Understanding Human Capital Development
Every organization aims to have responsible and engaged employees who can contribute to the success of the business. The more educated the workforce, the more skilled they become in contributing to productivity. Businesses are therefore focused on increasing profitability with the available resources at their disposal. This has led to a growing interest in human capital development and a growing recognition for investment in it through lifelong learning within organizations.
Gallup research highlights a global productivity loss of $9.6 trillion (9% of global GDP) due to low employee engagement, with only 23% of global employees currently engaged in their jobs because of a significant lack of “someone encouraging their development.” According to a 2024 Gallup survey, this is a key indicator of human capital decline. Only 30% of U.S. employees strongly agree that someone at work encourages their development.
In theory, human capital is found to contribute to economic growth, but empirical relationships do not hold across many countries (Islam, 2020). Generally, research around investing in human capital is supportive regarding the effectiveness of investments. Unfortunately, for many decades, human capital development has been burdened with challenges because not every company develops it (Odonkor et al., 2019).
Human Resource managers in organizations have had hard times convincing management to invest in human capital, including workforce planning and strategy, recruitment, employee training and development, and reporting and analytics. There has been a call to justify investment in human capital which is based on improving employee skills and knowledge through education, and these investments can be easily calculated. Thus, building and investing in humans is fundamental to transformation and development.
Human Capital: Definition and Significance
The Oxford English Dictionary defines human capital as “the skills the labor force possesses and is regarded as a resource or asset.” It encompasses the notion that there are investments in people (e.g., education, training, health), and that these investments increase an individual’s productivity. It is the economic value individuals bring to a job, consisting of experiences and skills, enhanced by education, training, and qualities such as loyalty and punctuality (Klenton, 2025).
Economic value is placed on goods and services based on the benefits they provide. Although subjective and difficult or impossible to measure, it is the willingness of an organization to pay for the value, usually measured in units of currency placed on products. This is different from market value, which is the market price for a product which can be higher or lower than economic value (Banton, 2023). At its core, human capital development recognizes that individuals are the most valuable assets within any organization.
This tangible asset is not listed on a company’s balance sheet but perceived to add to a company’s growth, productivity, and profitability (TalentoHC (n/d). Human capital Return on Investment (ROI) measures the economic return generated by investments in human capital, such as training programs, well-being programs, or employee benefits. It measures the gain or loss generated relative to the amount of money invested (Stoop, 2024).
A 2015 meta-analysis found that companies that develop their employees have achieved 7%-23% higher employee engagement, 14%-29% increased profit, 10%-19% increased sales, and 6%-72% lower turnover (Robison, 2021).
Human Capital Index and Global Context
The Human Capital Index (HCI) is an annual measurement prepared by the World Bank. It measures which countries are best in mobilizing their human capital, the economic and professional potential of their citizens. The index measures how much capital each country loses through lack of education and health. The index ranges between 0 and 1, with 1 meaning maximum potential is reached (Wikipedia, 2025).
Gallup statistics on Ghana’s human capital development are not readily available, however, data from the World Bank and the UNDP indicate that as of 2020 and 2023, Ghana faced significant challenges, including a large informal sector (75%), high youth unemployment (65% among 15-24 year-olds), and gaps in learning-adjusted years of schooling (UNDP, 2024). Key areas for improvement include STEM/STEAM education, digital infrastructure, and overall job creation, highlighting the need for strategic investments in these sectors (Ghana National Human Development Report, 2023).
Human Capital Theory and Its Implications
The concept of human capital is rooted in Adam Smith’s economic theory dating back to the 18th century, which holds that people are not just a cost to a business but an investment (Talent Assessment, 2023). By investing in their employees, businesses tend to improve their productivity and profitability over the long term.
Human capital theory suggests that individuals can increase their productive capacity through greater education and skills training. Put another way, human capital is the concept that recognizes that labor capital is not homogeneous. It provides companies with an incentive to seek and add to the human capital of their existing employees.
Critics argue that the theory is flawed, overly simplistic, and confounds labor with capital. Some argue that it places too much emphasis on the economic value of people, and not enough on their intrinsic worth (Talent Assessment, 2023). Others argue that it fails to account for the social and cultural factors that shape people’s abilities and opportunities.
Types of Human Capital
There are various types of human capital, including technical skills (which include specific abilities related to a particular job or industry), soft skills (interpersonal abilities that enable individuals to communicate effectively and work collaboratively), and intellectual capital (including knowledge, expertise, and experiences individuals bring to a job or industry, encompassing both formal education and practical experience (Talent Assessment, 2023).
There is also institutional knowledge (which refers to the specific knowledge an individual has of a particular organization, including its culture, history, policies, and procedures, and gained through years of experience) and organizational capital (which includes the systems, processes, and structures that enable an organization to function effectively (Stoop, 2024).
Human Capital Investment and Development
Human Capital Investment is the process of improving workforce knowledge, skills, health, and abilities through education, training, and health initiatives to enhance productivity and economic value. Theodore Schultz and Gary Becker emphasize education and health as investments that yield returns similar to physical capital, hence a fundamental driver of economic development (Tang, 2025). Countries that prioritize investment in human resources tend to experience higher levels of income, reduced poverty, and improved social welfare.
Some arguments in support of human capital investment have been advanced, for instance, social and economic development are intrinsically linked and instrumental in nurturing thriving economies. Another argument is that investments in human capital can yield returns, and such investments need to be well designed if they are to yield high returns. Again, there are many opportunities for high returns in human capital that remain untapped (Chandy, 2019).
Human capital development and investment is seen as an antidote to economic adversity, encompassing the intellectual acumen, proficiencies, and competencies possessed by individuals that enable them to contribute to the economy and society, playing a pivotal role in fostering innovation and technological advancement (James, 2024). By investing in education, health, and skills, citizens are empowered to drive productivity, innovation, and inclusive growth (Tang, 2025).
Human Capital Management in Human Resources
Human capital management (HCM) is an organization’s strategic approach to managing people as valuable assets to achieve business objectives. It involves activities such as recruitment, training and development, performance evaluations, compensation, and employee retention. The goal is to optimize the productivity and contribution of each employee to the organization’s success (Talent Assessment, 2023).
Human capital offers Human Resource Managers an effective strategy that ensures that they get the right talent, with the appropriate skills in the right positions to meet organizational goals. The strategy involves everything from talent acquisition and training employees to managing performance and providing career development opportunities.
Success Indicators and Strategic Benefits
Evidence by researchers demonstrates that economies and organizations with strong human capital foundations achieve greater engagement, prosperity, and resilience. For sustainable development, human capital investment must be recognized not as an expense but as the most critical investment in the future.
Human capital strategies suggested in literature include creating a strength-based company culture and making human capital strategy a part of the strength, ensuring that leaders and managers learn the strengths, and improving organizational performance by promoting reading (Robison, 2021).
For individuals, human capital investment and development yields higher productivity, increased income, and better quality of life, leading to greater engagement. Thus, it is not enough to just get an education but individuals must enhance their capacity by acquiring skills and experiences as well as health and wellbeing, that increase their economic value, which in turn increases their wealth creation, earning potentials, greater well-being, and improved opportunities.
Organizations on the other hand benefit from human capital development through improved organizational performance, higher productivity, increased competitiveness, and long-term sustainable growth. Organizations must select, engage, and develop employees in ways that reinforce company purpose, brand, and culture.
Throughout the entire employee life cycle, from attraction and hiring to onboarding, development, and promotion, leaders need to be consistent when delivering messages about what is unique and important to their organization (Gallup, 2023). It promotes engagement.
Bai (2024) observes that employee quality is an important part of human capital investment, but the effect of human capital investment on performance improvement is affected by the low level of internal management. It is also widely recognized that investing in employees can have positive performance-related effects on an organization (Bai, 2024). Additionally, the benefits of human capital development to the organization in improved productivity & efficiency, superior innovation, higher job satisfaction, and better workforce planning.
Human capital development in general, offers society economic growth, social equity, national stability, and technological advancement in addition to achieving faster adaptation to economic shifts, promotion of entrepreneurship, reducing crime rates, and creating more stable societies.
Individuals and organizations in the quest to maximize the potential of human capital development must see education and training as the fundamental pillar to effectiveness and productivity. Health and well-being cannot be overemphasized. Physical and mental well-being have become the game changer in human capital development, with healthy workforces becoming more productive in the long term.
Organizations must prioritize healthcare services to the human resources. Talent management, productivity, leadership, strategic alignment, organizational agility, and employee engagement and retention are pivotal to any organization, and this can be delivered by human capital development.
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