fem 4204 human capital: the firm

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FEM 4204FEM 4204HUMAN CAPITAL: THE FIRMHUMAN CAPITAL: THE FIRM

ZURONI MD JUSOHZURONI MD JUSOHRESOURCE MGT AND CONSUMER STUDIES, RESOURCE MGT AND CONSUMER STUDIES,

FACULTY OF HUMAN ECOLOGYFACULTY OF HUMAN ECOLOGY

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REFERENCESREFERENCES

• Begg, D., Fischer, S., and Dornbusch, Begg, D., Fischer, S., and Dornbusch, R. (1987) R. (1987) EconomicsEconomics, McGraw Hill, McGraw Hill

• Bryant, W. K (1990) Bryant, W. K (1990) The Economic The Economic Organization of the HouseholdOrganization of the Household, , Cambridge Univ PressCambridge Univ Press

• Rahmah Ismail (1996) Rahmah Ismail (1996) Modal Manusia Modal Manusia dan Perolehan Buruhdan Perolehan Buruh, , Dewan Bahasa Dewan Bahasa & Pustaka& Pustaka

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OUTLINEOUTLINE

• IntroductionIntroduction– Firm and Household: The circular flowFirm and Household: The circular flow– Human Resource Management vs. Human Human Resource Management vs. Human

Resource ManagerResource Manager– Human Resource Management FunctionHuman Resource Management Function

• Developing Human ResourcesDeveloping Human Resources– The reasonsThe reasons– The methodsThe methods

• Experience as a Form of Human CapitalExperience as a Form of Human Capital– General vs. specific trainingGeneral vs. specific training

• Application of Human Capital and OJT TheoriesApplication of Human Capital and OJT Theories– Labor mobilityLabor mobility

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IntroductionIntroduction

• The circular flowThe circular flow

FIRMFIRMHOUSEHOLDHOUSEHOLD

OUTPUTOUTPUT

MARKETMARKET

INPUT INPUT MARKETMARKETLABORLABOR LABORLABOR

IntroductionIntroduction

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Introduction … Introduction … contcont

Human Resource Mgt Human Resource Mgt (HRM)(HRM)

• Def:Def: The utilization of HR The utilization of HR to achieve organizational to achieve organizational objobj

• Thus, mgr at all level Thus, mgr at all level concern themselves with concern themselves with HRMHRM

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

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

Human Resource MgrHuman Resource Mgr• Def: Def: Indiv who normally Indiv who normally

acts in an advisory or acts in an advisory or staff capacity, working staff capacity, working with other mgrs to help with other mgrs to help them deal with HR them deal with HR mattersmatters

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

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

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• Human Resource Mgt Functions:Human Resource Mgt Functions:1.1. HR Planning, Recruitment and SelectionHR Planning, Recruitment and Selection

2.2. Human Resource DevelopmentHuman Resource Development

3.3. Compensation and BenefitsCompensation and Benefits

4.4. Safety and HealthSafety and Health

5.5. Employee and labor RelationsEmployee and labor Relations

6.6. Human Resource ResearchHuman Resource Research

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1.1. Human Resource Planning (HRP), Human Resource Planning (HRP), Recruitment, and SelectionRecruitment, and Selection

– HRP:HRP: The process of systematically The process of systematically reviewing HR requirements to ensure the reviewing HR requirements to ensure the required no of employees with the required required no of employees with the required skills are available when needed skills are available when needed

– Recruitment:Recruitment: The process of attracting The process of attracting indiv in sufficient no and encouraging them indiv in sufficient no and encouraging them to apply for jobs with the orgnto apply for jobs with the orgn

– Selection:Selection: The process thru which the The process thru which the orgn chooses from a group of applicants, orgn chooses from a group of applicants, those indiv best suited both for open those indiv best suited both for open positions and for the company positions and for the company

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2.2. Human Resource Development Human Resource Development (HRD)(HRD)

– HRD helps individuals, groups, and the HRD helps individuals, groups, and the entire organization become more entire organization become more effective.effective.

– The dev process shld begin when indiv The dev process shld begin when indiv join the firm and continue throughout join the firm and continue throughout their careers.their careers.

– Large-scale HRD program—organization Large-scale HRD program—organization dev (OD) where its purpose is to alter dev (OD) where its purpose is to alter the environment within the firm to help the environment within the firm to help employees perform more productivelyemployees perform more productively

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• Other aspects of HRDOther aspects of HRD include career include career planning and performance appraisalplanning and performance appraisal

– Career planning:Career planning: Process of setting HR goals and Process of setting HR goals and establishing the means to achieve themestablishing the means to achieve them• Indiv careers and orgn need are not separate and distinctIndiv careers and orgn need are not separate and distinct• Orgn shld assist employees in career planning so that the Orgn shld assist employees in career planning so that the

needs of both can be satisfiedneeds of both can be satisfied

– Performance appraisal:Performance appraisal: Evaluation of employees Evaluation of employees and team performance to determine how well they and team performance to determine how well they are performing their assigned tasksare performing their assigned tasks• It affords employees the opportunity to capitalize on their It affords employees the opportunity to capitalize on their

strength and overcome identified deficiencies, thereby strength and overcome identified deficiencies, thereby becoming more satisfied and productivebecoming more satisfied and productive

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3.3. Compensation and benefitCompensation and benefit– A good compensation sys provides employees with A good compensation sys provides employees with

adequate and equitable rewards for their contribution adequate and equitable rewards for their contribution in meeting organ goalsin meeting organ goals

– Compensations incl all rewards received as a result Compensations incl all rewards received as a result of their employmentof their employment• Pay:Pay: The money a persons receive for performing a job The money a persons receive for performing a job

– Family Economics: Family Economics: Earn IncomeEarn Income• Benefits:Benefits: Additional financial rewards other than base Additional financial rewards other than base

pay include paid vacations, sick leave, holidays and pay include paid vacations, sick leave, holidays and medical insurancemedical insurance

• Non financial rewards:Non financial rewards: such as enjoyment of the such as enjoyment of the work performed or a pleasant working environmentwork performed or a pleasant working environment– Family Economics: Family Economics: Psychic incomePsychic income

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4.4. Safety and healthSafety and health– Safety:Safety: Protecting employees from injuries Protecting employees from injuries

caused by work-related accidentscaused by work-related accidents– Health:Health: Employees freedom from illness Employees freedom from illness

and their general physical and mental and their general physical and mental wellbeingwellbeing

– Impt aspects – employees who work in a Impt aspects – employees who work in a safe environment and enjoy good health safe environment and enjoy good health are more likely to be productive and yield are more likely to be productive and yield long term benefits to the orgn.long term benefits to the orgn.• NIOSH, SOCSONIOSH, SOCSO

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5.5. Employee and labor relationsEmployee and labor relations– Developing effective employee Developing effective employee

relationsrelations– Employees association and unionEmployees association and union

• E.g. KEPERTAMA, NUBE (Bank Employee)E.g. KEPERTAMA, NUBE (Bank Employee)• Why employees are joining union? – Why employees are joining union? –

many: e.g. to secure and improve the many: e.g. to secure and improve the living std and econ status of its membersliving std and econ status of its members

– Collective bargainingCollective bargaining

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6.6. Human Resource ResearchHuman Resource Research– An important key to developing the most An important key to developing the most

productive and satisfied workforceproductive and satisfied workforce– When it is done?When it is done?

• Proactive: to improve the current conditionProactive: to improve the current condition• Reactive: when problem occurs – e.g. excessive Reactive: when problem occurs – e.g. excessive

absenteeism or grievances, work-related absenteeism or grievances, work-related accidentsaccidents

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Developing Human Developing Human Resources/CapitalResources/Capital

• Def: Def: HRD is a planned, continuous effort HRD is a planned, continuous effort by mgt to improve employee competency by mgt to improve employee competency level and organizational performance level and organizational performance through training and development programthrough training and development program

• Training:Training: To permit learners to acquire To permit learners to acquire knowledge and skills needed for their knowledge and skills needed for their present jobspresent jobs

• Development:Development: Involves learning that Involves learning that looks beyond today and today’s job ~ it looks beyond today and today’s job ~ it has more long term focushas more long term focus

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Developing Human Resources Developing Human Resources

/Capital/Capital … … contcont

• Why training and dev are needed/impt:Why training and dev are needed/impt:

1.1. People, jobs and organization are always changing People, jobs and organization are always changing – Changes in orgn ~ mergers, acquisitions, rapid growth, Changes in orgn ~ mergers, acquisitions, rapid growth,

downsizingdownsizing– Changes in technology and the way people work Changes in technology and the way people work

resulting largely from IT and ICTresulting largely from IT and ICT– Changes in human resources – a diverse workforce Changes in human resources – a diverse workforce

consisting of many groupsconsisting of many groups

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

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Developing Human Developing Human Resources /CapitalResources /Capital … … contcont

2.2. Continuous improvement in processes is Continuous improvement in processes is mandatory for the firm to remain mandatory for the firm to remain competitivecompetitive

– Training ~ to improve the quality of product Training ~ to improve the quality of product and services and productivityand services and productivity

– To prevent obsolesces of skills at all levelTo prevent obsolesces of skills at all level

3.3. A need to improve human relations A need to improve human relations within the firms through HRD as jobs within the firms through HRD as jobs grows increasingly complex and grows increasingly complex and impersonalimpersonal

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• Types of Training and Development Types of Training and Development programprogram

1.1. Coaching and mentoringCoaching and mentoring– Coaching:Coaching: on-the-job approach in which on-the-job approach in which

mgr is given an opportunity to teach on a mgr is given an opportunity to teach on a one-to-one basisone-to-one basis• Become an understudy to his/her bossBecome an understudy to his/her boss

– Mentoring:Mentoring: on-the-job approach in which on-the-job approach in which the trainee is given the opportunity to learn the trainee is given the opportunity to learn on one-to-one basis from more experienced on one-to-one basis from more experienced orgn memberorgn member

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2.2. Business GamesBusiness Games– Simulation (using computers) that Simulation (using computers) that

represent actual business situationrepresent actual business situation– The participants were assigned roles (e.g. The participants were assigned roles (e.g.

president, mktg mgr etc); have to make president, mktg mgr etc); have to make decisions; see how their decision affect decisions; see how their decision affect other grps etc (e.g. loss/profit)other grps etc (e.g. loss/profit)

3.3. Case studyCase study– Utilized simulated business problems for Utilized simulated business problems for

trainees to solvetrainees to solve

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4.4. InternshipInternship– University std divide their time bet attending University std divide their time bet attending

classes and working for an orgnclasses and working for an orgn– Employer: a means to view potential employee Employer: a means to view potential employee

at workat work– Students: Integrate what they’ve learned in Students: Integrate what they’ve learned in

classroom with the practice of mgtclassroom with the practice of mgt

5.5. Behavior modelingBehavior modeling– Utilizes live demo or videotapes to illustrate Utilizes live demo or videotapes to illustrate

effective interpersonal skills and how mgr function effective interpersonal skills and how mgr function in various situationsin various situations

– Learning by observing others doing activitiesLearning by observing others doing activities

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6.6. Role PlayingRole Playing– Responding to a specific problem that Responding to a specific problem that

they may actually encounter in their jobs they may actually encounter in their jobs by doing it e.g handling grievances, by doing it e.g handling grievances, interviewing etc. interviewing etc.

7.7. Job rotationJob rotation– Moving employees from one job to Moving employees from one job to

another to broaden their experienceanother to broaden their experience8.8. Computer-Based TrainingComputer-Based Training

– using computer for training, in the using computer for training, in the absence of human facilitatorsabsence of human facilitators

9.9. Classroom lectureClassroom lecture

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• On the job trainingOn the job training– i.e. training after one is in the workforcei.e. training after one is in the workforce

• Two types of trainingTwo types of training– Formal training:Formal training: Having a specific training Having a specific training

programprogram– Informal training:Informal training: e.g. Performing tasks e.g. Performing tasks

under the supervision of more experienced under the supervision of more experienced colleaguescolleagues• Most of investment in OJT occurs informally Most of investment in OJT occurs informally • More effective as employees deals with work that More effective as employees deals with work that

they are currently attached to.they are currently attached to.

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Experience as a Form of Experience as a Form of Human CapitalHuman Capital

• Neoclassical economic theory Neoclassical economic theory says:says:

– Employer pay employee a real wage Employer pay employee a real wage equal to their marginal productivity equal to their marginal productivity to the employerto the employer

– i.e. w/p = MPi.e. w/p = MP

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

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Experience as a Form of Experience as a Form of Human CapitalHuman Capital…cont…cont

• Education raise employee’s MP in market Education raise employee’s MP in market employment, thus resulting in higher real employment, thus resulting in higher real wageswages(This explains why highly educated people earn more than (This explains why highly educated people earn more than less educated one)less educated one)

• The question is, once formal education has The question is, once formal education has been completed, WHY would 40 yr old with been completed, WHY would 40 yr old with SPM earn more than 20 yr old SPM holder???SPM earn more than 20 yr old SPM holder???

– Its hisIts his “EXPERIENCE.” “EXPERIENCE.” – I.e. either through OJT or learning by doing, MP I.e. either through OJT or learning by doing, MP

continue to grow, that real wages (thus earning) continue to grow, that real wages (thus earning) continue to risecontinue to rise

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Experience as a Form of Experience as a Form of Human CapitalHuman Capital…cont…cont

• Thus, besides education, experience can Thus, besides education, experience can augment one’s HKaugment one’s HK

• That’s why earning rise with age to late That’s why earning rise with age to late middle age or beyond and then flatten middle age or beyond and then flatten out or decline to retirementout or decline to retirement

Income

age

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General vs Specific Training General vs Specific Training …cont…cont

• Education raise employee’s MP in market Education raise employee’s MP in market employment, thus resulting in higher real employment, thus resulting in higher real wageswages(This explains why highly educated people earn more than (This explains why highly educated people earn more than less educated one)less educated one)

• The question is, once formal education has The question is, once formal education has been completed, WHY would 40 yr old with been completed, WHY would 40 yr old with SPM earn more than 20 yr old SPM holder???SPM earn more than 20 yr old SPM holder???

– Its hisIts his “EXPERIENCE.” “EXPERIENCE.” – I.e. either through OJT or learning by doing, MP I.e. either through OJT or learning by doing, MP

continue to grow, that real wages (thus earning) continue to grow, that real wages (thus earning) continue to risecontinue to rise

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• Types of experience gained through training: Types of experience gained through training: general & specificgeneral & specific

1.1. GeneralGeneral– Examples: work habits, problem-solving skills, and Examples: work habits, problem-solving skills, and

general skills of the trade or occupation that general skills of the trade or occupation that increase an indiv’s productivity for increase an indiv’s productivity for ANY EMPLOYERANY EMPLOYER

– Thus, general experience increase the MP of an Thus, general experience increase the MP of an individuals in individuals in ALLALL firms. firms.

– So, So, employer has no incentive to pay for the cost of employer has no incentive to pay for the cost of general expgeneral exp, as Emp/e can leave after gaining the , as Emp/e can leave after gaining the experience, taking the Investment in HK with them experience, taking the Investment in HK with them

– Thus, not reaping the benefit of gen exp, the cost of Thus, not reaping the benefit of gen exp, the cost of training is borne by the Emp/e in the form of lower training is borne by the Emp/e in the form of lower wages during the periods gen experience is gainedwages during the periods gen experience is gained

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1.1. SpecificSpecific– Examples:Examples: Knowledge of one’s company’s admin and Knowledge of one’s company’s admin and

accounting decision structure and personnel policiesaccounting decision structure and personnel policies– It increase the MP of an individuals in the firm where the It increase the MP of an individuals in the firm where the

experience is gained experience is gained ONLYONLY. So other emp/r will not pay . So other emp/r will not pay them higher wages because o such experiencethem higher wages because o such experience

– So, So, emp/r reap the benefitemp/r reap the benefit of specific training. of specific training. – Thus, Emp/e will not accept lower wages while they are Thus, Emp/e will not accept lower wages while they are

gaining specific exp , b’cos they will not reap the benefit gaining specific exp , b’cos they will not reap the benefit in the futurein the future

– If Emp/r try to pay them less during the period of If Emp/r try to pay them less during the period of gaining such exp, the emp/e cld respond by finding work gaining such exp, the emp/e cld respond by finding work elsewhere at higher wage rateelsewhere at higher wage rate

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

experience gained experience gained

on the jobon the job

BUTBUT

How much experience will an individual How much experience will an individual

choose to gain?choose to gain?

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• THE ANSWER….THE ANSWER….– Similar to that of investment in Similar to that of investment in

education.education.– That is, more exp will be gained,That is, more exp will be gained,

• until MB of added experience = MC of until MB of added experience = MC of the added experiencethe added experience

• OR, the rate of return on added exp = OR, the rate of return on added exp = the rate of return on alternative the rate of return on alternative investmentinvestment

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• Human capital via experience Human capital via experience accumulates with the passage of accumulates with the passage of time. Thus, earning will increase with time. Thus, earning will increase with age.age.

• Formal schooling and experience ~ Formal schooling and experience ~ explain much of the age-earning explain much of the age-earning profiles of individuals and the profiles of individuals and the difference among people in real difference among people in real wage ratewage rate

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• The effect of training is more difficult to The effect of training is more difficult to assessed for emp/r than emp/e. WHY?assessed for emp/r than emp/e. WHY?

– Firms normally do not record the training Firms normally do not record the training cost and that it is sometime difficult to cost and that it is sometime difficult to measure:measure:• Direct cost:Direct cost: trainees wages, cost of equipment used, trainees wages, cost of equipment used,

and cost of hiring substitutes while training is onand cost of hiring substitutes while training is on• Indirect cost:Indirect cost: reduction in output and output reduction in output and output

produce by new employees are not up to the stdproduce by new employees are not up to the std

– The training cost is normally borne by the The training cost is normally borne by the emp/e but the return on training occurs emp/e but the return on training occurs throughout the duration of employmentthroughout the duration of employment

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-End--End-

fem 4204 human capital: the firm

Documents

hr planning

mgt of hr

hr mgr

utilization of hr

hr requirements

hr mattersi

introduction contcompensation

process of setting hr