HUMAN CAPITAL

FORMATION

What is Human Capital?

Just as a country can turn physical resources like land into physical capital like factories, similarly it can also turn human resources like students into engineers and doctors. Societies need sufficient human capital in the first place-In the form of competent people who have themselves been educated and trained as professors and other professionals. This means that we need investment in human capital out of human resources.

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.

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.

Sources of Human Capital

Education Health On-the-Job-Training Migration Information

Education

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.

Health

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

On-The-Job-TrainingFirms spend on giving on-the job-training to their workers. This may take different forms:

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.

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.

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.

Migration 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.

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.

Health as Human ResourceThe government of India has evolved a national health policy, which lays down stress on the preventive, promotive and rehabilitative aspects of life. Healthy population helps indirectly in the economic development of the country.

1) All machines, equipments and tools require men to operate on them. Health is an essential requirement for making an efficient, active and competent working force.

2) There is always a sound mind in a sound body.

Health as Human Resource We should try our best to improve the

health standards of the citizens eradicate diseases such as malaria, smallpox, polio, tetanus etc.

Illness is a part of human life so there should be sufficient number of hospitals and dispensaries to cure ailing patients.

Health helps indirectly the economic development by supplying active, energetic and healthy working force, which activates the entire production process.

Standard of Health before Independence

The Average standard of health in India was very poor on the eve of adoption of planned development:

Death rate per year=27.4 per thousand Infant Mortality per year=183 per thousand Life expectancy=32.45 years(Males)

31.66(Females) There was one doctor for every6300 persons,

one nurse for every 4300 persons, one trained mid-wife for every 60,000 persons.

Education as Human Resource

Human Resource refers to the population of a country and the efficiency, productivity, skill and farsightedness of its inhabitants. Education is an important factor for the development of human resources:

Education improves upon the level of understanding. It increases the capacity and mental efficiency of

people to produce more. Technical education develops the efficiency among the

laborers to use highly advanced techniques of production.

Education modernizes the attitudes and behaviors of the people which is important for rapid growth of the economy.

Educational Sector in IndiaPrimary education

1) The Indian government lays emphasis to primary education up to the age of fourteen years.

2) 80% of all recognized schools at the Elementary Stage are government run or supported, making it the largest provider of education in the Country.

3) Figures released by the Indian government in 2011 show that there were 5,816,673 elementary school teachers in India.

4) Education has also been made free for children for 6 to 14 years of age or up to class VIII under the Right of Children to Free and Compulsory Education Act 2009.

5) The current scheme for universalization of Education for All is the Sarva Shiksha Abhiyan which is one of the largest education initiatives in the world.

Educational Sector in IndiaSecondary education

a) Secondary education covers children 14–18 which covers 88.5 million children according to the Census, 2001.

b) India's secondary school system is its emphasis on profession based vocational training to help students attain skills for finding a vocation of his/her choosing.

c) A special Integrated Education for Disabled Children (IEDC) programme was started in 1974 with a focus on primary education. The government started the Kendriya Vidyalaya project in 1965 to provide uniform education in institutions following the same syllabus at the same pace regardless of the location to which the employee's family has been transferred.

Educational Sector in IndiaHigher education

India's higher education system is the third largest in the world, after China and the United States.

The main governing body at the tertiary level is the University Grants Commission (India), which enforces its standards, advises the government, and helps coordinate between the centre and the state.

Some institutions of India, such as the Indian Institutes of Technology (IITs), have been globally acclaimed for their standard of undergraduate education in engineering.

Six Indian Institutes of Technology and the Birla Institute of Technology and Science – Pilani were listed among the top 20 science and technology schools in Asia by Asiaweek. The Indian School of Business situated in Hyderabad was ranked number 12 in global MBA rankings by the Financial Times of London in 2010 while the All India Institute of Medical Sciences has been recognized as a global leader in medical research and treatment.

Educational Attainment in India

Human Capital And

Economic Growth

We know that the labour skill of an educated person is more than that of an uneducated person and that the former generates more income than the latter.

Economic growth means the increase in real national income of a country; naturally, the contribution of the educated person to economic growth is more than that of an illiterate person.

Education provides knowledge to understand changes in society and scientific advancements, thus, facilitate inventions and innovations.

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.

Human Capital And

Economic Growth

The Seventh Five Year Plan of India says “Human resources development has necessarily to be assigned a key role in any development strategy, particularly in a country with a large population.

Trained and educated on sound lines, a large population can itself become an asset in accelerating economic growth and in ensuring social change in desired directions.”

Select Indicators of Development in Education and Health Sectors

What is Human Capital Formation ?

Human Capital is undoubtedly superb biological computer . It enables thinking process . Man has head start over other species . Men are rational in their decision making . It requires that the people must be literate , educated and skilled . In order to become more efficient and productive people should be trained , skilled and professionally qualified .

It is rightly said that the average overall lifetime earning of a graduate is more than a matriculate.

Role of Human Capital Formation

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

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.

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.

Human Development Index

The Human Development Index (HDI) is a composite statistic of life expectancy, education, and income indices to rank countries into four tiers of human development. It was created by economist Mahbub ul Haq, followed by economist Amartya Sen in 1990,and published by the United Nations Development Programme.

Three basic human capabilities of HDI

Longevity-longevity here means life expectancy at birth. It means the number of years a newly born baby is expected to live. Life expectancy in India is 63 years.

Educational attainment-It refers to the educational attained by the people of the country on an average basis. The constituents of educational attainment are the following two variables:1. Adult Literacy Rate-The rate of people aged 15 or above who can understand, read and write a short and simple statement in their everyday life is known as ALR.2.Gross Enrolment Ratio-GLR is defined as the number of students enrolled at different levels of education.

Three basic human capabilities of HDI

Real GDP per capita-It is taken as a measure of the standard of living of the people of a country.

HDI Formula

HDI=Life expectancy index+ Educational attainment index+ Real GDP per capita index

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World map by quartiles of Human Development Index

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