Capital Investments: Human v. Physical

In this lesson you will define human capital and understand why it is necessary for economic growth. Also, you will explore how people can increase their personal level of human capital.



Businesses make capital investments everyday –for example, when they acquire new trucks, machines, buildings, and other tangible items. It is often easy to see how capital investments affect businesses. But what is human capital? How does human capital affect me and the business I work for? If I have it, does it help the company or does it only affect me?

In business today, your survival and potential for promotions are dependent upon being a valuable asset to your company. For you to move up the ladder of success, you must increase your skills and education. In economics we call this improving human capital. In this lesson you will learn more about human capital, analyze how human capital affects our economy, evaluate what your current level of human capital is, and find out how to be more valuable to employers.

Visit this site and read more about Human Capital .

Learning Objectives

  • Describe human capital.
  • Explore why human capital gains are beneficial for our economy.
  • Differentiate between human capital and physical capital.
  • Determine the return to investment for their own human capital.

Resource List

  • 'Human Capital' by Gary Becker: Explores the idea of human capital as a resource. It explores the value of human capital and why it is necessary for economic growth.
  • College Costs Calculator: Follow the link below to find the average cost of an education. You can use the average cost provided on the right side of the web page or you can use the link to find the exact cost of the institution you would like to attend in the future. For the purposes of this calculator use 4 years for a bachelors degree, 6 years for a masters degree, and 8 years for a Ph.D degree. Write your findings down on a separate sheet of paper to use later.


Answers in this section will vary. The students should be encouraged to explore a variety of scenarios for their future education needs or desires.  The College Cost Calculator will be helpful for this lesson.

bookHuman capital is what we bring to the work place. It is our education and experience. When we are first beginning to work, we do not have significant human capital. The first question we are going to answer today is how will human capital, in this case, education, help me financially?

Have the students visit the web page below and find out what the value of a higher education is. By clicking on the link 'What is the value of a Higher Education?' and inputting their information under "Proposed further education," the students can see how valuable higher education really is. Encourage them to experiment and learn how much they would be making with different degrees.

(Note: For holders of college degrees, the payoffs in earnings may vary depending on salary profiles in various fields of employment. For example, a teacher with a bachelor's degree usually makes less money than an engineer with a bachelor's degree. Make sure the point you get across is that higher education pays off, not that there are differences between degrees.)

Write down your findings and answer the following questions.

View Interactive Activity


  1. What did your research discover about the costs of college?[Answers will vary.]
  2. What will you earn in your lifetime if you only finish high school? [Answers will vary.]
  3. What about a bachelors degree, a masters degree, a doctorate degree?[Answers will vary.]
  4. How will this information impact your current and future decisions?[Answers will vary.]
  5. Is human capital important to you?[Answers will vary.]


graduationIn order to grow and succeed, businesses need capital. Physical Capital (equipment, buildings and machines used to produce other goods), belongs to the company or firm that purchases it. Human capital (the education and experience we bring to our employer) does not stay with the company if the employees who have it leave. Investment in human capital is necessary for a company to grow, but it also benefits the individual. Workers can stay with a company or take their knowledge and experience with them to another firm that might pay more. From a business standpoint, human capital is an investment worth making.

[Note: Teachers will need to provide background information on physical capital and its impact on output and productivity. In the Resource section of the lesson (above) there is a link to a site providing some of this background information.]

Extension Activity

What company do you work for? If you don’t work yet, which company do you want to work for? Find that company’s web page or contact the human resources department and find out the company’s policy on paying for additional education. Are there any requirements that the employee meet to take advantage of this benefit?

Write down your findings and discuss them with your classmates.

[Answers will vary based on the students’ chosen company. Most companies will pay for a portion of an employee’s education with some restrictions. Some restrictions include a GPA that must be maintained or an employment commitment for a certain amount of time.]


  1. 1. In your own words, describe human capital.
    [Human capital is the skills and education that individuals bring to the work place.]
  2. What is the difference between human capital and physical capital?
    [Physical capital is something that is tangible. Examples include buildings, equipment, and trucks. Firms use physical capital to produce other items. Human capital is what an individual brings to the work place in terms of education, skills, and experience.]
  3. How does human capital affect our economy?
    [Human capital can make workers more productive. Workers with a high level of human capital can produce more goods and services per worker than others who have fewer skills or less education and experience.]