Human capital theory and job fit as applied to law departments

Human capital theory is the reigning economic theory of what determines wages. “Human capital theory explains differences in wage rates by differences in education, training, experience, intelligence, motivation, and other human factors that influence productivity.” Human capital commands a price in the labor market. The focus of the theory is on the worker rather than the job (See my post of March 20, 2008: pay and the value of practice areas.).

The human capital bundled into any given in-house attorney yields a greater return if invested in the right position. “The person who embodies a certain level of human capital will realize his full value only if placed in a position with adequate scope and the opportunity.” (See my posts of March 16, 2007: A-positions; and July 14, 2005: situational matches and four dimensions.).

The secret to making the most of a law department’s staff is to maximize human capital per dollar spent and to maximize each person’s fit with the tasks that person needs to do. All this is the gospel according to Robert H. Frank and Philip J. Cook, The Winner-Take-All Society (Penguin Books 1995) at 89-90.