From Human Capital to Human Capabilities: An Organisational Level Framework - Infusing Sen’s Human Capabilities Approach and Kremer’s O-Ring Complementarities in Becker’s Human Capital Theory

The human capital theory of Becker essentially views investments in the knowledge, and skill sets of employees as productive assets that increase individual income, organizational productivity and growth. But a narrowly-focused notion of human capital may miss the subtleties of human development, employee autonomy, the quality of working life and individual possibilities in the workplace. The Capability Approach by Amartya Sen, moves the analytical focus away from resources and outcomes, and towards the substantive freedoms people have, to become the beings and to do the doings that they have reason to value. Human capabilities and skill levels also show high level of complementarity in modern production of goods and services, as suggested by Michael Kremer’s O-Ring model. This paper develops a unified theoretical framework that integrates these three seminal concepts, which can be practically administered in business and non-profit organizations. We define individual capabilities as the result of skill investments required by Becker transformed through organizational conversion factors such as psychological safety, agency, and autonomy — following Sen's conversion principle. We then introduce these capability levels into a Kremer-style production framework characterized by strong task complementarity. However, instead of following the multiplicative model of production function used by Kremer, we would use Transcendental Logarithmic Production Function. The proposed framework consists of four key phases, namely, human-capital investment, conversion mechanism, enhanced employee capabilities and realized organizational goals. The mathematical model and the set of conceptual propositions developed in this paper provides a research agenda for empirically examining the framework.