapter also presents the key approaches to HC measurement.