Sources of Human Capital Formation
Human capital of a country can be increased with the help of different ways. Some of the sources of human capital formation are as follows:
1. Expenditure on Education
The most effective way to improve and enlarge the size of the nation’s productive workforce is by spending on education which makes it a significant source of human capital formation. Countries and people spend money on education with the objective of:
- Enhancing their potential earnings.
- Producing technological expertise and human resources that are ideal for boosting labour productivity and thus, supporting the rapid development of the economy.
- Getting better social standing and pride.
- Facilitating adaptation of new technologies.
2. Expenditure on Health
Complete physical, mental, and social well-being is a condition of being in good health. The quality of the manpower is negatively impacted by poor health and underemployment because sick workers who lack access to medical facilities are compelled to take time off of work which reduces productivity. The quality of human capital improves when individuals have access to enough food and good nutrition, as well as adequate health and sanitation services. Therefore, a healthy person makes a more substantial GDP contribution than a sick person.
DIfferent expenditure on health includes Preventive care (vaccination), Curative medicine (used when unwell), Social medicine (health literacy promotion), Clean drinking water supply, and Good sanitation facilities.
3. On-the-Job Training
On-the-job training is an essential source of human capital formation as the return on investment in the form of increased labour productivity is greater than the cost. This can happen in several forms:
- Workers may be trained in the firm under the supervision of a qualified worker, or
- Workers can be sent off-campus for training.
Firms incur costs in each of these scenarios. Once the training is over, the firms requires their workers to work for a set amount of time in order to enjoy the benefits of increased production.
4. Expenditure on Migration
People migrate in search of occupations that pay more than what they earn in their home places. For example, Engineers and physicians migrate to other countries in search of a higher salaried job. Unemployment is the driving force behind rural-urban migration in India. It means that unemployed people from the rural areas move to urban areas in search of jobs. Similarly, technically qualified people like doctors, professors, engineers, etc., migrate to other countries in search of a job with higher salary. In both cases, migration entails the expense of transportation, the greater cost of living in the migrated location, and the psychological costs of living in an unfamiliar socio-cultural setup.
5. Expenditure on Information
People spend money to learn about the labour market and educational institutions. For example, people need information regarding different salary levels associated with different types of jobs, etc. This type of information is required to make decisions about education investment as well as to make optimal use of learned skills and help people to realise their productive potential. Thus, expenditure on acquiring information regarding labour markets and other sectors such as education and health is a source of human capital formation.
Human Capital Formation: Meaning, Sources, Role and Importance
If seen from the economic development point of view, human resources are important. In today’s world, it is believed that to build a strong nation, it is essential to focus on the development of people and the organisation of human activity. Here, the development of human resources refers to the increase in the quality of human beings to help in the growth process and development of the country.
According to Prof. Whipple, ‘A nation’s true wealth is neither in its land and water, nor in forests and mines, nor in its flock and herds, nor in dollars, but in its wealthy and happy men, women, and children.’
Table of Content
- How do people become resources?
- What is Human Capital?
- What is Human Capital Formation?
- Sources of Human Capital Formation
- Role and Importance of Human Capital Formation