HUMAN CAPITAL FORMATION

BY N. ANANYA RAJU
 Introduction
• Human capital formation is the process of adding to stock of
human capital over time. Human capital can be developed
through creation of skilled, trained and efficient labour force by
providing better education, health care facilities, etc
• In a prolific and illustrious career, the late Gary Becker (1930–2014)
developed what he would later call "the economic approach to
human behaviour". One of the most significant strands of that
research was that which focused on human capital, occuping a
significant part of his career, especially in his early years. human
capital is a very important chunk of economy, I have brought together
some note worthy things about it here in this project.
 Statement of Purpose
• I chose this topic for the project to understand the advantages,
disadvantages and how to increase them and over come them
I.
respectively. This is a very important aspect for us as its huge
part is supported by us humans and there is a reason why it is
called ‘human’ capital formation.
Planning and organization: forming an
action plan
• I did research and planning on the topic human capital
formation from various sources like articles, videos on the net,
interacted with people to get a better understanding of this
topic.
Role of human capital formation in economic Development

• The human capital formation plays crucial role in the economic

development. Firstly, formation of human capital would tend to change the
traditional society to modern society, which has higher scope for economic
development. Secondly, human capital increases the productivity of the physical
capital (for example, they can handle the tools and machines in better way).
Enhanced productivity would accelerate the growth. Thirdly, higher standard of life
is possible only via development of human capital. Fourthly, human capital
formation facilitates the use and growth of innovation. Innovation is the principal
determinant of growth. Fifthly, human capital formation increases the rate of
participation. Higher the rate of participation, greater is the degree of economic
equality in the society. Finally, investment in human capital yields larger returns
and the returns on this type of investment far outweigh its input costs. For
example, training of the workers increases their productivity which ultimately leads
to overall increase in production.
 investing in your human capital development
• 1. Increase Employee Satisfaction
• Investing in professional development for your staff can lead to greater job satisfaction. According to a 2014
survey by the Society for Human Resource Management, 42 percent of employees said their organization’s commitment to
professional development is “very important to their job satisfaction.”
•
3. Develop Employee Engagement
• ncreasing employee engagement is a priority for every business. Engaged employees are more productive for, and
more loyal to, the company. According to a survey by Gallup, only 32 percent of workers feel engaged at work.
• Investing in employee development can help to grow your employee engagement. Giving your staff career
advancement opportunities, and investing in their development, gives them a reason to be engaged at work.
• 5. Improve ROI
• Every company invests in human capital, whether it understands it or not. Your staffs’ salary, benefits, and perks
are all an investment in your firm’s human capital.
• Spending this money, but not paying a little more for employee development is like paying a significant amount
of money for a Super Bowl commercial spot, but then refusing to spend money to make a quality commercial.
That would be an awful investment for your company.
• 6. Improved Organizational Communication
• Human capital management allows for an enhanced flow of information throughout your company. Investing in
your human capital can work to better communication by improving the quantity and quality of information
Benefits of human capital management
• Human capital management provides a process for optimizing the
performance and efficiency of an entity. It provides an overall strategy
to guide talent attraction, recruitment, onboarding, employee training
and development, performance appraisal and feedback.
• This system creates an environment that allows individual employees
to excel by identifying each person's skills and competencies and
matches employees with a position that allows them to maximize their
potential.
• The biggest benefit of human capital management is that it allows
organizations to get maximum value from their employees. It
simplifies human resource duties and offers several other benefits.
Limitations of human capital theory

• Human capital theory assumes that education determines the marginal

productivity of labour and this determines earnings. Since the 1960s, it has
dominated the economics, and policy and public understanding, of relations
between education and work. It has become widely assumed that intellectual
formation constitutes a mode of economic capital, higher education is preparation
for work, and primarily education (not social background) determines graduate
outcomes. However, human capital theory fails the test of realism, due to
weaknesses of method: use of a single theoretical lens and closed system
modelling, inappropriate application of mathematical tools, and multi-variate
analysis of interdependent variables. Human capital theory imposes a single linear
pathway on the complex passage between heterogeneous education and work. It
cannot explain how education augments productivity, or why salaries have become
more unequal, or the role of status. These limitations are discussed with reference
to research on social stratification, work, earnings and education.
Various Problems in formation  of human capital in India

• There are several problems of formation of human capital in India.

Firstly, rapid growth of population adversely affects the quality of
human capital. It reduces per head availability of the natural resources.
Secondly, migration of skilled persons to developed countries is a
serious brain drain threat to the process of human capital formation in
the country. Thirdly, there is insufficient manpower planning by raising
the standard of education at different stages. There is a need to
maintain a balance between the demand and supply of technical labour
force. Last but not the least, the insufficient supply of qualified and
trained technologists is a pointer to a serious neglect of human capital
formation in India. On-the-job training should be provided to working
population to create a productive human capital formation.
 HOW CAN WE BETTER
HUMAN CAPITAL FORMATION
Human welfare should be increased through investments in
education and health even if such investments do not result in
higher labour productivity. Therefore, basic education and
basic health are important in themselves, irrespective of their
contribution to labour productivity. In such a view, every
individual has a right to get basic education and basic health
care, that is, every individual has a right to be literate and lead
a healthy life.
 Investment in
Education
The most powerful way to improve and expand the fruitful workforce in the state
is by nourishing and building up the education system. It is acknowledged as
the root of human capital formation, that is the reason why the parents and also
the government spend more on education. Few objectives why individual and
state investment is more in education are:
•To develop their future income
•To build manpower and enhance their technical skills, to improve workers
productivity, hence resulting in economic growth
•To control the population growth rate by reducing the birth rate and making
maximum resources available per person.
•Knowledge and education can be transferred to others, resulting in social
advantages
 Investment in
Health
The second major source of human capital formation is the health sector. A person
who is unwell will absolutely influence productivity. Few health-related investments
are: providing clean and safe drinking water, therapeutic medicines, etc.

Migration
An individual, to get higher salaries, good jobs, migrate from their native place to
another place. In India, unemployment is the reason for rural-urban migration. Other
skilled and qualified individuals like doctors, engineers, etc., migrate from one country
to another in search of better opportunities. In both the situations, migration involves
transportation cost, cost of living in the migrated place, etc. The increased incomes in
the new place exceed the values of migration. Therefore, investment in migration is
another source of human capital formation.
On-the-job Training-

• To increase the labour productivity, many companies provide on-job

training
•  On the job training is a form of training provided at the workplace. During
the training, employees are familiarized with the working environment they
will become part of. Employees also get a hands-on experience using
machinery, equipment, tools, materials, etc. Part of on-the-job training is to
face the challenges that occur during the performance of the job. An
experienced employee or a manager are executing the role of the mentor
 who through written, or verbal instructions and demonstrations are
passing on his/her knowledge and company-specific skills to the new
employee. Executing the training on at the job location, rather than the
classroom, creates a stress-free environment for the employees.
 QUESTIONNARE
• 0] what is your age?
• 1] What is your current position?
a) I am studying
b) I am an employee
c) I have finished my studies but am still unemployed
2] What is your nationality?
Do you live in an urban or rural area?
3] On a scale of 1-10 how much do you think human capital is
important fo the growth of our country?
• 4]Which of the following do you think are the most important
factors for human capital formation?
a) Education
b) Healthcare
c) Infrastructure
d) None of the above
5] Human capital formation is solely dependent on the people of
the country
e) True
f) False
What should human capital formation aim for?
Which profession, in your opinion is the most important in human
capital?
How many days should labourers get off from their work?
 CONCLUSION
Human capital formation raises the process of
economic growth and economic growth
It is hence, a very important aspect of the economy
of a country and has perceptible effects on the
efficiency of a country in an economical perspective