Question

What is human capital? Why is it important for managers to recognize the interdependence in the attraction, development and retention of talented professionals? What are some of the potential downsides of firms that engage in a "war for talent"?

Answer 1

What is human capital?

Human capital is 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 employees have economic value for employers and for the economy as a whole.

Why is it important for managers to recognize the interdependence in the attraction, development and retention of talented professionals?

Hiring talented professionals is only the first step. Firms need to develop those talented individuals to maximize their joint contributions, and take steps to retain that talent by providing compensation, recognition, and a quality work environment. Poor hiring impedes the effectiveness of developmental and retention processes, in addition to creating additional training burdens.

What are some of the potential downsides of firms that engage in a "war for talent"?

Competitive recruiting can create a bidding war for a specific candidate, which may lead to disproportionate compensation. Highly-desired candidates may not have the same depth of loyalty since they know they are in demand, and may leave for the next better offer instead of committing to a role. Highly competitive recruiting may lead to unethical hiring processes, which could be damaging a form’s reputation. Aggressive recruiting may also signal an instable environment to potential candidates.