The value of human capital within Canadian business schools
| Pages | 836-855 |
| DOI | https://doi.org/10.1108/JIC-06-2017-0086 |
| Published date | 21 June 2018 |
| Date | 21 June 2018 |
| Author | Ajantha Velayutham,Asheq Razaur Rahman |
| Subject Matter | Organizational structure/dynamics,Behavioural accounting,Knowledge management,Accounting & Finance,Information & knowledge management,Accounting/accountancy |
The value of human capital within
Canadian business schools
Ajantha Velayutham and Asheq Razaur Rahman
Auckland University of Technology, Auckland, New Zealand
Abstract
Purpose –The purpose of this paper is to empirically investigate whether an individual’s knowledge, skills
and capabilities (human capital) are reflected in their compensation.
Design/methodology/approach –Data are drawn from university academics in the Province of Ontario,
Canada, earning more than CAD$100,000 per annum. Data on academics human capital are drawn from
Research Gate. The authors construct a regression analysis to examine the relationship between human
capital and salary.
Findings –The analyses performed indicates a positive association between academic human capital and
academic salaries.
Research limitations/implications –This studyis limited in that it measures an academic’shuman capital
solelythrough their research outputsas opposed to also consideringtheir teachingoutputs. Continuing research
needs to be conductedin different country contexts and using negative proxiesof human capital.
Practical implications –This study will create awareness about the value of human capital and its
contribution towards improving organisational structural capital.
Social implications –The study contributes to the literature on human capital in accounting and business
by focussing on the economic relevance of individual level human capital.
Originality/value –The study contributes to the literature on human capital in accounting and business by
focussing on the economic relevance of individual level human capital. It will help create awareness of the
importance of valuing human capital at the individual level.
Keywords Value, Human capital, Academic performance, Academic salaries
Paper type Research paper
1. Introduction
Total wealth includes all sources of income or consumable services. One such source is the
productive capacity of human beings and accordingly this is one form in which wealth should
be held. Lev and Schwartz (1971, p. 1)
Houghton and Sheehan (2000) and Hospers (2003) identified three sectors that the economy
has transitioned through: from an agricultural economy, to industrial economy and to what
it is now, an informational economy, in the twenty-first century. Hospers (2003) reflected on
Fourastie’s work in 1949, which focussed on the transformation of the economy through
time, and hypothesised that the knowledge of technology will be the main force that shapes
tomorrow. This has seen a shift in the mind-set of top management in businesses to
maintain their competitive advantage; from the acquisition and accumulation of land
(agricultural economy) (Houghton and Sheehan, 2000) to focussing on the acquisition of
physical assets and commodities in a labour-intensive economy to prioritising intellectual
capital and human capital, in the current information/knowledge economy (Godin, 2006).
According to Hospers (2003), central to the transformation from an agricultural economy to
an industrial economy was the law of production, which stated that technology led to the
growth of production and, in turn, fuelled the industrial sector. On the other hand, the law of
consumption explained the transformation from an industrial economy to an informational
economy in the twenty-first century. The law of consumption explained that increased
production and the preference for intangible rather than material goods fuelled the
informational economy through the increased preference for services (Hospers, 2003). To
summarise, “the machine obliges man to specialise in the human”(Hospers, 2003).
Journal of Intellectual Capital
Vol. 19 No. 4, 2018
pp. 836-855
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-06-2017-0086
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
836
JIC
19,4
Furthermore, the need for change to an informational economy has also stemmed from the
fusion between production and consumption in relation to many activities which formerly
involved human beings (Diamond et al., 2013).
This shift from an industrial economy, in which tangible resources were central to
development and growth, to a knowledge-based or informational economy has seen an
increase in human capital research over the last decade (Lev and Radhakrishnan, 2005).
In time, the rise of intellectual capital and human capital has created wealth and value to
the economy (Diamond et al., 2013). However, this research attempted to ascertain the
association between an individual’s human capital and the value an organisation places on
that capital. More specifically, the purpose of this research was to determine whether an
individual’s human capital is captured in his or her remuneration.
The motivation of this study stemmed from previous theories that explained the
relationship between an individual’s human capital and their earnings. Psacharopoulos
(2014) theorised that individuals with higher levels of education and more work
experience would have higher wages. Therefore, this study investigated whether the
above theories were applicable to a real-life context. It focussed on academics in public
universities in Ontario, Canada, where annual salaries of those receiving over Canadian
$100,000 are disclosed publicly.
However, as human capital cannot be measured accurately in the form of an individual’s
tacit knowledge, this study used individuals’human capital which was transferred into
explicit knowledge such as written documents, citations among others. The SECI model
developed by Ikujiro Nonaka identified this transformation of knowledge from tacit
knowledgeto explicit knowledge as a processof externalisation (Ordonezde Pablos, 2004). An
individual’s human capital (tacit knowledge) can then be measured in the form of documents
written, citations cited among others (explicit knowledge) (Ordonez de Pablos, 2004).
This has led to numerous studies on human capital, which can be categorised:
cross-country analyses, country-specific analyses, firm-specific or industry-specific analyses
and individual-specific studies (De Clercq and Dakhli, 2003). There have been several
previous studies done on cross-country analyses (Barro, 1999; Jeong, 2002), nation-wide
studies, such as in Germany (Koman and Marin, 1999) and Canada (Laroche and Mérette,
2000) and industry- or firm-specific studies (Neal, 1995; Coff and Raffiee, 2015). This study
contributed to this body of literature by focussing on individual-specific human capital.
Furthermore, Le, Gibson and Oxley (2003) outlined several distinct measurement bases
of which to measure a person’s human capital: the cost-based (input) method, the output
method and the income-based method. Previous research, conducted to measure human
capital, studied these methods independently of each other (e.g. using either the cost-based
method, the output method or the income-based method). The output-based approach
reflects the human capital of the individual whereas the income-based technique measures
the income of that individual. This study used a combination of the output-based and
income-based methods to test a theory as opposed to measuring human capital in a
specific context.
This study has implications for both employees and employers. Employees seek to
identify whether the skills and competencies ingrained within themselves can affect their
salary and, likewise, they are rewarded for their human capital. On the other hand,
employers seek that remuneration be tied to their employees’skills and competencies.
Employers’also seek to investigate whether the greater human capital ingrained in their
employees reflect a positive effect on their productive capacity. This study created
awareness about whether companies and organisations are protecting, nurturing and
rewarding their employees’human capital, and simultaneously providing them incentives to
invest more in human capital, by providing a greater monetary incentive. Barring subtle
national and cultural differences, the results of this study are applicable to other countries.
837
The value of
human capital
To continue reading
Request your trial