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What if Human Labor Was an Asset, not an Expense?
People add more to a business than their salary expense. What if the books reflected that?
As much as CEOs like to broadcast that their people are the company’s most valuable asset, budgets are balanced with employee wages listed as one of the biggest expenses. In accounting, assets are any resources that a company controls and deploys to produce future value. In a manufacturing-driven economy, it makes sense to focus on asset categories like property, plant, and equipment (PP&E), inventory, and short-term investments. But as countries like the United States transition from an economy based on production of goods to one mainly driven by people’s services and knowledge-work, it might now make sense to change our classification of workers from liabilities (under the cost of their wages) to assets.
I’m not the first to point out the problems with how we classify labor. The modern theory of human capital was first discussed in 1965, and the possibilities of Human Resource Accounting gained initial traction in the 1970s. Accounting academics have explored potential models that could improve the way we report, track, and measure the value of a company’s human resources. But there is no consensus on a solution.
In order to build a better future, we should think critically about the problems with the status quo — namely, how the existing accounting system treats human capital — as well as the barriers to changing it, and also consider any negative side effects that could result from moving to a new framework. What might the world look like if human capital were a tangible asset?
Understanding intangible assets
Full disclosure: I am not an accountant. If you aren’t, either, I hope you’ll find this breakdown helpful. If you are, I hope you’ll build on or challenge my model.
What are intangible assets?
In his seminal book Intangibles: Management, Measurement, and Reporting, Baruch Lev defines intangible assets as “a claim to future benefits that does not have a physical or financial (a stock or bond) embodiment.”
