Personnel Costs as an Element of Investment in Regional Human Capital


Personnel costs as an element of investment in regional human capital. Remuneration of labor is one of the most complex components of calculating the costs. On the one hand, the costs of labor, in the context of an enterprise, are a part of financial accounting that is governed by the Federal law. On the other hand, the costs of labor are closely connected with such category as human capital that needs to be addressed not just in the context of an enterprise, but at the regional level or even the state as well. Therefore, it is interesting to consider the structure of labor costs at the macro level, in comparison with such indicators as the number of enterprises and the number of the employed in the economy, the volume of sales, the total amount of expenses of the enterprises by sectors of activity, using the methods of time series analysis. The research was conducted in Ural, one of the biggest federal districts of Russian Federation. Urals Federal District includes four ares with highly developed industrial production as well as mineral resources extraction industry. The analyzed tendencies are presented as compared to the primary industrial sectors: agriculture, construction and commerce, all of which took leading positions when forming financial and economic figures of the region. Ural Federal Region is selected for the study, as it combines areas with different dominant types of activity, which allows to consider not only geographical, but also sectoral specificities.

Keywords: Human capitalpersonnel coststhe welfare of the region


The totality of costs associated with ensuring the optimal functioning of labor resources of an enterprise is directly related to human capital theory, widespread at the present stage. The "human capital" refers to a set of knowledge, skills and health condition of an employee that are used to meet the needs of a person and society, and are a source of future income. Human capital theory is closely connected with analytical issues of efficiency of investments in its reproduction, which should lead to an increase in future income of an employee, an enterprise and the state, as well as to bring public benefit (Smith, 2007).

The term "human capital" was first introduced by T. Schultz in the 1970s, who equated knowledge and skills of an individual to financial or physical capital, and prove that investments in education and health can bring in future more income than physical capital (Schultz, 1961). Later, the theory was developed by Becker (1964), who introduced the concept of general and specific human capital. General human capital is the knowledge of a universal nature, which has a specific value only within a particular enterprise or activity.

At the present stage of the concept development Goldin (2016), examines human capital from the viewpoint of the investment and result of the investments made. Holzer (2016), examines the category of human capital slightly wider than standard representations and elevates this issue to the level of government. It seems interesting to us to study American authors, who revealed positive dynamics of indicators of people's education and the average salary of the personnel as a whole (Prime et al., 2016). A number of authors address the issue of the indicator development of human capital at an enterprise (Kuhnen, & Oyer, 2016).

Problem Statement

Problems of calculation of costs and calculation of product costs, works and services are typical for all types of enterprises, because, on the one hand, the correctness of their formation affects the financial results, on the other hand, timely analysis of the structure and dynamics of costs improves the efficiency of current and strategic management, and, accordingly, prosperity of the region (Iurieva et al., 2013).

Table 1 shows brief characteristics mainly found in Russian enterprises of the types of personnel costs (Sinianskaia, 2014). This takes into account both the actual costs and the possible costs, related to the influence of internal or external factors (loss of benefit). Salary of the basic personnel and administrative managerial personnel is divided in the table into different categories, as in the calculation they are included as separate cost items. Direct costs are directly related to the production of certain commodities, but indirect costs are accounted for the overall period and then distributed. The basis for distribution of indirect costs among Russian companies is often the salary of production workers, which gives a special importance to this indicator.

Table 1 -
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The wage costs and social security payments, associated with the production process, depend on the quantity and quality of a production or on the executed works during a given period and are directly relevant to current accounting calculations. Most of the costs related to the item "other costs" are of an investment nature and are designed for the long term. The whole set of them reduces taxable income and, accordingly, requires economic justification. Enterprises need to establish their appropriateness to include them into production, administrative or selling costs. The financial and economic interests of the employer must not be in conflict with the social interests of the employees and must not contradict the current legislation in the field of labor law and social security.

Thus, most of the personnel costs, involved in the formation of the financial results of enterprises' activities, may also be considered in the context of investment in human capital. They are closely associated with the industry specifics of the region and, consequently, affect its well-being. The cost of labor among these indicators is the most significant and standard-setting factor, therefore, the further study will focus on identifying the connection between salary dynamics with the main indicators, characterizing the activities of economic entities.

Research Questions

At the regional level, a state or a union of states (macro-level) human capital embodies the accumulated costs on general education, health and labor movement. At the enterprise level (meso-level), special (corporate) human capital acts as a means of maintaining stability, enhancing the competitiveness of an enterprise in the long term. At the level of an individual employee (micro level), it expresses the dependence of a person’s earnings and the costs of sustaining the family on personal inborn characteristics and characteristics acquired in the course of employment, as well as additional learning characteristics and qualities (Taylor, 1991).

Human capital theory is used in the justification of principles and objectives of management as a tool to improve the efficiency of personnel costs at the enterprise and regional level. A practical embodiment of the theory of human capital is connected to the expected positive results from investments in employees and revenue growth.

The study analyzes the dynamics of personnel costs of enterprises with different sectoral focus in order to characterize one of the qualitative indicators of investment in human capital in the region.

The Purpose of the Study

The complexity of labor costs analysis is due to two factors: on the one hand, salary is regulated by the Federal law, on the other hand, it is an element of accounting policy. As the cost of labor is closely associated with the category of "human capital", they should not be viewed simply in the context of the enterprise, but at the regional level. Therefore, it is interesting to consider the structure of costs of labor at the macro level in comparison with such indicators, as the number of enterprises and number of the employed in the economy, the volume of sales, the total amount of expenses of the enterprises by sectors of activity, using the methods of time series analysis. Ural Federal Region is selected for the study, as it combines areas with different dominant types of activity, which allows considering not only geographical, but also sectoral specificities.


The object of the study is presented by Ural Federal District (UFD).

Based on the analysis of time series, quite an objective situation of domination of the economically active population over the number of employees can be traced. The positive aspect is that the share of employment of the total active population in the whole Russia is large enough (in 2014, the smallest share was 88,84 % in North Caucasus District and the highest was 96,9 % in Central Federal District). In UFD, the figure is 94, 24 %, indicating a fairly high employment of citizens.

As a test region, Ural Federal District (UFD) is considered by regions in detail (table 2 ). In the Chelyabinsk region in pre-crisis 2007, the share of the economically active population almost equaled the number of employed citizens (97 %). A similar situation is observed in other regions of the Ural Federal District.

Table 2 -
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Along with employment, it is appropriate to analyze the unemployment rate in constituent entities of the Russian Federation, as a measure diametrically opposed to employment. It is a potential human capital of the country, which, due to social, economic and political situation, cannot be used by enterprises and constituent entities of the Russian Federation as a whole.

Figure 1 shows the rates of unemployment change in Ural Federal District. In Ural Federal District, the highest rate of growth in the number of the unemployed was in 2009 as compared to the previous year. A high growth rate of unemployment in Chelyabinsk oblast was also identified in 2008. The second place, by the growth of unemployment, is represented by Sverdlovsk oblast and it is followed by Kurgan oblast. In Tyumen oblast, the increase in the growth of an unemployment rate was observed in 2008, as compared with the previous year, and in 2009, there was a positive trend.

Figure 1: Fig. 1. The rate of unemployment change of the Ural Federal District subjects district, in %.
Fig. 1. The rate of unemployment change of the Ural Federal District subjects district, in %.
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The economy of Sverdlovsk oblast is one of the largest among regions of the Russian Federation, according to the volume of gross regional product; in 2012, according to this indicator, Sverdlovsk oblast took the 5th place among other regions of the country. Sverdlovsk oblast is among the ten largest industrial regions, which accounted for about 50 % of total industrial production of the Russian Federation.

The largest part of the manufacturing sector of the regional economy is taken by manufacturing, which accounts for about 85 % of the total volume of shipped products of the industry in the region. The proof of this is that the share of enterprises in this sector in 2005 amounted up to 11,21 % of the total registered enterprises. Most of them belong to the manufacturing industry and enterprises (10,48 % of 11,21 %) (table 3 ). A distinctive feature of a sectoral structure of manufacturing is the high specific weight of metallurgical and machine-building sectors.

In agriculture, the region focuses on the sustainable development of rural territories, as well as the development of the priority subsectors-crop and livestock production. But adverse climatic conditions, a high degree of depreciation of equipment, social and personnel problems influence the results. Thus, the share of enterprises in this sector is reduced from 3,65 % to 2,07 %, which means, rather, that agriculture is not a priority branch of the economy. It is interesting that despite the priority of the industry branch for the region, a large part among the total number of enterprises comprise trade organization. Although their share has been declining since 2009 and in comparison with 2005 (43,95 %), the figure reached a total of 38,98 % by 2013 (table 3 ). However, an increase of the number of enterprises engaged in other activities is observed after 2009, their share has risen since 2005 (33,47 %) by 2013 up to 39,52 %.

Table 3 -
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The population employed in the economy of the region tends to decrease in industry and agriculture. This may be due to the demographic situation in the country (due to fluctuations in birth rates, the number of university graduates may vary) or due to the decrease of attractiveness of the specialties of the agricultural sector. Although, if we compare this figure with the average salary, which increases by 2013, it is possible to make an assumption that a qualitative indicator of human capital of enterprises is growing. To reduce costs, companies are forced to reduce personnel or this reduction occurs to increase personnel motivation by increasing salary (table 4 ).

Table 4 -
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In the manufacturing sector and in trade, this figure has tendency to increase, although not significantly. Perhaps a migration of personnel from one sphere of activity to another is taking place. Positive trend in total wage costs, which can be traced in all branches, must be considered in two aspects: on the one hand, costs may rise due to the direct increase of salary at the enterprise. It is only natural that this indicator should rise, as inflation and the economic situation in the country and in the region can't keep the indicator at the same level. On the other hand, a decrease in personnel numbers and an increase in average salary may indicate the growth of qualitative indicators of human capital.

The relatively high share of personnel costs in total costs of an enterprise is dominated by agriculture and accounts for 27,9 %, in the industry, it ranges from 11,7 % up to 21,7 %. In trade, the figure is the lowest – 3,8 % (table 5 ).

Table 5 -
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Ural region has always been dominated by the manufacturing sector of the economy, production and trade activities. Naturally, the highest indicator of costs is in the industrial sector, namely the manufacturing sector. Since 2009, the cost indicator has increased almost 3 times. The share of wage costs is 12 % of the total costs. Further, there is a relatively high level of costs in the trade sector, which has increased 3 times, if compared with 2009, although the share of costs on labor is only 4 %. Enterprises involved in production and distribution of water, gas and electricity are characterized by the average level of costs, in comparison with all sectors of the economy with the 10 % share of salary.

Mining and agriculture have the lowest costs, if compared to other sectors of the economy, however, the proportion of wage costs is the highest (21,7 % and 27,9 %, respectively). This is due to the specificity of the industry. In agriculture, dominated by human labor, and given the fact that agriculture is just starting to get out of the crisis, the investments are just beginning to come to this industry. Moreover, the low number of enterprises and business activity in this sector of the economy in the Ural region could be due to difficult climate and specific economic characteristics. When mining, costs are large mainly at the development stage of the field. For trade, a low share of labor cost indicates that human labor is used in the industry only at the stage of sale of finished products, i.e., all costs are borne by production companies. Moreover, innovative methods and technologies allow manufacturing companies to use more advanced methods in the process, thus reducing wage costs.

It is of an interest to compare the rate of change of the economically active population with the rate of change of wage costs (table 6 ).

Table 6 -
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The data in the table allow us to conclude that the trend of reducing the total cost of the enterprise is due to a lower number, not because of a lower salary. That can attest to the fact that businesses optimize their costs to a greater degree not by reducing the level of salary, but by automation and intellectualization of labor processes.


On the basis of the conducted research, we can draw the following conclusions.

The present study has investigated the indicators characterizing the interconnection between salary and basic economic parameters of activity of the enterprises of Ural Federal District in dynamics for 7 years, including the years covered by the crisis situation. Despite the supposed challenges of the crisis period, which were to lead to lower levels of salary, we identified a positive trend both in resources of labor supply of enterprises and in the income growth.

A positive trend in total personnel costs, which can be traced across all industries, need to be considered in two aspects: on the one hand, costs may rise due to the direct salary increase. It is natural that this indicator should rise, as inflation and the economic situation in the country and the region cannot keep it at the same level. On the other hand, an increase of average salary and a simultaneous reduction of personnel may point to improving of quality indicators of human capital, which allows increasing the competitiveness of individual companies and of the region as a whole.


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20 July 2017

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Iurieva, L. V., Sinianskaia, E. R., Ilina, A. V., & Savostina, O. V. (2017). Personnel Costs as an Element of Investment in Regional Human Capital. In K. Anna Yurevna, A. Igor Borisovich, W. Martin de Jong, & M. Nikita Vladimirovich (Eds.), Responsible Research and Innovation, vol 26. European Proceedings of Social and Behavioural Sciences (pp. 302-317). Future Academy.