3.3.1. Human capital (HCAP)
Human capital is constructed as the average of three ratios. The first two ratios measure labor intensity
and are calculated as (1) 1997 labor costs divided by 1997 depreciation expense and (2) 1997
labor costs divided by 1997 property, plant, and equipment. These ratios follow Marvasti (2000) who
uses the capital–labor ratio to capture the extent to which the movie industry is capital intensive,
Graham (2000) who analytically motivates a proxy that captures the degree of capital intensity and
then uses the proxy empirically to study productivity in manufacturing firms, and Ballester et al. (1999)
who uses both labor and capital intensity measures to study restructuring of firms. The use of labor
intensity to proxy for human capital is in accordance with the earlier definition that human capital is
representative of the firm’s workforce. This is illustrated in the following quote (Becker et al., 2001,
p. 6):