On the Use of the Economic Concept of Human Capital in Financial Statements: A Reply.

Abstract This article comments on the criticisms of aspects of the major concepts, methods, and implications of human capital measurement and reporting by Eric G. Flamholtz. The definition of human capital as a source of income embodied in a person is the one widely used in the economic literature, and included in the discussion of the concept of human capital. In the measurement of a firm's human capital the organizational roles of employees should determine the appropriate earnings profiles. The major objective was to expose accountants to the economic concept and measurement procedures of human capital, and, in particular, to point to some possible accounting implications of this concept. Given the absence of well defined decision models, one can only conjecture, on an a priori basis, that certain kinds of information might be useful to decision makers. The usefulness of such information can be determined by observing investors' reaction to it. The difference between the general and specific values of human capital is therefore a summary measure for the wage scale differences reflecting the structure and characteristics of the work force.