Human Capital Formation: Meaning, Sources, Importance, Roles & Problems


Human Capital formation is the process of acquiring and increasing the number of persons who have the skills, education, and experience which are critical for the economic and political development of the economy. Here in this article, we have shared the meaning and definition of human capital formation and its sources, importance, roles, and problems.

Before we start studying human capital formation, let’s discuss what is Human Capital.

► What is Human Capital?

Human Capital refers to the stock of skill and expertise of a nation at a point in time. Human Capital means an individual, resources, labor, those who use physical capital (all the machinery) input used for generating output.

Therefore, human capital and physical capital both are essential for production.

Meaning of Human Capital Formation

  • Human Capital Formation means the development of abilities and skills among the population of the country.
  • It refers to the process of adding to the stock of Human Capital over a period of time.

Definition of Human Capital Formation

According to Prof. G.M Meier,

Human Capital formation can be defined as the process of acquiring and increasing the number of persons, who have skills, education, and experience, which are critical for the economic and political development of a country.

For example,

In India, on 31st March 2019, there were 50,000 skillful people and on 31st March 2020, it increases to 75000 in this the 25000 skillful people increased so these 25000 people will call as Human Capital Formation.

► Sources Of Human Capital Formation

  • Expenditure On Education
  • Expenditure On Health
  • Expenditure On Information
  • On-Job Training
  • Study Program For Adults
  • Migration

◉ 1. Expenditure On Education:

The government should put their expenses on the education sector because this is the most important part of everyone’s life.

If there will be expenditure on some important sources like Education, Colleges, Universities, Schools, Institutes the students will come and study due to which their skills and expertise will increase.

◉ 2. Expenditure On Health:

The second most important is health so there should be expenditure on Mental Health as well as Physical Health.

Because if the people will be mentally prepared bt their physical health is not good for that so the work will not be complete because everything depends upon health.

There should be expenditure on health like In Fitness, Hospitals.

◉ 3. Expenditure On Information:

Information means that everyone should know where Internships are available, where Training is going on for particular skills, and where are the education camps.

There should be Expenditure on education because many times those who want to know about anything they don’t have the correct information for that so information should be provided in Newspapers, Magazines.

◉ 4. On The Job Training:

The people should be provided training in their job. They should give them practical knowledge with theoretical knowledge because things are easy to understand when things are happening in front.

With Education, they have to also focus on Training then only the skills and expertise will develop.

◉ 5. Study Program For Adults:

Many adults can work they are capable of doing the work now also. But they don’t have the basic Education or skill which are required.

At the time of their birth, they were not having this many facilities but their minds were very sharp. So now also they can give a good result if there will be study program for them.

◉ 6. Migration:

This is also the biggest element of Human Capital Formation because when people will migrate from one place to another, they will meet new people, new backgrounds, a new mindset they will learn many things during this growth will be more.

It plays a very important role in human capital formation.

Role of Human Capital Formation

  • Change In Emotional and Material Environment Of Growth
  • Higher Productivity Of Physical Capital
  • Innovative Skills
  • Higher Rate Of Participation and Equality

◉ 1. Change In Emotional and Material Environment Of Growth:

The emotional Environment changes by Information and Material Environment change through Education.

With material, the emotional environment should also be changed. We should be emotionally and materially strong because it provides a strong base that helps in growing.

◉ 2. Higher Productivity Of Physical Capital:

One labor, one individual, one worker who has completed his training who has been on the on-the-job training, and those who have spent on their health, the education will definitely handle the machine easily as compared to the unskilled and uneducated worker because they have experience on those things.

Human capital formation increases productivity which means the generation of per unit output will be more as compared to the unskilled workers.

◉ 3. Innovative Skills:

When we will take education, information and when we will learn about new things from somewhere the innovation will come means the new ideas will come it will make people more innovative.

Due to this, there are high chances of growth. when innovation comes it will give new ideas and it will be very expensive which helps us out. We can develop innovative skills through human capital formation.

◉ 4. Higher Rate Of Participation and Equality:

When the people will have proper training the surroundings will be business-oriented and production-oriented and the work is going on so the participation will increase and the more people will work the good output will generate and income will also generate. So there we can see participation and equality.

Must Read :Sustainable Development

► Problems Facing Human Capital Formation

  • Rising Population
  • Brain Drain
  • Deficient Man-Power Planning

◉ 1. Rising Population:

In the whole economy, there is the problem of population. It is the major problem because of the rising population health and education facilities are not that much.

The population has increased this much that in every house how the education will reach how health facilities will be provided at every house. So everyone has to take steps and think about how to control this increasing population,

If the number of people will is less then the availability will be more.

◉ 2. Brain Drain:

Brain Drain means Brainwash as we can see in our country the educated doctors, and engineers go from here because they feel like in India there is no respect for their work and they all run for money from India to Foreign countries.

They get better opportunities in other countries and a huge or good amount of money. They have set their mind like this they don’t think that they can do some new thing for their country other than working for their own country they work for another country.

◉ 3. Deficient Man-Power Planning:

In India, manpower planning is not good. For everything, the demand is more and supply is less but many times the goods or things that are not required their supply are less than demand like demand for jobs is more, supply for jobs is less, and demand for labor is less, supply for laborers is more.

Due to this, we can see the result like unemployment because nothing is in balance.