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Calculating Human Capital: The Market Based Valuation of the Human Resource

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  • Roman Bechtel

Abstract

According to the Resource Based View of strategic management, analyzing the human resource of a specific firm in terms of its potential to serve as a source of a sustainable competitive advantage requires an examination of – among others – the resource value. The question of how to parameterize this value, i.e., how to calculate human capital, straightly leads to an integration of RBV reasoning with market based models of the competitive environment at the factor and product market side. However, there seems to be a tacit consent among strategy scholars that the only adequate market mechanism to be used for resource valuation is the product market with the economic rents effectively created there. Yet this regularly ends in a tautology criticism of the RBV. It thus is the particular purpose of this paper to examine what market mecha-nism really is the adequate one to use for the calculation of human capital. For this, a deductive methodology is used. In advancing the idea of a product market orientation, one encounters some major dilemmas ultimately leading to the conclusions that a product market based resource valuation is neither useful nor possible and that the re-source value must be measurable independent from any product market success – thus invalidating the tautology criticisms at the same time. This is in direct and flagrant contradiction to the prevailing academic view. As a consequence of this, e.g., “Value Added Approaches” and “Return Based Approaches” of Human Capital Management are discredited as not conform to theoretical requirements and not useful for practical business management, whereas factor market based methods alone prove helpful.

Suggested Citation

  • Roman Bechtel, 2007. "Calculating Human Capital: The Market Based Valuation of the Human Resource," Zeitschrift fuer Personalforschung. German Journal of Research in Human Resource Management, Rainer Hampp Verlag, vol. 21(3), pages 206-231.
  • Handle: RePEc:rai:zfpers:doi_10.1688/1862-0000_zfp_2007_03_bechtel
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    Cited by:

    1. Knauer, Thorsten, 2010. "Relevanz, Qualität und Determinanten der externen Unternehmenspublizität zum Humankapital: Eine empirische Bestandsaufnahme der HDAX-Unternehmen," Arbeitspapiere des Lehrstuhls für Betriebswirtschaftslehre, insbesondere Controlling 13-1, University of Münster, Chair of Management Accounting.

    More about this item

    Keywords

    Human Capital Calculation; Competitive Advantage; Resource Based View (RBV); Market Based View (MBV);

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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