Human Capital

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Definition of 'Human Capital'
A measure of the economic value of an employee's skill set. This measure builds on the basic production input of labor measure where all labor is thought to be equal. The concept of human capital recognizes that not all labor is equal and that the quality of employees can be improved by investing in them. The education, experience and abilities of an employee have an economic value for employers and for the economy as a whole.

Read more: Shifts in the Demand for Labour
The number of people employed at each wage level can change and in the diagram below we see an outward shift of the labour demand curve. The curve shifts when there is a change in the conditions of demand in the jobs market. For example: * A change in demand for a product which means that a business needs to take on fewer workers * A change in the productivity of labour

* A change in the level of national insurance contributions made by employers or other costs of employing people such as health and safety legislation and training levies * A change in cost and productivity of machinery and technology which might be able to produce or provide a good or service in place of the labour input.

Labour as a Derived Demand
* The demand for labour is a derived demand i.e. the demand depends on the demand for the products they produce. * When the economy is expanding, we expect to see a rise in the aggregate demand for labourproviding that the rise in output is greater than the increase in labour productivity. * In contrast, during a recession or a slowdown, the aggregate demand for labour will decline as businesses look to cut their operations costs and scale back on production. In a recession, business failures, plant shut downs and short-term redundancies lead to a reduction in the derived demand for labour. The construction industry is an example of the derived demand for...