Explain various sources of human capital formation.
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Various sources of human capital formation are briefly explained below:
- Expenditure on education: Monetary benefit of higher earnings after getting education far exceed the cost of education. Moreover, education makes him a better citizen, more hygienic, well informed consumer and in many ways adds to his quality of life and thereby in human capital formation.
- Expenditure on Health: Certainly a healthy person can earn more than an unhealthy worker. Quality of life will also be better for a healthy person rather than unhealthy one.
- Expenditure on Information: Information related to job markets and educational institutions helps a person to get a suitable job and acquire proper skills. It increases his efficiency and productivity and thereby adds to human capital formation.
- On-the-job training: Firms spend on-the-job training of their workers because the benefits they get in terms of higher productivity and raised efficiency exceed much above the cost involved. Hence, on-the-job training also adds to human capital formation.
- Migration: It facilitates shifting of workers from low paid area to high paid area and thereby increases their worth as human capital. But it is to be noted that migration may be good at individual level but at the whole economy level it may create problem of brain-drain.
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