Human Capital Theory

Human capital theory posits that the costs associated with developing an individual's knowledge, skills, and abilities should be considered an investment because the outcome of these costs generates additional economic value. This theory has implications for both individual-level decisions and firm-level decisions. At the individual level, human capital theory posits that individuals may make investments in their own human capital in order to increase their earnings. At the firm level, the theory suggests that firms may make investments in developing the human capital of their workforces in order to increase firm performance. Because the abilities and talents of entrepreneurs, start-up teams, and early-stage workers are critical to the survival and success of nascent firms, human capital investments play an important role in the performance of ...