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FEM 4204 HUMAN CAPITAL: THE FIRM. ZURONI MD JUSOH RESOURCE MGT AND CONSUMER STUDIES, FACULTY OF HUMAN ECOLOGY. REFERENCES. Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics , McGraw Hill Bryant, W. K (1990) The Economic Organization of the Household , Cambridge Univ Press

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fem 4204 human capital the firm





  • Begg, D., Fischer, S., and Dornbusch, R. (1987) Economics, McGraw Hill
  • Bryant, W. K (1990) The Economic Organization of the Household, Cambridge Univ Press
  • Rahmah Ismail (1996) Modal Manusia dan Perolehan Buruh, Dewan Bahasa & Pustaka
  • Introduction
    • Firm and Household: The circular flow
    • Human Resource Management vs. Human Resource Manager
    • Human Resource Management Function
  • Developing Human Resources
    • The reasons
    • The methods
  • Experience as a Form of Human Capital
    • General vs. specific training
  • Application of Human Capital and OJT Theories
    • Labor mobility
  • The circular flow








introduction cont
Human Resource Mgt (HRM)

Def: The utilization of HR to achieve organizational obj

Thus, mgr at all level concern themselves with HRM

Basically thru the effort of others mgrs get things done which require effective HRM

E.g. mktg mgr works thru sales rep to sell the firm’s product

Human Resource Mgr

Def: Indiv who normally acts in an advisory or staff capacity, working with other mgrs to help them deal with HR matters

i.e. primarily responsible for coordinating the mgt of HR to help the org. achieve its goal

E.g. someone resign in mkt dept, mktg mgr call HR mgr to look for potential candidate

Introduction … cont
introduction cont1
Introduction … cont
  • Human Resource Mgt Functions:
    • HR Planning, Recruitment and Selection
    • Human Resource Development
    • Compensation and Benefits
    • Safety and Health
    • Employee and labor Relations
    • Human Resource Research
introduction cont2
Introduction … cont
  • Human Resource Planning (HRP), Recruitment, and Selection
    • HRP: The process of systematically reviewing HR requirements to ensure the required no of employees with the required skills are available when needed
    • Recruitment: The process of attracting indiv in sufficient no and encouraging them to apply for jobs with the orgn
    • Selection: The process thru which the orgn chooses from a group of applicants, those indiv best suited both for open positions and for the company
introduction cont3
Introduction … cont
  • Human Resource Development (HRD)
    • HRD helps individuals, groups, and the entire organization become more effective.
    • The dev process shld begin when indiv join the firm and continue throughout their careers.
    • Large-scale HRD program—organization dev (OD) where its purpose is to alter the environment within the firm to help employees perform more productively
introduction cont4
Introduction … cont
  • Other aspects of HRD include career planning and performance appraisal
    • Career planning: Process of setting HR goals and establishing the means to achieve them
      • Indiv careers and orgn need are not separate and distinct
      • Orgn shld assist employees in career planning so that the needs of both can be satisfied
    • Performance appraisal: Evaluation of employees and team performance to determine how well they are performing their assigned tasks
      • It affords employees the opportunity to capitalize on their strength and overcome identified deficiencies, thereby becoming more satisfied and productive
introduction cont5
Introduction … cont
  • Compensation and benefit
    • A good compensation sys provides employees with adequate and equitable rewards for their contribution in meeting organ goals
    • Compensations incl all rewards received as a result of their employment
      • Pay: The money a persons receive for performing a job
        • Family Economics: Earn Income
      • Benefits: Additional financial rewards other than base pay include paid vacations, sick leave, holidays and medical insurance
      • Non financial rewards: such as enjoyment of the work performed or a pleasant working environment
        • Family Economics: Psychic income
introduction cont6
Introduction … cont
  • Safety and health
    • Safety: Protecting employees from injuries caused by work-related accidents
    • Health: Employees freedom from illness and their general physical and mental wellbeing
    • Impt aspects – employees who work in a safe environment and enjoy good health are more likely to be productive and yield long term benefits to the orgn.
      • NIOSH, SOCSO
introduction cont7
Introduction … cont
  • Employee and labor relations
    • Developing effective employee relations
    • Employees association and union
      • E.g. KEPERTAMA, NUBE (Bank Employee)
      • Why employees are joining union? – many: e.g. to secure and improve the living std and econ status of its members
    • Collective bargaining
introduction cont8
Introduction … cont
  • Human Resource Research
    • An important key to developing the most productive and satisfied workforce
    • When it is done?
      • Proactive: to improve the current condition
      • Reactive: when problem occurs – e.g. excessive absenteeism or grievances, work-related accidents
developing human resources capital
Developing Human Resources/Capital
  • Def: HRD is a planned, continuous effort by mgt to improve employee competency level and organizational performance through training and development program
  • Training: To permit learners to acquire knowledge and skills needed for their present jobs
  • Development: Involves learning that looks beyond today and today’s job ~ it has more long term focus
developing human resources capital cont
Developing Human Resources /Capital … cont
  • Why training and dev are needed/impt:
  • People, jobs and organization are always changing
    • Changes in orgn ~ mergers, acquisitions, rapid growth, downsizing
    • Changes in technology and the way people work resulting largely from IT and ICT
    • Changes in human resources – a diverse workforce consisting of many groups

Thus, developing HR is crucial to prepare employees to keep pace with the organization as it changes and grow and help them adapt to rapid environmental changes.

developing human resources capital cont1
Developing Human Resources /Capital … cont
  • Continuous improvement in processes is mandatory for the firm to remain competitive
    • Training ~ to improve the quality of product and services and productivity
    • To prevent obsolesces of skills at all level
  • A need to improve human relations within the firms through HRD as jobs grows increasingly complex and impersonal
developing human resources capital cont2
Developing Human Resources /Capital … cont
  • Types of Training and Development program
  • Coaching and mentoring
    • Coaching: on-the-job approach in which mgr is given an opportunity to teach on a one-to-one basis
      • Become an understudy to his/her boss
    • Mentoring: on-the-job approach in which the trainee is given the opportunity to learn on one-to-one basis from more experienced orgn member
developing human resources capital cont3
Developing Human Resources /Capital … cont
  • Business Games
    • Simulation (using computers) that represent actual business situation
    • The participants were assigned roles (e.g. president, mktg mgr etc); have to make decisions; see how their decision affect other grps etc (e.g. loss/profit)
  • Case study
    • Utilized simulated business problems for trainees to solve
developing human resources capital cont4
Developing Human Resources /Capital … cont
  • Internship
    • University std divide their time bet attending classes and working for an orgn
    • Employer: a means to view potential employee at work
    • Students: Integrate what they’ve learned in classroom with the practice of mgt
  • Behavior modeling
    • Utilizes live demo or videotapes to illustrate effective interpersonal skills and how mgr function in various situations
    • Learning by observing others doing activities
developing human resources capital cont5
Developing Human Resources /Capital … cont
  • Role Playing
    • Responding to a specific problem that they may actually encounter in their jobs by doing it e.g handling grievances, interviewing etc.
  • Job rotation
    • Moving employees from one job to another to broaden their experience
  • Computer-Based Training
    • using computer for training, in the absence of human facilitators
  • Classroom lecture
developing human resources capital cont6
Developing Human Resources /Capital … cont
  • On the job training
    • i.e. training after one is in the workforce
  • Two types of training
    • Formal training: Having a specific training program
    • Informal training: e.g. Performing tasks under the supervision of more experienced colleagues
      • Most of investment in OJT occurs informally
      • More effective as employees deals with work that they are currently attached to.
experience as a form of human capital
Experience as a Form of Human Capital
  • Neoclassical economic theory says:
    • Employer pay employee a real wage equal to their marginal productivity to the employer
    • i.e. w/p = MP

where MP is the MP of the employee’s labor in the employer’s prod process

experience as a form of human capital cont
Experience as a Form of Human Capital…cont
  • Education raise employee’s MP in market employment, thus resulting in higher real wages

(This explains why highly educated people earn more than less educated one)

  • The question is, once formal education has been completed, WHY would 40 yr old with SPM earn more than 20 yr old SPM holder???
    • Its his “EXPERIENCE.”
    • I.e. either through OJT or learning by doing, MP continue to grow, that real wages (thus earning) continue to rise
experience as a form of human capital cont1
Experience as a Form of Human Capital…cont
  • Thus, besides education, experience can augment one’s HK
  • That’s why earning rise with age to late middle age or beyond and then flatten out or decline to retirement



general vs specific training cont
General vs Specific Training …cont
  • Education raise employee’s MP in market employment, thus resulting in higher real wages

(This explains why highly educated people earn more than less educated one)

  • The question is, once formal education has been completed, WHY would 40 yr old with SPM earn more than 20 yr old SPM holder???
    • Its his “EXPERIENCE.”
    • I.e. either through OJT or learning by doing, MP continue to grow, that real wages (thus earning) continue to rise
general vs specific training cont1
General vs Specific Training …cont
  • Types of experience gained through training: general & specific
  • General
    • Examples: work habits, problem-solving skills, and general skills of the trade or occupation that increase an indiv’s productivity for ANY EMPLOYER
    • Thus, general experience increase the MP of an individuals in ALL firms.
    • So, employer has no incentive to pay for the cost of general exp, as Emp/e can leave after gaining the experience, taking the Investment in HK with them
    • Thus, not reaping the benefit of gen exp, the cost of training is borne by the Emp/e in the form of lower wages during the periods gen experience is gained
general vs specific training cont2
General vs Specific Training …cont
  • Specific
    • Examples: Knowledge of one’s company’s admin and accounting decision structure and personnel policies
    • It increase the MP of an individuals in the firm where the experience is gained ONLY. So other emp/r will not pay them higher wages because o such experience
    • So, emp/r reap the benefit of specific training.
    • Thus, Emp/e will not accept lower wages while they are gaining specific exp , b’cos they will not reap the benefit in the future
    • If Emp/r try to pay them less during the period of gaining such exp, the emp/e cld respond by finding work elsewhere at higher wage rate
general vs specific training cont3
General vs Specific Training …cont

Generally, Individual reap benefit and pays the cost of any general experience gained

on the job


How much experience will an individual

choose to gain?

general vs specific training cont4
General vs Specific Training …cont
    • Similar to that of investment in education.
    • That is, more exp will be gained,
      • until MB of added experience = MC of the added experience
      • OR, the rate of return on added exp = the rate of return on alternative investment
general vs specific training cont5
General vs Specific Training …cont
  • Human capital via experience accumulates with the passage of time. Thus, earning will increase with age.
  • Formal schooling and experience ~ explain much of the age-earning profiles of individuals and the difference among people in real wage rate
general vs specific training cont6
General vs Specific Training …cont
  • The effect of training is more difficult to assessed for emp/r than emp/e. WHY?
    • Firms normally do not record the training cost and that it is sometime difficult to measure:
      • Direct cost: trainees wages, cost of equipment used, and cost of hiring substitutes while training is on
      • Indirect cost: reduction in output and output produce by new employees are not up to the std
    • The training cost is normally borne by the emp/e but the return on training occurs throughout the duration of employment