Posted by Anjali Kaur on Jun 26, 2020

What are the sources of Human Capital Formation?

We know the meaning of Human capital formation. We also discussed why education is considered important for the development of a nation? Now, we must learn the types of sources involved to become human capital. Let’s start.

Sources of the Human Capital Formation

To become human capital, we need to spend on the following

  1. Education
  2. Health
  3. On the Job-Training
  4. Migration
  5. Information

Expenditure on Education

Spending on education is an important source of human capital formation because it increases the efficiency and skills of humans that results in higher earning capacity for them,

Expenditure on Health

Health is important for the development of a nation and the individual. Health expenditure directly increases the physical and mental ability of human beings that produces a healthy labor force. Expenditure on health involves taking vaccination, curative medicines to heal when we fall sick, exercising, drinking clean water, and maintaining good sanitation habits (especially nowadays due to COVID-19).

Expenditure on the Job Training

This expenditure enhances the skills and expertise of human capital to increase their productivity. Many firms spend on training their workers, it involves assigning skilled workers for the new workers, at times workers are also provided off-campus training.

Expenditure on Migration

People migrate or spend on migration in search of better jobs or higher salaries. For example, unemployed people migrate from rural areas to urban areas in search of jobs. Technically qualified persons like engineers, doctors, etc migrate to other countries because of higher salaries that they may get in those countries. Expenditure on migration is a source of human capital formation because increased earning through migration is more than the cost involved in migration.

Expenditure on Information

People spend to acquire information relating to the labor market and other markets like education and health. For example, people spend on getting information about the level of salaries involved with various jobs. This information helps them to make wise decisions while investing in human capital.

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