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What Are the Different Human Capital Models?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 03 September 2016
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Human capital models typically represent studies on how a company can best use its largest resource: employees. Different models are available as few situations in business are the same or remain static in the long run. For example, a few types of human capital models include strategic management, simple statistical analysis, and empirical studies on the use of human capital. Each one provides a different look at the use of human capital and the investments a company can make into its overall workforce. The latter two models make heavy use of variables and statistics in order to gain a mathematical understanding of this business activity.

Strategic management is an ongoing business task that looks to place the best people in the best places at all times. Owners, executives, and managers conduct deep reviews of all aspects of their company’s business processes. Allocating properly educated and trained workers into specific business activities is the main purpose for human capital models based on strategic management. If a company fails to have the proper employees, then hiring new workers may be necessary. This process does not stop as companies continue to seek the best competitive advantage through the use of employees and their knowledge, skills, and abilities.

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Simple statistic analysis often looks at investments made into employees in terms of education, training, and similar skill sets. This analysis is often based in basic economics as a company most likely looks for the point at which diminishing returns begin. For example, companies can look at the costs of wages and benefits provided as part of these human capital models. Placing the information into a statistical formula provides data on the point where a company no longer receives benefits by spending more money on its workforce. In short, this point represents the dollar limit for trying to improve employee conditions as the company will not be able to add to its current competitive advantage.

Empirical studies of the various human capital models tend to be the most aggressive. Major statistical studies are necessary to determine how different variables affect a company’s workforce. Data gathered might be internal or external as these studies can use outside data to provide trends that will eventually mimic the company’s internal human capital. A hypothesis is also necessary, which may explain the relationship between at least two variables. Information gleaned from this model is only used for decision-making purposes because the study itself cannot make decisions on its own.

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