What is the role of education in human capital formation?

What is the role of education in human capital formation

What is the role of education in human capital formation?

What is human capital?

Human Capital is a measure of the labor’s abilities, education, ability, and characteristics that affect its productive capacity and earning potential.

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Individual human capital: Specific intellectual resources refer to the skills and abilities of individual employees.

The human capital of the economy: An economy’s gross human capital, as measured by national educational benchmarks.


Role of education in human capital formation

Information has played an important part in the evolution of humanity. Education, research, and instruction can be obtained and disseminated through a variety of mediums such as music, novels, movies, seminars, and so on. It has already been shown that the firms begun by trained and professional individuals are often more profitable than those started by the unskilled person. Therefore, the income earned by the skilled person is more than the unskilled individuals. In the same way, the contribution to the nation’s economy is more from the skilled person than from the latter.

Education role in human capital formation is as follows:

  • Education causes individuals to care for themselves and others, increases growth, and enriches life experience.
  • An educated society fosters greater progress than an illiterate one.
  • Education, in addition to rising government productivity, raises national income and other cultural riches.
  • Education instills new hopes and a progressive perspective in youth.
  • It not only contributes to an individual’s growth but also to the advancement of society as a whole.


Factors that determine human capital

Factors that determine human capital

  • Emotional intelligence
  • Judgment
  • Personality – hard working, harmonious in an office
  • Habits and personality traits
  • Creativity. Ability to innovate new working practices/products.
  • Fame and brand image of an individual.
  • Geography
  • Skills and qualifications
  • Education levels
  • Work experience
  • Social skills – communication
  • Intelligence


Distinguish between human and physical capital

Distinguish between human and physical capital

          Physical capital                     Human capital
Mobility restriction Presence of trade barriers lead to mobility restriction. Culture and nationality lead to mobility restriction.
Formation process Process of formation is economic and technical. Process of formation is conscious and social process.
Whether separable? Physical capital is separable from the owner. Human capital is not separable.
Whether tradable? Possibility of trading physical capital in the market exists. Services rendered by the human capital can only be sold.
Depreciation Continuous use leads to the depreciation. Ageing leads to the depreciation but it can be minimized up to some extent.
Financial statements Financial statements are present Financial statements are absent.


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Importance of human capital

  • Structural unemployment: Individuals whose human capital is unstable for modern employers can struggle to find work. Rapid deindustrialization has left many manual workers unable to survive in a very different labor market, which is a big problem in modern economics.
  • Quality of employment: In today’s economy, there is a growing disparity between low-skilled, low paying contract employments. Jobs with high level of competence and creativity provide more for self-employment or successful employment contracts.
  • Economic growth and productivity: Long-term economic development is largely dependent on human resource developments. Increased labor production and economic development aided by a more skilled, imaginative, and inventive workforce.
  • Human capital flight: Due to globalization and increased labor mobility, professional workers will now migrate from low-income countries to higher income countries. This will have a negative impact on emerging countries by causing them to lose their best human resources.
  • Limited raw materials: Economic development in resource-constrained countries such as Japan, Taiwan and South East Asia. Count on a highly trained and creative workforce to bring value to raw materials during the production process.


Human Capital’s Impact on Economic Growth

When it comes to economic development, human capital is the primary factors for increased growth and expansion for many countries that invest in human capital. This provides the best benefits of these countries in terms of having the best working and living conditions.

The nation’s increased high-quality human resources in fields such as health, research, administration, education, and other fields is a significant advantage in creating a healthy climate for development. Human beings are unquestionably the key components of human capital in this context, but the principal component at the moment is an imaginative, trained, and enterprising individual with a high degree of technical competence.

Human capital in the economy manages the majority of the country’s national resources. As a result, all scholars believe that human capital is the most valuable resources or wealth. Human capital influences the rate of growth, economic, technical and scientific advancement in most countries.


Increased Production

  • Human capital formation boosts production and contributes to economic growth by increasing GDP.
  • Professional and knowledgeable personnel can make greater use of the tools at their disposal.


Improvement in Technology, Inventions, and Innovations

  • It would lead to more advances in manufacturing and associated practices.
  • Further productivity results from innovation.
  • It also fosters the opportunity to adapt to emerging developments.


Life quality gets improved

  • Wealth and fitness are indicators of life quality.
  • Income and health are affected by education, capability development, and other factors.
  • Human capital formation strengthens the quality of life for the masses by increasing these abilities.
  • Increased population quality leads to increased economic growth.


Productivity of Physical Capital is higher

  • Human capital boosts labor productivity.
  • Trained workers can make more use of physical resources (such as machines).


High Equality and Participation Rate

  • Human capital formation improves excellent employment by improving labor-force productivity.
  • As a result, there is a strong degree of labor force participation.
  • It narrows the gap between wealthy and poor.



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February 26, 2022

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