Explain four sources of human capital formation.OR
Explain the main sources of human capital formation.
Explain the main sources of human capital formation.
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The main sources of human capital are:
- Investment in education: Education is an important source of human capital formation.
- It generates technical skills and creates manpower, well suited for improving labour productivity and thus, sustaining rapid economic development.
- Education also tends to bring down birth rate, bringing a decline in population growth rate.
- Education also results in social benefits. Thus, investment in education leads to higher returns in future.
- Investment in health: Health is a human capital asset owned by the person. The way an employee makes investment in improving his skills to make himself employable, he also invests in his health to increase his worth in the labour market. Earnings potential is influenced directly by growth in human well-being.
- On-the-job-training: During the course of development, an economy has to absorb new technology and develop productivity. On-the-jobtraining enhances labour productivity by developing their abilities and skills and forms a part of human capital formation.
- Migration: Migration is a source of human capital formation, leading to higher returns in future. People migrate in search of better employment opportunities and higher earnings. Migration involves cost of transportation and higher cost of living in migrated places which are generally more developed than the place where people migrate from. However, the enhanced earnings outweigh the costs of migration.
- Information: People take important decisions regarding their consumption and investment. The important principle to recognise is that the value of the benefits from the decisions exceeds the value of the costs. With the lack of information, people might take wrong decisions and insufficient scarce resources might not be used properly. Thus, it is necessary to make decisions regarding investments for efficient utilisation of resources natural and human and for higher returns in future. In this sense, expenditure on information is regarded as a source of human capital formation.
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