Achieving Peak Performance
New Horizons in Management series
Edited by Cary L. Cooper and Ronald J. Burke
Chapter 3: The Role of Human Capital Factors in Small Business Performance and Success
Gary J. Castrogiovanni Though similar notions had probably been around for centuries, the concept of “human capital” was popularized by Becker (1964). Accordingly, the education, training, experience, and health of the workforce affect worker productivity and economic performance. Government and businesses can invest in human capital, just as they invest in other resources, with the hope of generating satisfactory returns on that investment through the resulting performance gains. In the United States, small businesses employ roughly half of the private sector workforce and create most new jobs in the country. Small businesses are at least as important in many other countries as well. Thus, the economic benefits of human capital investment envisioned by Becker and other economists cannot be significant unless they accrue to the small business sector. National or local government investment in human capital must facilitate small business creation and growth within the targeted geographic areas, and human capital investment within small business firms must be related to firm performance. This chapter examines those linkages. Literature dealing with effects of human capital on small businesses is reviewed. Then, an integrative perspective is offered, with conclusions and implications for creating, developing, and managing small firms. Businesses may be small because they are new and have not yet had time to grow or because there are no advantages to growth like scale or scope economies. Investment in human capital contributes to economic development primarily in the former case because new businesses tend to have more growth potential than established ones....
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