Human Capital and Intellectual Capital

Under the pressures brought about by the drive to contain costs and improve competitiveness and efficiency, the role of employees has been reduced to those areas where they cannot be cost effectively substituted. The industrial age dawned with the introduction of labor saving machinery. For simple, repetitive, dangerous, unpleasant tasks, machines quickly replaced human workers. Over time machines replaced humans in ever more complicated tasks such as auto body assembly. Fewer employees are required per auto produced, and those working in the assembly plants have much more complex jobs programming, maintaining, and running the robots and automated systems that actually assemble the cars.

While many jobs have been eliminated through automation, hundreds of new jobs have been developed out of necessity over the past several decades. The vast majority of these are knowledge jobs. In these jobs, employees are paid more for thinking than for physically performing tasks. There is a range in the spectrum of knowledge required for these positions.

Starting at the simpler end, consider the now ubiquitous barista making your favorite caffeinated drink, in my case a 20-ounce, nonfat, half-decaffeinated latte. The office that I work in has a nice kitchen area with a machine that can create a variety of such drinks automatically, and it’s free! Yet on Monday, Wednesday, and Friday, a local company brings in one of those traveling barista carts, and the line is long. I much prefer to pay the $3.25 than to drink the free machine-made version. The difference between the two involves the product (the machine cannot make it exactly the way I want) and the service. The barista provides excellent customer service and a better product—enough of a differentiator that a significant number of my colleagues and I opt to pay the extra cost. This same scenario plays out across what many consider the low end, low skill, hourly worker positions. Employees in these positions use knowledge and skills to transform raw materials into product.

At the other extreme of the knowledge work spectrum, the product does not even take physical form directly. Consider positions in the so-called high-knowledge sector such as consulting, where in its purest form the product is know-how. A recent survey by Salary.com concluded that one of the highest paid (lowest on the glamour scale) jobs, is that of tax attorney.

As the knowledge economy grows, knowledge work is quickly replacing physical labor and, with this shift, the knowledge, skills, and experience of people. Human capital is becoming more important than the physical capital which dominated the economy of the past.