Understanding Human Capital Formation

Introduction to Human Capital Formation

• Focus is on understanding human capital and its role in economic production.
• Physical capital alone (e.g., board, camera, mic) is insufficient for production.
• Human capital (knowledge, skills) is essential to utilize physical capital effectively.
• In any production activity, both physical and human capital are necessary.

Defining Human Capital

• Includes the total skills and expertise of a nation at a specific time.
• Encompasses the collective abilities of engineers, doctors, professors, and workers engaged in production.
• Consists of the sum of everyone's skills, expertise, and capacity.
• Physical capital consists of inputs required for production (machinery, raw materials, etc.).

Benefits of Human Capital

• Creates both private and social benefits.
• When a person works, they benefit personally and contribute to society.
• Knowledge benefits the individual and society.

Differences Between Physical and Human Capital

• Physical capital is tangible
• Human capital is intangible.
• Physical capital can be sold, lent, or moved easily, whereas human capital cannot.
• Both physical and human capital depreciate.
• Human capital depreciation can be reduced through continuous investment in education and health.
• Physical capital is more mobile than human capital due to personal circumstances affecting human mobility.
• Physical capital can be separated from its owner, while human capital cannot.

Defining Human Capital Formation

• Refers to the annual addition of skilled and capable people to a country's stock.
• Measures how skills improve and add to the existing pool of expertise.
• Example: if a nation's stock increases from 30 to 34 lakh skilled workers, the formation is 4 lakh workers.

Sources of Human Capital Formation

• Involves spending on education to increase knowledgeable and skilled individuals.
• Proper utility of manpower depends on the quality of education and training systems.
• Investing in education is similar to companies investing in capital goods, boosting knowledge and abilities.
• Requires spending on health to ensure individuals can engage in productive activities.
• Health directly increases the supply of a healthy workforce.
• Involves on-the-job training to enhance practical skills.
• Productivity of physical capital substantially enhanced with improvements in human capital through training.
• Includes expenditure on migration to seek better job opportunities and learn new skills.
• Involves expenditure on information to acquire knowledge and awareness about labor and other markets.

Role of Human Capital Formation

• Enables effective use of physical capital.
• Good human capital leads to higher productivity and production in organizations.
• Contributes to new inventions, innovations, and technological improvements.
• Improves and modernizes people's attitudes.
• Aims for better knowledge, skills, and physical fitness, leading to a modernized attitude.
• Raises life expectancy when health and education are prioritized.
• Better quality of life for healthy and educated individuals compared to uneducated and unhealthy individuals.
• Lowers the population growth rate through awareness and family planning.

Problems in Human Capital Formation

• Population growth poses challenges due to limited resources.
• Competition for resources increases, hindering human capital development.
• Insufficient resources result from high population growth.
• Resources do not reach everyone, impeding human capital formation.
• Brain drain occurs when educated individuals leave India for better opportunities abroad.
• Inefficiencies in various sectors contribute to the problem.
• Lack of quality and timeliness affects human capital formation.
• Absence of proper manpower planning and weak science and technology hinder growth.

Human Capital vs. Human Development

• Human capital views humans as resources for production, requiring knowledge and skills for productivity.
• Human development considers humans intrinsically valuable, emphasizing overall development.
• Human capital considers education and health as means to increase labor productivity.
• Human development sees education and health as integral for human well-being, regardless of productivity.
• Human capital focuses on human productivity
• Human development focuses on overall human well-being.

Education

• Includes teaching, training, and learning, involving practical application.
• Education is not the same as literacy.
• Education means proper training in schools and colleges.
• Literacy refers to the ability to read and write.
• Education is wider than literacy, meaning knowledge and skills are more important than just reading and writing.
• Encompasses primary, secondary, and higher education.
• All educated people are literate.
• Not all literate are educated.

Importance of Education

• Creates responsible citizens who can take responsibility and manage society well.
• Fosters development in science and technology, producing scientists and engineers.
• Allows for the good and efficient use of natural and human resources.
• Develops a person's mental perspective and leads to better decisions.
• Improves the cultural standards.
• Enhances the quality of human personality.

Government's Role in Education

• Sectors require huge investments in fixed infrastructure.
• The private sector cannot maintain good schools and hospitals
• Without government intervention, common people cannot afford private schools and hospitals.

Private Sector Contributions to Education

• The private sector isn't likely to contribute to education, and if they do, services will be expensive.
• People in poor countries, like India, often cannot afford high prices for education and health services.
• YouTube provides educational content for free, helping children from poor families study at home and prepare for exams.
• Many teachers are working hard to provide free education on YouTube, which is beneficial for poor families.

Growth of the Education Sector

• General education is expanding with more schools and colleges being built.
• Secondary senior education is also expanding.
• Vocationalization, focusing on practical experiments and labs, is improving, but more progress is needed.
• Rural education has improved, with education reaching more rural areas.
• The Total Literacy Campaign, launched by the government in Kerala, aimed to make non-literate people literate within a year.
• Elementary and higher education have improved.
• Adult and female education, previously lacking, has seen development.

Government's Current Schemes

• A current government scheme is "Save Your Daughter, Teach Your Daughter".
• The Total Literacy Campaign, also known as the National Literacy Mission, is another government initiative.
• The "Save the Girl Child, Teach the Girl Child" campaign was launched in 2015 to raise awareness and increase efficiency for girls, aiming to end gender bias, protect the girl child, and provide education.

Challenges in Education

• Many people in the country are still illiterate, unable to read or write.
• Vocationalization remains inadequate, with a lack of practical training.
• Gender bias is still visible, with differentiation between male and female children's education
• Low rural access level means there are limited facilities in rural areas for education and health.
• Privatization poses a challenge, as parents prefer private schools due to better facilities, making education expensive.
• The government's promised expenditure of 6% of GDP on education has not been fulfilled.
• Government expenditure on education is not as much as needed.