1.3.2—Human vs physical capital

Human capital is the education, training, health and experience embodied in people. Physical capital is manufactured equipment, buildings and infrastructure used in production.

Both can raise productivity, but they differ in ownership, depreciation and how they are expanded. Human-capital investment changes people’s capabilities; physical-capital investment adds productive assets.

A firm’s training programme builds human capital, while a new automated machine is physical capital. Either may increase output per worker.

A worker is labour; the worker’s accumulated skills are human capital. A company’s cash balance is not physical capital.