The term human resources was originally used in political economy and economics to refer to labor, one of several inputs (“factors of production”) necessary for production of wealth. Today, many corporations and businesses use the term “human resources” to refer to their employees and the portion of their organization that is responsible for personnel management. A nation’s workforce is one of the factors that determines the strength of its economy. A government can improve the quality of its workforce by maintaining a good public health system, ensuring an adequate wage, and providing education for its citizens. The globalization of the world economy has resulted in the migration of millions of workers from poorer countries to developed countries that offer more job opportunities. The billions of dollars in remittances sent every year by these workers to their relatives at home contribute significantly to the economies of their home countries.
Modern personnel management theory no longer regards workers as interchangeable components, but as a crucial productive resource that creates the largest and longest lasting advantage for an organization. Human beings contribute much more to a productive enterprise than "work;" they bring their character, ethics, creativity, and social connections. “Human capital,” the knowledge, skills, and motivation of employees, increases through experience and education, and through the creation of a “corporate culture” that encourages loyalty and the full utilization of talent.
Factors of Production
In economics, "factors of production" are the resources employed to produce goods and services. Though the term “factors of production” did not come into use until the late 1800s, the earliest economists identified human labor as one of the elements essential to the production of wealth. As Europe moved away from feudalism and began to industrialize, the value of individual human beings began to be recognized.
The “physiocrats,” a group of French economists who produced the one of the earliest well-developed theory of economics, believed that the wealth of nations was derived solely from the practice of agriculture and development of land. Their theories, which were most popular during the second half of the eighteenth century, emphasized productive work as the source of national wealth. They identified the four classes of productive people as farmers, artisans, landlords and merchants, but believed that only agricultural labor produced real wealth.
The first modern school of economics, classical economics, which began with the publication of Adam Smith's The Wealth of Nations in 1776, identified three “components of price:” land, labor and capital stock (man-made goods such as machinery, tools and buildings, which are used in the production of other goods).  Neoclassical economics continued to distinguish land, labor, and capital as the three essential components of production, but developed an alternative theory of value and distribution.
As North America and Europe became industrialized, economists concluded that not just the amount of labor, but the quality and type of labor should be included in any analysis of production of wealth. John Bates Clark (1847–1938) and Frank Knight (1885–1972) introduced a fourth “factor of production:” The role of coordinating or organizing the other three factors in the most effective manner, which they termed “entrepreneurship” or “management.” This type of human input was seen as the final element that determined the degree of success of any form of production. In a market economy, individual entrepreneurs combine the other factors of production, land, labor, and capital, in an innovative way to make a profit. In a planned economy, central planners decide how land, labor, and capital should be used to provide for maximum benefit for all citizens.
Economic theory identifies several types of “capital.” “Financial capital” is the money invested in operating a business, or in goods that can be used to produce other goods in the future. Fixed capital includes machinery, work sites, equipment, new technology, factories, roads, office buildings, and goods that contribute to economic growth. Working capital includes the stocks of finished and semi-finished goods that will be consumed or made into finished consumer goods in the near future, and the liquid assets needed for immediate expenses linked to the production process, such as salaries, rent, and rest on loans. Contemporary economic theory also recognizes human capital, the value and quality of the workforce involved in production. Human capital refers to the ability of people to perform labor so as to produce economic value. Early economic theory considered the labor pool to be homogeneous and fungible (easily interchangeable); modern concepts of labor account for the value of education, training and on-the job experience and also for the investment required to produce a highly-effective employee. Physical labor is performed most efficiently by a work force that is in good health, well nourished and enthusiastic. Human capital is acquired through education and training, both formal and through experience. Intellectual capital refers to the quality and number of workers who are trained in fields such as science, physics, computer engineering, and information technology.
Investment in human capital takes place on several levels. A national government can maximize its human capital by ensuring a living wage for its population, providing good health care, and investing in education. A family invests in human capital by nourishing its children well, giving them with opportunities for intellectual growth, and providing them with an education so that they can qualify for a well-paid job. A company invests in human capital by training and educating its employees and providing them with incentives to remain with that company instead of seeking employment elsewhere. Investment in human capital involves the consumption of goods and services such as food, shelter, health care, and education.
The overall health of a population directly affects its human capital. A work force suffering from malnutrition or debilitating diseases such as dysentery or malaria is not able to be as productive as a workforce consisting of healthy, vigorous adults. An unchecked epidemic can eliminate large portions of the work force; for example, plague epidemics during the Middle Ages altered the economic landscape of Europe. The economies of several African nations have suffered because AIDS has decimated the numbers of both trained professionals and physical laborers, and left large numbers of orphaned children unable to afford an education. The decision to vaccinate children against chicken pox was motivated partly by the fact that so much productivity was lost when parents had to stay at home for a week to care for their sick children. One of the responsibilities of a national government is to promote the good health of its citizens so that its economy can prosper.
In order to attract the information and technology businesses that are at the forefront of modern economic expansion, a region must offer an adequate supply of highly-educated workers. Allocating resources to fund education is another responsibility of a national government seeking to increase economic prosperity. Many corporations collaborate with universities and fund scholarships, grants and research programs in order to ensure a supply of trained professionals. During the Meiji era (1868–1912), the Japanese government sent many students to study technology in the United States and Europe, and brought Western experts to teach in Japan. The students educated under these programs provided the skills and knowledge for Japan’s rapid economic expansion during the 20th century. After its independence in 1947, the Indian government founded and subsidized a series of Indian Institutes of Technology that admit 5,500 highly qualified students every year. At first many graduates of these Institutes emigrated to more developed countries, but today 70 percent of them remain in India, and many large corporations have now established research and computer technology facilities there.
Immigration and “brain drain”
Though people have always left their homes to seek better economic opportunities in other countries, economic and demographic inequalities and expanding communications and transportation infrastructures have increased cross-border migration dramatically over the last three decades. Between 1985 and 2005, the number of international migrants in industrialized countries more than doubled, from 55 million to 120 million. In 2005 there were 191 million international migrants worldwide. The human capital of poor and developing nations is contributing to production in wealthier nations. In addition, many who receive a college degree or professional training in one country live and practice their professions in another country where there is greater economic opportunity. This movement of intellectual capital from the country which invested in the education is referred to as “brain drain.”
Governments of developing nations often claim that developed nations that encourage immigration or "guest workers" are appropriating human capital that is rightfully part of the developing nation and required to further its growth as a civilization. Appropriation of human capital is equated with the exploitation of a country’s natural resources. The United Nations supports this point of view, and has requested significant "foreign aid" contributions from developed nations to offset the loss of human capital so that a developing nation does not lose the capacity to continue to train new people in trades, professions, and the arts. Cash flows from migrants back to their home countries (more than $300 billion in 2006) now far exceed direct aid flows from donor nations (about $104 billion in 2006) or foreign direct investment (about $167 billion in 2006).
The remittances sent by migrant workers to relatives in their home countries can be considered a benefit of investment in human capital. The World Bank estimates that recorded remittance flows worldwide added up to $318 billion in 2007, and that informal, unrecorded remittances made the amount much larger. According to the World Bank's Migration and Remittances Factbook 2008, the top four recipient countries of migrant remittances in 2007 were India ($27 billion), China ($26 billion), Mexico ($25 billion) and the Philippines ($17 billion). Industrialized and oil-producing countries are the main source of gross remittances; the United States is the largest source, with $42 billion in formal outward remittance flows in 2006, followed by Saudi Arabia, Switzerland, and Germany. The host country benefits from the productive labor of the guest workers and from their consumption of goods and services while in the host country, but the economy of the home country benefits from the influx of foreign currency. Money from remittances is often used to purchase homes and to start small businesses in the home country.
A certain population size is necessary to maintain and expand production, as well as to consume the goods and services produced. Most developed and many developing countries have low birth rates; low birth-rate countries account for more than one-third of the world's population. In 2006 -2007, 50 countries had a birth rate of less than 2 children per female.In the near future, these countries will need to draw on immigrants from countries with high birth rates to maintain their current productivity; if emigration from these countries slows, there may be a shortage of human capital.
Today, many corporations and businesses use the term “human resources” to refer to their employees and the portion of their organization that is responsible for personnel management. The field of Human Resources includes administrative functions such as interviewing, hiring and firing employees; record keeping; creating and maintaining job descriptions; deciding compensation and payroll policies; implementing health insurance and benefit plans; measuring and evaluating performance; training, education and career development; employee relations; and resource planning. It is the responsibility of human resource managers to conduct these activities in an effective, legal, fair, and consistent manner.
The objective of human resources is to maximize the return on investment from the organization's human capital and minimize financial risk. The field draws upon concepts developed in organizational psychology.
The modern concept of human resources began in reaction to the scientific management (Taylorism) of the early 1900s, which examined the precise movements of an individual doing a particular job and attempted to modify them to improve labor productivity.  In the 1920s, psychologists and employment experts in the United States started the human relations movement, which viewed workers in terms of their psychology and compatibility with a company, rather than as interchangeable parts of a machine. This movement, which grew through the middle of the twentieth century, emphasized the roles of leadership, cohesion, and loyalty in organizational success. Beginning in the 1960s, this view was increasingly challenged by more quantitatively rigorous and less "soft" management techniques.
The trade union movement, especially in heavily unionized nations such as France and Germany, encourages the use of detailed job descriptions that identify the processes of production in a particular industry, outline their sequence and interaction, and define and communicate the responsibilities and authorities of workers in each position. A strong social consensus on political economy and a good social welfare system are thought to facilitate labor mobility and make the entire economy more productive by making it easy for labor to move from one enterprise to another.
Modern analysis emphasizes that human beings are not "commodities" or "resources," but are creative and social beings. It is acknowledged that human beings contribute much more to a productive enterprise than "work;" they bring their character, ethics, creativity, social connections, and in some cases even their pets and children, and alter the character of a workplace, creating a unique “corporate culture.” A successful corporate culture generates employee loyalty and inspires individual employees to fully invest their talents in the company.
- Frederick Winslow Taylor
- Mass production
- Adam Smith, The Wealth of Nations. Retrieved February 24, 2009.
- Philip Martin and Gottfried Zürcher, "Managing Migration: The Global Challenge," Population Bulletin 63 (1) (2008).
- BBC News, "Remittances Cash 'Tops World Aid.'" Retrieved February 8, 2009.
- Population Reference Bureau, Remittances Grow Along With International Migration. Retrieved February 8, 2009.
- PRB, Fertility Rates for Low Birth-Rate Countries, 1995 to Most Recent Year. Retrieved February 8, 2009.
- Eldritch Press, The Principles of Scientific Management. Retrieved February 8, 2009.
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