human capital

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The present discounted value of the additional productivity, over and above the product of unskilled labour, of people with skills and qualifications. Human capital may be acquired through explicit training, or on-the-job experience. Like physical capital, it is liable to obsolescence through changes in technology or tastes. The training needed to create human capital has to be paid for. Training for firm-specific human capital, which does not improve workers' earning ability outside the firm, can be provided by employers. General or vocational human capital, which can be used by other employers, will increase workers' outside earning power, so employers are in general reluctant to provide this type of training. The cost of creating human capital thus falls mostly on individuals or their families, charitable institutions, or the state. See also firm-specific human capital; general human capital.

Subjects: Economics.

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