(a) What is human capital formation? (b) Why is investment in human resources essential?

Question

Efforts made by a nation, an organization or any individual to raise their incomes are known as resources. Some resources like air, minerals, soil, water etc. are natural. These are used to satisfy human needs and are called ‘natural resources. The size of the population of a country along with its efficiency, educational qualities, productivity etc. is known as ‘human resources. Human resources is the most important resource because it makes the natural resources more useful. A country with highly educated and trained people can efficiently increase its productivity. Most of the developing and backward countries of the world are economically backward not because they lack natural resources but due to lack of quality in human resources.

(a) What is human capital formation?

(b) Why is investment in human resources essential?

Answer 1

(a) A country’s working population, with their existing productive skills and ability, contribute to the creation of the Gross National Product. This is referred to as human resources. So when investment in the form of education, training and medical care is made in human resources, human capital is formed which adds to the country’s Gross National Product which leads to the economic development of a country. Investment in human capital in the form of education and training yields higher incomes earned because of higher productivity by the more educated and better-trained people.

(b) Human Capital is superior to other resources like land and physical capital which are not useful at their own. Human resources can make use of land and capital. So, a large population is not a liability. It can be turned into a productive asset by investment in human capital. For example, by spending on education and health for all, training of industrial and agriculture workers in the use of modern technology etc. development of a country can be increased.