HUMAN CAPITAL

Human capital is considered to be one of the most important elements of success. The
process of developing human capital requires creating the necessary environments in
which employees can learn better and apply innovative ideas, acquire new
competencies, develop skills, behaviors and attitudes.

Sources of Human Capital Formation

 Education

 It is the most effective way of increasing the productive workforce in the

country.
 Education helps in living a standard and healthy life.
 It increases the person’s ability to earn

 Health

 It is very important to carry out expenditure on health and education

simultaneously.
 A healthy person is more efficient and productive.
 It brings out the best of skills in human being.

 Migration

 People migrate from one place to another in search of jobs with higher
income prospects.
 Unemployed people from rural areas migrate to urban areas in search of jobs.

 Technically qualified persons (like engineers, doctors, etc.) migrate to other

countries because of higher salaries that they may get in such countries
 Migration in both these cases involves two kinds of cost. Cost of
transportation from one place to another. The higher cost of living in migrated
places.

1. Expenditure on migration is a source of human capital formation as
enhanced earnings in the migrated place is more than the increase in
costs due to migration.
2. This leads to capital formation through fuller utilization of skills.
  On job training and information

 It helps the workers to increase their skills and productivity.

 It also helps in the growth of the economy.
 Expenditure on acquiring all sorts of information regarding labor markets,
education, health, etc. also becomes an important source of capital formation

Problems of Human Capital Formation

 Growth in Population: The rapid rise of the population can influence the grade
of human capital formation mostly in developing countries. It degrades the per
capita availability of the present facility. A large population involves extra
investments.
 Long Process: The method applied for human development is a long-term
process because skill enhancement requires extra time. Therefore, the process
becomes very normally slow.
 Gender Inequality and High Regional: These two factors the human
development skill
 Insufficient On-Job training: In the Agriculture sector, on-job training to handle
advanced equipment are not provided to the worker.
 High Poverty Level: In Pakistan, a large portion of the population is below the
poverty line, therefore, they do not have easy access to primary health and
education.

Importance of Human Capital for Social and Economic

Development
Production of goods and services on large scale are knowledge based. Knowledge can
be increased or imported by making investment in education and providing better health
services. This is called Investment in Man or Human Capital Formation.

Following are the importance of Human Capital for social and economic development

 Human Capital as Creative and Productive Resource: In all the developing

countries physical capital is invested in construction, heavy industries, schools
and hospitals. For proper investment and operation of these project we need
technicians, engineers, administrator etc. If there is no importance or adequate
resources given to human investment then the physical resource cannot work
properly and they will be underutilized.
 Rise in Marginal Efficiency of Capital: Human Capital is now considered as
the most important element in economic growth. It is the way of increasing output
by increasing the quality of labor rather increasing quantity. Investment in
Human capital increases efficiency of labor which helps in growth of organization
which increase in Marginal efficiency of capital.

 Utilization of Foreign Loans: The developing countries provide loans to

developing countries for education, health, technical expertise, etc. The better
education, the provision of knowledge, skills, expertise helps in utilization of
foreign loans.

 Utilization of Surplus manpower: Underdeveloped countries have large

amount of unskilled and untrained manpower. There is large amount of
unemployment and underemployment in rural and urban areas. The investment
of right type of education and training program can provide surplus labor force
and large amount of employment opportunities.

 Effect on Health and Nutrition: Human Capital also invest in health and
nutrition. It is the common knowledge that illness, illiteracy and low productivity
are the basic causes of poverty. If proper investment is made of health and
nutrition there will improvement in health of people thus it will increase their
desire to work which will increase the productivity. This will help in raising income
and higher economic growth of the country.

 Social Changes: Human Capital investment make a positive contribution in

economic and social life of people. Investing in human capital raised the living
standards of the people. It improves health, literacy and desire for work. The
surplus manpower is utilized and mobilized for economic development. This also
increases urbanization and industrialization.