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Human Capital Formation

Human capital formation refers to the development of skills and abilities among a population, with sources including education, health, job training, migration, and labor market information. It is crucial for improving quality of life, productivity, and economic growth, while facing challenges like brain drain and insufficient resources. Regulatory authorities oversee education and health sectors, and government intervention is necessary to prevent exploitation and ensure equitable access to services.

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2 views

Human Capital Formation

Human capital formation refers to the development of skills and abilities among a population, with sources including education, health, job training, migration, and labor market information. It is crucial for improving quality of life, productivity, and economic growth, while facing challenges like brain drain and insufficient resources. Regulatory authorities oversee education and health sectors, and government intervention is necessary to prevent exploitation and ensure equitable access to services.

Uploaded by

mohdafnankhan053
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER - 4

HUMAN CAPITAL FORMATION


Meaning of Human Capital:

It can be defined as the development knowledge, ability, skill, and physical capability of the people which helps
them to produce more.

Human Capital is the stock of skills and productive knowledge embodied in the human beings.

Distinguish between Human Capital and Human Development

Human Capital Human Development


Human capital considers education and health In human development, education and health
as a means to increase labour productivity are considered integral to human well-being, it
can be achieved only when the people have the
ability to read and write and apply their
knowledge to lead a long and healthy life.
It is a narrow concept which treats human It is broader concept which considers human
beings as a means to achieve an end i.e. beings as ends in them i.e. investment in health
investment in education and health is and education is considered productive even if
considered unproductive there is no increase in there is no income and output
income and output
Distinguish between Human Capital and Physical Capital

Human Capital Physical Capital


It is intangible and cannot be sold in the market. Physical capital such as machine, tools is tangible
and can be sold in market.
Human Capital depreciates with going but it keeps It depreciates with time due to normal wear and
on enhancing by investing in education and health tear
It is inseparable from the owner It is separable from the owner.
It is less mobile between two countries as it’s It is completely mobile between two countries
movement is restricted
It benefits not only the owner but also to society It benefits people who pay price for goods and
services produced by it
It creates private and social benefits It creates private benefits.

Question- Define human capital formation and discuss briefly its sources.

It refers to development of abilities and skills among the population of the country.

Sources of HCF are as follows:


1. Expenditure on education
2. Expenditure on health
3. Expenditure on the job training
4. Expenditure on migration
5. Expenditure on acquiring information about the labour market

1. Expenditure on Education
a. It converts human beings into human capital.
b. Without education human beings are only physical labour.
c. It provides knowledge to understand changes taking place in society.
d. Modernizes people personality and outlook.
e. Education produces skilled and trained labour.
f. Education enables a person to earn more income.
2. Expenditure on Health
Dewan Public School, Shiba Chhabra
a. A healthy person contributes more towards the GDP .
b. It keeps workers healthy and enables them to work for a longer period.
c. Increases enrollment of children in school.
d. Spares resources that otherwise would have to be spent on treating illness.
3. Expenditure on job training
a. It is the source of Human Capital Formation as the return of such expenditure in the form of
increase labour productivity is more than the cost of it.
b. On the job training assumes two forms:
i. Training in the firm itself
ii. Off Campus training of the workers at other places
4. Expenditure on Migration
a. People migrate from one place to another to find jobs that bring them higher incomes which is
much more than increase in the cost due to migration.
5. Expenditure on acquiring information about the labour market for example –
a. People spend money to acquire information about the labour market for example -people want
to know about wages and salaries in different types of jobs hence this expenditure was incurred
for acquiring information related to labour market.

Question - Importance of Human Capital Formation


1. Increases quality of life
2. Increase life expectancy
3. Modern Outlook
6. Inventions and innovations
4. Increase in efficiency and productivity
5. Effective use of physical capital
6. Controls population growth

Question - Importance of Human Capital and Economic Growth


Economic Growth and human Capital are interdependent on each other. They have two-way relationship.

Increase in human Capital More capital formation

Better Quality more investment in education and health

Modern outlook Rise in PCI

More Production More economic growth


Question –
Problems in Human Capital Formation
1. Brain Drain – leads to loss of quality of people like doctors, engineers and who have high
caliber
2. Insufficient resources – the resources allocated for formation of human capital have been
much less than what is required
3. Weak Science and technology – In respect of education – the performance is particularly
unsatisfied in the field of science and development
4. Growth of population – an increase of population is burden on the limited and scarce
resources of the country.

Dewan Public School, Shiba Chhabra


5. Serious inefficiencies - there is lot of wastage of society’s resources as capabilities of educated
people are either not made use of. For e.g. unemployment, drop out of girl child in poor
families.
6. Several imbalances – A greater proportion of resources have been diverted towards higher
education which is meant for few people as compared to primary and secondary education.

Education sector in India


Question - Name the regulatory authorities which are involved in education.
1. N.C.E.R.T. (National council of Education Research and Training)
2. U.G.C.L (University Grants Commission)
3. A.I.C.T.E (All India council of Technical Education)
Question - Regulatory Authorities related to health.
1. I.C.M.R – (Indian Council of Medical Research)
Why there is need for government intervention in Education Sector?
1. Private sector may acquire monopoly powers and may get involved in exploitation.
2. Sometimes Individual Consumers of education do not have complete information about quality
of services and their cost.
3. The Expenditure on education and health makes substantial long-term impact and they cannot
be reversed in State like Himachal Pradesh spends as high as reversed easily. Education and
health services both private as well as social benefits. So, both public and private institutions
are needed.
Some important points about government expenditure
1. Government spends more on elementary education.
2. Government spends less on tertiary education.
3. Difference in educational opportunities across states.
a. State like Himachal Pradesh spends as high as State like Himachal Pradesh spends as
high as ₹34650 and state like Bihar as low as ₹4088
b. Education commission says that in 1964, 6% of the GDP should be spent on education.
However, the current level is little over 4%.

Educational achievements in India

Primary Completion Rate

• It is the percentage of students completing the last year of


Primary school.

Adult Literacy Rate

• It is the ratio of literate adults to total adults

Youth Literacy Rate

• It is the percentage of people between 15-25 who can with


understanding read and write a simple statement on their
everyday life.

Dewan Public School, Shiba Chhabra

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