Physical vs human capital: definition and differences

Physical capital vs human capital are two assets in an organization of different nature, equal relevance and influence in the...
25 June 2024

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Physical vs human capital: definition and differences

Physical capital vs human capital are two assets in an organization of different nature, equal relevance and influence in the continuity.

To understand their role, it is necessary to know their definitions and the importance they play in the economic and social development of a country.

Likewise, it is also necessary to address their differences, which include, among other things, the way in which they are acquired, as well as their depreciation.

In this article, you will find information to help you understand these two concepts.

Physical vs human capital: definition and differences

Physical capital vs human capital: definitions

Physical capital and human capital are two essential dimensions of an organization that feed each other and form the necessary pillars for its development and competitiveness, as you will discover thanks to the following definitions.

Physical capital

Physical capital is the set of inputs necessary for an organization to successfully complete the production process.

This concept includes all tangible assets such as raw materials, machinery, infrastructure, technology and equipment, as well as the buildings in which they are located.

It increases when net investment is positive, creating value in the organization and driving economic growth.

Its existence and accumulation are essential to the growth of an organization and a country, so high capital expenditures must be supported by a high level of physical assets and a higher GDP (gross domestic product) growth rate.

Owned offices or machinery, electronic equipment or inventory are some examples.

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Human capital

Human capital refers to the set of attributes possessed by individuals in a population and which, in an organization, represents the collective skills, competencies, knowledge and experience of the workforce.

This added value, provided by individuals, contributes to the production process and is essential for the efficient use of physical capital.

Societies are enriched when they can count on trained, competent and professional human capital, as it affects both the level of production and competitiveness. 

A skilled workforce leads to more innovation and faster technological progress.

This is achieved through education, training, skills or even life experience. The better prepared a profile is, the better its talent management, the better it will be able to adapt to the uncertainties of today’s markets.

It is an added value that is considered in the business framework as a constantly evolving wealth that can be increased through adapted training and qualification programs.

Physical capital and human capital are two essential dimensions of an organization

Similarities between human and physical capital

Although they have differences, which we will discover shortly, they also have similarities, such as the following:

  • They are the pillars of an organization’s and a country’s economy. 
  • They drive economic and technological growth and development. 
  • They require investment to increase their value. 
  • They help companies to strengthen their continuity in a context of uncertainty or in very volatile markets. 

Differences between human and physical capital

In addition to the meaning of each concept, the differences are established in relation to the 6 bases of comparison that we will detail below.


The physical capital is an investment owned by the organization, while the human capital participates in the development of the company during the time it is integrated in it, but can leave the project at any time.

It is a kind of knowledge rental with a limited time frame, since the employee can leave the company.


Another difference between physical capital and human capital is its nature.

The former is a tangible asset that can be sold, while the latter is intangible and inseparable from the employee, so only his services can be sold on the market.


Physical capital can be moved from one country to another without any considerations other than logistical organization and legal compliance.

On the other hand, human capital is less mobile because it may be subject to restrictions such as nationality.

Physical capital vs human capital: definitions

Financial balance sheet

Despite its importance to an organization, human capital does not appear on the balance sheet, whereas physical capital is accounted for as tangible assets.


Physical capital is created through an economic and technical process, as opposed to the social process of talent acquisition to create valuable human capital.


Depreciation of physical capital is inevitable because it is linked to the passage of time.

In the case of human capital, aging is likely to reduce its value, although it can be minimized thanks to a corporate culture of continuous training.

In fact, in a favorable context, it is accumulated and strengthened by training and work experience.

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