One significant aspect that is responsible for the development of humans is knowledge. Knowledge in the form of education, learning, and training can be achieved and shared from various means like books, music, tutorials, etc.
The term human capital refers to the economic value of a person's skills and experience. It is said to include qualities like health and education.
Human capital is an intangible asset of a company that is not listed on the balance sheet. As all employers are not equal, companies can invest a sufficient amount to upgrade their skills leading to profits. They can invest in their training, education, and other relevant skills.
Human capital has a relationship with profitability, productivity and economic growth. Similar to other assets, it can depreciate due to unemployment if individuals won’t adopt new technologies.
It is quite evident that trades and businesses pioneered by skilled professionals will yield more productivity than initiated by an unskilled person. Consequently, the income made by a learned person is much more than by an untrained individual. All these earnings contribute to a nation’s economy and define the human capital formation of a country.
Sources of Human Capital Formation
One of the most important investments during Human Capital Formation is made in education. Many factors affect human capital formation. Underneath are the factors affecting the human capital formation:
1. Expenditure on Education
By nourishing and enhancing the education system, a state’s workforce can be upgraded and improved. That is the reason why guardians and the government spend a vast amount behind education. Here are few purposes why the administration of a state or a country and parents invest so much on academics:
To enhance and develop their income in the upcoming times.
Strengthen human resources and improve their technical abilities. That, in turn, will help in enhancing the productivity of work and finally result in the expansion of the economy.
Educating individuals help in controlling the population hike of a country. If the birth rate decreases, sufficient resources can be provided to each studying individual.
By obtaining education and knowledge, one can further share it with other people. It is a social advantage.
By this, it is understandable that the role of education in human capital formation is a major one.
2. Training
A lot of organisations and companies present on-job training to enhance their employee productivity. This requires a massive amount of money and companies spend extensively in providing on-job training. Some examples are training under-skilled personnel, off-campus training programmes, in-house training and development, etc.
3. Investment in The Health sector
The very next source of capital formation is the medical and health care. For correct diagnosis and speedy recovery, people will always prefer going to the best healthcare units. Thus, it is necessary to build medical centres with all the required equipment and services to provide effective treatment. Some investments in health can be supplying drinking water that is safe and providing curative medicines, etc.
4. Expenditure on Information
Details and statistics related to healthcare and education can be acquired by providing money. Like, for example, facts and figures associated with remuneration and salary are produced for numerous markets.
5. Migration
To get better remuneration and salary, people migrate to other nations. Moreover, some people also look for better opportunities to build their career. Eventually, they shift from their native place to some other place. Rural-urban migration is one primary reason behind unemployment in India. Doctors, engineers and other qualified people migrate to different countries when they receive better opportunities. Shifting from one place to another includes travelling costs, living costs in the new location, etc. The hike in the pay scale in the migrated area is higher than the cost of shifting. Henceforth, expenditure on account of migration also acts as a source of human capital formation.
6. Investment in Information
Information associated with health and education can be achieved by spending money. For instance, data with respect to salaries are prepared for different markets.
Now, that human capital examples are discussed, various hazards affect its formation as well. Below are some of the problems:
Problems of Human Capital Formation
Population Growth
An increase in population in developing nations can influence human capital formation. It reduces the per capita accessibility of the available resources. A massive headcount requires additional investments.
Long Duration
Human skill development involves a prolonged duration process. Enhancing and upgrading skills need more time. Hence, the activity process slows down considerably.
High Regional and Gender Inequality
Gender and regional disparity also hamper the development levels
Inadequate On-Job Training
On-job training related to the working of advanced tools and equipment is not provided to the workers in the agricultural field.
Rise in Poverty Levels
A large percentage of the Indian population falls under the poverty line. So, those people cannot even afford primary education and health services.
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Brain Drain
Brain Drain refers to the migration of individuals from one place to another. It may happen from rural to urban areas or from one country to another. People migrate in search of better job opportunities, healthcare facilities, high salaries, etc. This can adversely affect the economic development of the nation. There can be loss of tax revenue, loss of capable future entrepreneurs, loss of innovative ideas, shortage of important and skilled workers, loss of country’s investment in health and education services. And most importantly, it can instigate a desire in other people to leave their home country.
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