Dear Friends,

If you have struggled with and fought for measurements to quantify whether it’s ROI or some other complex approach, metrics matter……then welcome to human capital economics. Human capital economics is really not new, but it continues to evolve. Decades ago, labor economists began analyzing measures like wage levels, movements and specialization of skills. When HR was called “Personnel” there were also ongoing efforts to measure the economics of people-related processes, and in the 1950s and 1960s academics like University of Chicago’s Gary Becker were working on foundational theory, in Becker’s case even winning the Nobel Prize.

Starting in the 1980s, momentum in the practical sphere grew, complementing the advances in theory. European companies—especially Scandinavian—focused attention on non-financial dimensions of business, including environmental impact and workforce welfare. As such issues rose in political importance in those societies, many enterprises developed metrics for driving “intangible objectives,” incorporating them in annual reports. A related political theme added to the fray—the rise of labor-rich third-world economies and the belief that established countries would have to compete more systematically on intangibles.

Organizational intangibles also began to interest investors and capital market analysts. As equity market numbers increasingly diverged from hard-asset values and accounting leaders began to argue that traditional measures were not accurately reflecting underlying values, new research and practice emerged to quantify work, human contributions and different kinds of “capital.”

Regards,

Prof Tandon