Human Capital

Just as physical capital, such as machinery and buildings, helps produce goods and services, human capital makes workers more productive. It can be increased through education, training, work experience and good health.

The concept was developed by economists such as Gary Becker and Theodore Schultz in the mid-twentieth century. It explains why individuals and governments invest in education and why more skilled workers tend to earn higher wages.

For example, a person who spends several years training as an engineer increases their human capital, expecting higher lifetime earnings in return for the time and cost of study.

At the national level, human capital is a major driver of economic growth and innovation. Countries invest in schools, universities, healthcare and training programmes to strengthen it. In personal finance, human capital is often viewed as a person's most valuable asset early in life, which is one reason younger people can sometimes take more investment risk with their savings.