Human Capital, also known as Human Resource is the backbone of any nation. These human resources mainly consist of students who gradually turn into accountants, engineers or doctors. These students depending on their efficiency and capability become a Human Assets for the country. Let us look at the sources of Human Capital.
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Human Resource Capital
The human capital formation is eyeing at the conversion of human resource into human assets.
- Physical Capital: For development and enhancement of physical assets such as buildings, bridges, factories etc. all the inputs like tools, machinery, gadgets which are required are called Physical Capital.
- Human Capital: Skillset, educational qualifications, subject knowledge, ability and expertise in the human resource of a nation at a point in time is called Human Capital.
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Differences Between Physical Capital and Human Capital
| Basis | Physical Capital | Human Capital |
| Characteristics | It is tangible in nature and can easily be traded or sold in the open market like any other commodity. | It is intangible in nature, built in mind and body of the owner and not salable in the market, only the attached services can be sold. |
| Ownership | It can be separated from its owner. | It cannot be separated from its owner. |
| Formation | It can be built in through imports from other areas. | It can only be done through the internal conscious ethical formation. |
| Benefits | Its benefits are only to private individuals. | Social benefit is done apart from private benefits |
| Mobility | It is completely transportable between countries. | It cannot be transferred because of restrictions of culture and nationalities. |
Human Capital Formation
The process for increasing and acquiring the number of candidates who are best fitted according to their skills, educational qualification and professional experience which is crucial for the political and economic development of the country.
G.M. Meier defines Human Capital Formation as “human capital formation is the process of acquiring and increasing the number of persons who have education and experience which is essential for the economic and political development of a country”.
Sources of Human Capital Formation
One of the most important sources of Human Capital Formation is investment done in education. There are many other sources like on-the-job training, investment in health, information and migration are the other sources of the human capital formation. Let’s discuss the sources:
Expenditure on Education
The most effective way of enhancing and enlarging the productive workforce in the country is the expenditure done on strengthening the education system. It is considered as the best source of human capital formation. The objective of nation and individuals behind investment in education
- To increase the future income.
- Creating manpower and generating their technical skills, which are well suited for improving labour productivity and thus resulting in sustainable rapid economic growth.
- Controlling population growth rate which can be done by bringing down the birth rate. This results in more resources available per person.
- Education can be floated to others, resulting in social benefit.
Expenditure on Health
Another important source of human capital formation is Health. A worker who is not well will certainly affect the productivity. Various forms of health expenditures are, making available clean and safe drinking water, preventive and curative medicines etc.
Migration
People migrate from their native place to another place to find better jobs in order to gain the advantage of location and earn higher salaries. Migration from a rural area to urban area is prime most. Rural areas don’t have sectors to provide good employment, so people migrate, whereas technically qualified professionals migrate from one country to another.
On-the-job Training
To enhance labour productivity many organizations provide on-the-job training. This is another source of human capital which sometimes becomes very costly. Firms incur huge expenditure on giving on-the-job training. Various forms can be like, training under a skilled supervisor, off-campus training or in-house training.
Expenditure on Information
Information related to the labour market and other markets like education, health can be attained by paying to acquire information. For example, information regarding salaries is available for different markets.
Solved Example for You
Q. Which are the two types of Human Resource Capital?
Ans: There are two types of Human Resource Capitals. They are:
- Physical Capital: For development and enhancement of physical assets such as buildings, bridges, factories etc. all the inputs like tools, machinery, gadgets which are required are called Physical Capital.
- Human Capital: Skillset, educational qualifications, subject knowledge, ability and expertise in the human resource of a nation at a point in time is called Human Capital.
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