CONCEPT OF HUMAN RESOURCE, HUMAN CAPITAL FORMATION AND
HUMAN DEVELOPMENT
HUMAN RESOURCE
• Human resource refers to abilities (skill & expertise) of human beings to contribute
to the process of value-addition in the economy.
HUMAN DEVELOPMENT
• Both ‘human capital’ and ‘human development’ are related to abilities (skill and
expertise) of human beings. Yet, there is a clear distinction between the two
concepts.
• Human capital is a means to an end: it is a means in the process of value-addition
in the economy.
• Human development, on the other hand, is an end-result: ‘skill and expertise’ of
human beings in itself is an achievement, irrespective of its contribution in the
process of value addition.
PHYSICAL CAPITAL AND HUMAN CAPITAL
PHYSICAL CAPITAL
• It includes all those inputs required for further production, like plant and machinery,
factory buildings, raw materials, etc.
HUMAN CAPITAL
• It refers to the skills which a person acquires through education, training and/or
experience, adding to his/her value to the production process.
• It is the stock of skill, ability, expertise, education and knowledge embodied in
people.
• Human capital is needed to make effective use of physical capital.
HUMAN CAPITAL CREATES BOTH PRIVATE AND SOCIAL BENEFITS
• Nature of benefits from human capital are different from that of physical capital.
• Human capital benefits not only the owner but also the society in general.
Example: an educated person can effectively take part in democratic process and
contribute to socio-economic progress of a nation.
• Similarly, a healthy person prevents spreading of contagious diseases and
epidemics by maintaining personal hygiene and sanitation. Thus, human capital
creates both private and social benefits.
• On the other hand, physical capital creates only private benefit, because benefits
from capital goods flow to those who pay the price for products and services
produced by it.
DIFFERENCE BETWEEN PHYSICAL CAPITAL AND HUMAN CAPITAL
1. Tangibility
Physical Capital:
• Tangible and can be easily sold in the market.
Human Capital:
• Intangible and cannot be sold. Only services of human capital can be sold.
2. Depreciation
Physical Capital:
• Depreciates with use, time and obsolescence.
Human Capital:
• Depreciation occurs with ageing, but can be reduced by continuous investment in
education and health.
3. Mobility
Physical Capital:
• Completely mobile between countries, but restricted by trade barriers.
Human Capital:
• Less mobile between countries due to nationality, culture etc.
4. Separability from Owner
Physical Capital:
• Can be separated from its owner.
Human Capital:
• Cannot be separated from the owner.
5. Nature of Process
Physical Capital:
• Result of conscious decision and mainly economic & technical process.
Human Capital:
• Formation is partly a social process and partly a conscious decision of the
possessor.
6. Formation
Physical Capital:
• Can be built through imports.
Human Capital:
• Formed through conscious policy formulations.
MEANING OF HUMAN CAPITAL FORMATION
HUMAN CAPITAL FORMATION
• Human Capital refers to the stock of ‘skill and expertise’ of a nation at a point of
time.
• It is the sum total of skills and expertise of engineers, doctors, professors and
workers of all types who are engaged (or capable of being engaged) in the process
of value-addition.
• Human Capital Formation is the process of adding to the stock of human capital.
• Example:
If at the beginning of the year there are 30 lakh skilled workers, and at the end there
are 34 lakh skilled workers, then human capital formation = 4 lakh workers in that
year.
SOURCES OF HUMAN CAPITAL
Human capital can be increased through the following:
1. Expenditure on Education
2. Expenditure on Health
3. On-the-Job Training
4. Expenditure on Migration
5. Expenditure on Information
1. EXPENDITURE ON EDUCATION
• Labour skill of an educated person is higher than an uneducated person.
• It increases future income and raises standard of living.
2. EXPENDITURE ON HEALTH
• “A sound mind in a sound body” is an old saying.
• Health expenditure makes a person more efficient.
• It helps to build productive labour force and improve quality of life.
3. ON-THE-JOB TRAINING
• Increases skills and efficiency of workers.
• Leads to higher production and productivity.
4. EXPENDITURE ON MIGRATION
• Migration is a source of human capital formation.
• Higher earnings at the migrated place compensate the cost of migration.
5. EXPENDITURE ON INFORMATION
• Information helps in taking decisions regarding investment in human capital and
efficient use of acquired human capital.
HUMAN CAPITAL AND ECONOMIC GROWTH
• Economic growth means increase in real national income of a country.
• Contribution of an educated person is greater than an illiterate person.
• A healthy person contributes more to economic growth by providing uninterrupted
labour supply for longer periods.
• Thus, education, health, training, migration and job market information increase
income-generating capacity of individuals.
HUMAN CAPITAL FORMATION PROMOTES INVENTIONS, INNOVATIONS AND
TECHNOLOGICAL IMPROVEMENTS
• Human capital formation increases productivity of human resources.
• It stimulates innovations and inventions.
• Education helps people understand scientific advancements and adapt to new
technologies.
IMPORTANCE / ROLE OF HUMAN CAPITAL FORMATION
1. Effective use of Physical Capital
2. Higher Productivity and Production
3. Stimulates Innovations and ability to absorb new technologies
4. Modernisation of Attitudes
5. Increase in Life Expectancy
6. Improvement in Quality of Life
7. Control of Population Growth
PROBLEMS OF HUMAN CAPITAL FORMATION
1. Insufficient Resources
2. Brain Drain
3. Serious Inefficiencies
4. High Growth of Population
5. Several Imbalances
6. Lack of Proper Manpower Planning
7. Weak Science and Technology
Human Capital vs Human Development
