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HUMAN CAPITAL FORMATION

  • HUMAN CAPITAL REFERS TO THE STOCK OF “SKILL AND EXPERTISE OF A NATION AT A POINT OF TIME. IT IS THE SUM TOTAL OF SKILL AND EXPERTISE OF ENGINEERS, DOCTORS, PROFESSORS AND WORKERS OF ALL TYPES WHO ARE ENGAGED IN THE PROCESS OF PRODUCTION.

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  • HUMAN CAPITAL FORMATION IS THE PROCESS OF ACQUIRING AND INCREASING THE NUMBER OF PERSONS WHO HAVE SKILL, EDUCATION AND EXPERIENCE WHICH ARE ESSENTIAL FOR THE ECONOMIC AND POLITICAL DEVELOPMENT OF A COUNTRY

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Points of Difference

Physical Capital

Human Capital

  • Physical Construction

It has physical construction. It can be seen, touched and easily sold.

It is intangible and it is not sold. Only its services are sold.

  • Separation

It is separable from its

owners.

It cannot be separated

from its owners.

  • Building

It can be built by imports also.

It is built by conscious policy formulation of state and its expenditure.

  • Nature of Benefits

It creates private

benefit.

It creates both private

and social benefits.

  • Mobility

Completely mobile subject to artificial trade restriction placed at some places.

It is not perfectly mobile. It is restricted by nationality and culture.

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Human Capital

Human Development

Human capital consider education and health as a means to increase labour productivity.

Human development considers that education and health are integral to human well-being because only when people have the ability to read and write and the ability to lead a long and healthy life, they will be able to make other choices which they value.

Human capital treats human beings as a means to an end; the end being the increase in productivity. Any investment in education and health is unproductive if it does not enhance output of goods and services.

Human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. Therefore, basic education and basic health are important in themselves, irrespective of their contribution to labour productivity.

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SOURCES OF HUMAN CAPITAL FORMATION

  • 1.EXPENDITURE ON EDUCATION
  • 2.EXPENDITURE ON HEALTH
  • 3.ON-THE-JOB-TRAINING
  • 4.STUDY PROGRAMMES FOR ADULTS
  • 5.MIGRATION
  • 6.EXPENDITURE ON INFORMATION

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  • Spending on education by individuals is similar to spending on capital goods by companies with the objective of increasing future profits over a period of time.
  • Likewise, individuals invest in education with the objective of increasing their future income.

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Education

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  • Health is important for the development of an individual.
  • Medicines, provision for clean drinking water and good sanitation are various forms of health expenditures.
  • Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation

Health

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On-The-Job-Training

Firms spend on giving on-the job-training to their workers. This

may take different forms:

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  • The workers may be trained in the firm itself under the supervision

of a skilled worker.

  • The workers may be sent for off-campus training.

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In both these cases firms incur some expenses. Thus they insist that the workers should work for a specific period of time, after their on-the-job training, during which it can recover the benefits of the enhanced productivity owing to the training.

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Expenditure regarding on-the-job training is a source of human capital formation as the return of such expenditure in the form of enhanced labour productivity is more than the cost of it.

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  • People migrate in search of jobs that fetch them higher salaries than what they may get in their native places.
  • Unemployment is the reason for the rural-urban migration in India. Technically qualified persons, like engineers and doctors, migrate to other countries because of higher salaries that they may get in such countries.
  • Migration in both these cases involves cost of transport, higher cost of living in the migrated places and psychic costs of living in a strange socio-cultural setup.
  • The enhanced earnings in the new place outweigh the costs of migration, hence, expenditure on migration is also a source of human capital formation.

Migration

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Information

  • People spend to acquire information relating to the labour market and other markets like education and health.
  • This information is necessary to make decisions regarding investments in human capital as well as for efficient utilisation of the acquired human capital stock.
  • Expenditure incurred for acquiring information relating to the labour

market and other markets is also a source of human capital formation.

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Human Capital And Economic Growth

  • The enhanced productivity of human beings or human capital contributes substantially not only towards increasing labour productivity but also stimulates innovations and creates ability to absorb new technologies.
  • The human capital growth in developing countries has been faster but the growth of per capita real income has not been that fast.
  • There are reasons to believe that the causality between human capital and economic growth flows in either directions.

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ROLE OF HUMAN CAPITAL FORMATION

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  • Increases production-Knowledgeable , skilled , qualified persons can contribute their maximum to the economy . They can increase production through optimum utilization of resources .
  • Increases productivity–It promotes innovations, creativity and new technology so that maximum possible time and cost.
  • Improve quality of life–Human capital formation focuses on quality of population, better the quality of population more will be the economic growth and development.

ROLE OF HUMAN CAPITAL FORMATION

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  • Creates positive attributes – People with positive attributes are more open to creativity and innovations and are rational in their decision making .
  • Life expectancy – Human capital formation increases the life expectancy of people.

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Problems of Human Capital in India

  • Rising Population-Large size of population adversely effects the quality of human capital formation. Larger the population, more capital is required for the purpose of investment in education and health.
  • High level of Poverty-Major section of Indian population living under poverty line finds it difficult to arrange basic necessities of life. Hence, they cannot afford quality education and health facilities.
  • Braindrain-The migration of highly skilled work force to other countries for better jobs is known as braindrain. Due to braindrain country loses it’s qualified and skilled workforce affecting the process of economic growth.

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Education still a challenging proposition�

1.Large number of illiterates. 2.Inadequate vocalisation. 3.Gender bias.

4.Low rural access level. 5.privatisation.

6.Low government expenditure on education.

Education still a challenging proposition

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Need for Government Intervention in education and health

It is required because of the following facts:�

  1. These sectors need huge investment.
  2. It is difficult to expect private investors to invest in health and education.
  3. People in a poor country like ours cannot afford high price for education and health.

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Education implies the process of teaching, training and learning. It improves knowledge and develops skills.

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Importance of education:

1.It produces responsible citizens.

2.It develops science and technology.

3.It expands mental horizon of the people.

4.It helps in economic development through

greater participation of people.

5.It promotes cultural strandards of the citizens.

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Education as an Essential element of Human Resource Development

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