OMDE 606 September 2012 Leila Liberman

Human Capital Theory

Faulkners Intruder in the Dust, The man without skills and knowledge leaning terrifically against nothing. This is how Schultz ends his article, Investment in Human Capital, defining his theory on human capital. This quote sums up Shultzs article very clearly, with the understanding that we as individuals must invest time and money in ourselves. With such an investment in the self, one has the opportunity to gain critical skills essential to securing the employment where those skills may be put to use most effectively (Schultz, 1961). This is the ultimate return on the initial self- investment. The term return stands for the initial monetary investment made by the individual plus the loss of any income suffered while seeking an education and then the amount of revenue recouped as a result of the employment following ones educational experience. Schultz speaks to the concept of return based on a person being skilled or not skilled (Schultz, 1961). Schultz states that on the job training was sufficient at one time in the early 20th century to allow one a high rate of return (Schultz, 1961). As the years progressed into the next century, he finds that on the job training is not seen as favorable. He states that the initial wage for an individual trained on the job will be lower, and over the years will increase as the workers skill level increases (Schultz, 1961). Age must be considered when discussing the Rate of Return based on the Human Capital Theory (HCT). An individual seeking an education at 20 years of age will have many more years to gain a return on their educational investment than an individual of 50 years of age seeking that same education. In addition younger people generally tend to be more willing

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OMDE 606 September 2012 Leila Liberman Human Capital Theory and able to move from job to job and from place to place for advancement, professionally, financially and personally. Locale is a critical factor in determining the value of Human Capital Theory. Human Capital Theory will impact various individuals differently depending on their homeland. Outcomes cannot be guaranteed based on any particular degree. Global location is a significant factor in determining the outcome of any education sought. Thus, consideration must be given to which country and the amount of years spent in education and how it will impact the selfinvestment and affect the overall investment when considering the return.

Relevant Strengths/Pros to the Human Capital Theory

The professor of OMDE 606, Thomas Huelsmann, states that talent is revealed as one earns a more advanced education. This statement is simultaneously directly proportional and indirectly proportional to the field of dental hygiene. There are three levels of education for a dental hygienist. These are a Certificate or Associate Degree in Dental Hygiene, and a Bachelor of Science and Master of Science in Dental Hygiene. The higher degrees are directly proportional only when one enters the world of academia as an educator or public health. In contrast, the private sector is indirectly proportional to this theory since the private dentist seeks only clinical competence. Attaining additional education and degrees, beyond what is required for licensure, holds little or no meaning to the dentist wanting to hire a clinical dental hygienist. Typically, this dentist will hire a dental hygienist at the lowest possible wage with any additional degrees irrelevant to this dentist, who simple wants a hygienist with the skills to Liberman 2

OMDE 606 September 2012 Leila Liberman Human Capital Theory treat his/her patients. Contrary to the professors comment, the profession of dental hygiene is not always viewed positively in relation to the Human Capital Theory. Eve T., a student in OMDE 606, states that by increasing your education you become the NEW and IMPROVED candidate from the last one. This is consistent with Schultzs th eory that the more educated one becomes the more one will earn over a period of time. Eve T. speaks to talents being taught and developed. She is supporting education and on the job training. When this is related to HCT the better ones talent and aptitude the more quickly one will secure employment and benefit from its proceeds. Another student supports the concept of on the job training when referencing employees at Starbucks and learning the system to be more productive with time. The video presented by Professor Huelsmann clearly states that the way one gains returns from their education is by keeping the employer impressed with their skill level and ability to produce quality work. By the worker doing this, in turn, the employer is able to increase their Rate of Return and then rewarding the employee with wages to better their own life.

Drawbacks to the Human Capital Theory

Professor Huelsmann is quick to remind the students in OMDE 606 that global considerations must be taken into account when anticipating the rate of return on the HCT. A bachelors degree in Information Technology in a developed country such as the USA or Germany would hold greater value and provide a greater return on investment then that same Liberman 3

OMDE 606 September 2012 Leila Liberman Human Capital Theory degree in a country less developed such as Tanzania or Sudan. Human Capital Theory will impact various individuals differently depending on their homeland. Those individuals who have attained a higher degree may not be able to use any higher degree in a lesser developed country than if they lived in a more highly developed country. There are six schools in Maryland offering a Certificate or Associate in Dental Hygiene and one offering a Bachelor of Science and Master of Science degrees in Dental Hygiene. This is a perfect example of what Professor Huelsmann states, that any oversupply of graduates means that educational returns fall and people will not study until the good employment opportunities rise. Professor Huelsmann also states number of degree holders in the field, a statement that should be well examined prior to entering the dental hygiene profession. The professor states that one should play on other attributes to help secure a position. The profession of Dental Hygiene, in the state of Maryland, does not fit positively into the Human Capital Theory. By producing more dental hygienists in the state of Maryland, returns are not guaranteed. Our professor states this very clearly, if more people with the same tool appear on the market, having the tools is of little value if most people have it. A dentist wanting to keep his personal return high will hire the dental hygienist who will take a lower rate of pay. His goal is to hire a dental hygienist who meets the licensure standards for the State and thus is clinically competent, sadly educational status means nothing. Talent is discussed in depth between the Professor and Theresa. The Professor states strongly that talent does not get you success and that one can learn anything they set their minds too. However, talent in the field of dentistry is mandated in order for profit and success. One must have an artistic talent with design and working in small defined spaces. Liberman 4

OMDE 606 September 2012 Leila Liberman Human Capital Theory Steve Jobs and Bill Gates do not support the concept of rate of return according the Human Capital Theory. Both of these men were college drop-outs and far exceeded any expectation for their success (Damon, 2011).

Conclusion

Human Capital Theory supports the concept that one who is educated will one day have the earning potential to have a positive rate of return on that initial investment. I believe this to be true much of the time especially in the highly developed Western world. Schultz proposes that when individuals invest in themselves they, in fact, increase their personal welfare and well-being thus having the ability to contribute to a greater degree to society as a whole. Schultz also refers to a line of reasoning that human investment should be carefully measured in economic calculations, considering locale, age and migration.

References Damon, W. (2011). Retrieved from http://www.hoover.org/publications/definingideas/article/93066 Schultz, T. W. (1961). Investment in human capital. American Economic Review, 51, 1-17. http://wiki.answers.com/Q/Where_did_Bill_Gates_go_to_get_an_education

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