human capital essay writing

What Is Human Capital? Definition and Examples

• U.S. Economy
• Supply & Demand
• Archaeology
• B.S., Texas A&M University

In its most basic sense, “human capital” refers to the group of people who work for or are qualified to work for an organization—the “workforce.” In a larger sense, the various elements needed to create an adequate supply of available labor form the basis of human capital theory and are critical to the economic and social health of the world’s nations.

Key Takeaways: Human Capital

• Human capital is the sum of knowledge, skills, experience and social qualities that contribute to a person’s ability to perform work in a manner that produces economic value
• Both employers and employees make substantial investments in the development of human capital
• Human capital theory is an effort to quantify the true value of an investment in human capital and is closely related to the field of human resources
• Education and health are key qualities that improve human capital and also directly contribute to economic growth
• The concept of human capital can be traced back to the 18th-century writings of Scottish economist and philosopher Adam Smith

Human Capital Definition

In economics, “capital” refers to all of the assets a business needs to produce the goods and services it sells. In this sense, capital includes equipment, land, buildings, money, and, of course, people—human capital.

In a deeper sense, however, human capital is more than simply the physical labor of the people who work for an organization. It is the entire set of intangible qualities those people bring to the organization that might help it succeed. A few of these include education, skill, experience, creativity, personality, good health, and moral character.

In the long run, when employers and employees make a shared investment in the development of human capital, not only do organizations, their employees, and clientele benefit, but so does society at large. For example, few undereducated societies thrive in the new global economy .

For employers, investing in human capital involves commitments like worker training, apprenticeship programs , educational bonuses and benefits, family assistance, and funding college scholarships. For employees, obtaining an education is the most obvious investment in human capital. Neither employers nor employees have any assurances that their investments in human capital will pay off. For example, even people with college degrees struggle to get jobs during an economic depression, and employers might train employees, only to see them hired away by another company.

Ultimately, the level of investment in human capital is directly related to both economic and societal health.

Human Capital Theory

Human capital theory holds that it is possible to quantify the value of these investments to employees, employers, and society as a whole. According to human capital theory, an adequate investment in people will result in a growing economy. For example, some countries offer their people a free college education out of a realization that a more highly educated populace tends to earn more and spend more, thus stimulating the economy. In the field of business administration, human capital theory is an extension of human resources management.

The idea of human capital theory is often credited to the “founding father of economics” Adam Smith , who in 1776, called it “the acquired and useful abilities of all the inhabitants or members of the society.” Smith suggested that differences in wages paid were based on the relative ease or difficulty of doing the jobs involved. 

Marxist Theory

In 1859, Prussian philosopher Karl Marx , calling it “labor power,” suggested the idea of human capital by asserting that in capitalist systems , people sell their labor power—human capital—in return for income. In contrast to Smith and other earlier economists, Marx pointed to “two disagreeably frustrating facts” about human capital theory:

• Workers must actually work—apply their minds and bodies—in order to earn income. The mere ability to do a job is not the same as actually doing it.
• Workers cannot “sell” their human capital as they might sell their homes or land. Instead, they enter into mutually beneficial contracts with employers to use their skills in return for wages, much in the same way farmers sell their crops.

Marx further argued that in order for this human capital contract to work, employers must realize a net profit. In other words, workers must do work at a level above-and-beyond that needed to simply maintain their potential labor power. When, for example, labor costs exceed revenue, the human capital contract is failing.

In addition, Marx explained the difference between human capital and enslavement. Unlike free workers, enslaved people—human capital—can be sold, although they do not earn incomes themselves.

Modern Theory

Today, human capital theory is often further dissected in order to quantify components known as “intangibles” such as cultural capital, social capital, and intellectual capital.

Cultural Capital

Cultural capital is the combination of knowledge and intellectual skills that enhance a person’s ability to achieve a higher social status or to do economically useful work. In an economic sense, advanced education, job-specific training, and innate talents are typical ways in which people build cultural capital in anticipation of earning higher wages.   

Social Capital

Social capital refers to beneficial social relationships developed over time such as a company’s goodwill and brand recognition, key elements of sensory psychological marketing . Social capital is distinct from human assets like fame or charisma, which cannot be taught or transferred to others in the way skills and knowledge can.

Intellectual Capital

Intellectual capital is the highly intangible value of the sum of everything everybody in a business knows that gives the business a competitive advantage. One common example is the intellectual property—creations of the workers’ minds, like inventions, and works of art and literature. Unlike the human capital assets of skill and education, intellectual capital remains with the company even after the workers have left, typically protected by patent and copyright laws and non-disclosure agreements signed by employees.

Human Capital in Today's World Economy

As history and experience have shown, economic progress is the key to raising the standard of living and dignity of people worldwide, especially for people living in impoverished and developing countries.

The qualities that contribute to human capital, particularly education and health—also directly contribute to economic growth. Countries that suffer from limited or unequal access to health or educational resources also suffer from depressed economies.

As in the United States, the countries with the most successful economies have continued to increase their investments in higher education, while still seeing a steady increase in the starting salary of college graduates. Indeed, the first step most developing countries take to advance is to improve the health and education of their people. Since the end of World War II, the Asian nations of Japan, South Korea, and China have used this strategy to eliminate poverty and become some of the world’s most powerful players in the global economy. 

Hoping to emphasize the importance of education and health resources, the World Bank publishes an annual Human Capital Index Map demonstrating how access to education and health resources affect the productivity, prosperity, and quality of life in nations worldwide.

In October 2018, Jim Yong Kim, president of the World Bank, warned, “In countries with the lowest human capital investments today, our analysis suggests that the workforce of the future will only be one-third to one-half as productive as it could be if people enjoyed full health and received a high-quality education.”

Sources and References

• Goldin, Claudia (2014). Human Capital , Department of Economics, Harvard University and National Bureau of Economic Research.
• Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of Nations . Copyright 2007 MetaLibre.
• Marx, Karl. The Buying and Selling of Labour-Power: Chapter 6 . marxists.org
• World Development Report 2019: The Changing Nature of Work . World Bank
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• The Circular-Flow Model of the Economy
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Human Capital definition and importance

Human Capital is a measure of the skills, education, capacity and attributes of labour which influence their productive capacity and earning potential.

According to the OECD, human capital is defined as:

“the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services or ideas in market circumstances”.

• Individual human capital – the skills and abilities of individual workers
• Human capital of the economy – The aggregate human capital of an economy, which will be determined by national educational standards.

Measuring human capital

For statistical purposes, human capital can be measured in monetary terms as the total potential future earnings of the working age population. (However, this only captures part of human capital and is a limited measure)

The decline in UK human capital reflects the rise in unemployment and fall in real wages during this period. It should be noted relying on potential earnings is a limited view of human capital. Earnings don’t necessarily reflect accurately all aspects of human capital. The OECD consider different ways to measure human capital taking a range of indicators.

Factors that determine human capital

• Skills and qualifications
• Education levels
• Work experience
• Social skills – communication
• Intelligence
• Emotional intelligence
• Personality – hard working, harmonious in an office
• Habits and personality traits
• Creativity. Ability to innovate new working practices/products.
• Fame and brand image of an individual. e.g. celebrities paid to endorse a product.
• Geography – Social peer pressure of local environment can affect expectations and attitudes.

Human capital in primary and secondary sector

In agriculture and manufacturing, human capital was easier to measure. The human capital of an assembly line worker could be measured in simple terms of productivity – e.g. the number of widgets produced per hour. In mining, human capital may be strongly related to physical strength and quantity of coal produced per day.

Human capital in tertiary sector/knowledge economy

The tertiary/service sector has a greater variety of jobs, which require different skills. These skills and qualities are often more difficult to measure regarding output. For example, the human capital of a teacher, cannot be measured by university degree and A-Levels. The best academics may lack some teaching skills – like empathy, the ability to inspire and command a class.

In a job, such as management, important characteristics will be factors such as interpersonal skills, ability to work in a team and the creativity to problem solve.

In other words, as the economy has developed the concept of human capital has also broadened to include a greater variety of skills and traits of capital.

Since the 1960s/70s, human capital has become a more popular economic concept as the emerging ‘ knowledge economy ‘ makes greater use of a wider range of human capital.

How to increase human capital

• Specialisation and division of labour. Specialisation allows workers to concentrate on specific tasks and increased specialisation of skills. (Though specialisation can also lead to boring, repetitive jobs and limited skill development of workers.)

“The greatest improvement in the productive powers of labour.. seem to have been the effects of the division of labour.” – Adam Smith

• Education . Basic education to improve literacy and numeracy has an important implication for a basis of human capital.
• Vocational training . Direct training for skills related to jobs, electrician, plumbing nursing. A skilled profession requires particular vocational training.
• A climate of creativity . An education which enables children to think outside the box can increase human capital in a way that ‘rote learning’ and an impressive accumulation of facts may not.
• Infrastructure. The infrastructure of an economy will influence human capital. Good transport, communication, availability of mobile phones and the internet are very important for the development of human capital in developing economies.
• Competitiveness . An economy dominated by state monopolies is likely to curtail individual creativity and entrepreneurs. An environment which encourages self-employment and the creation of business enables greater use of potential human capital in an economy.

Importance of human capital

• Structural unemployment . Individuals whose human capital is inappropriate for modern employers may struggle to gain employment. A major issue in modern economies is that rapid deindustrialisation has left many manual workers, struggling to thrive in a very different labour market.
• Quality of employment . In the modern economy, there is increasing divergence between low-skilled, low-paid temporary jobs (gig economy). High-skilled and creative workers have increased opportunities for self-employment or good employment contracts.
• Economic growth and productivity . Long-term economic growth depends increasingly on improvements in human capital. Better educated, innovative and creative workforce can help increase labour productivity and economic growth.
• Human capital flight . An era of globalisation and greater movement of workers has enabled skilled workers to move from low-income countries to higher income countries. This can have adverse effects for developing economies who lose their best human capital.
• Limited raw materials . Economic growth in countries with limited natural resources, e.g. Japan, Taiwan and South East Asia. Rely on high-skilled, innovative workforce adding value to raw materials in the manufacturing process.
• Sustainability ”what we leave to future generations; whether we leave enough resources, of all kinds, to provide them with the opportunities at least as large as the ones we have had ourselves” (UN, 2012)

Different views on Human Capital

Theodore Schultz “Investment in human capital” (1961) was an early proponent of theory. He stated:

“Although it is obvious that people acquire useful skills and knowledge, it is not obvious that these skills and knowledge are a form of capital, that this capital is in substantial part a product of deliberate investment”

Gary Becker “Human Capital” (1964) In his view, human capital, is determined by education, training, medical treatment, and is effectively a means of production. Increased human capital explains the differential of income for graduates. Human capital is also important for influencing rates of economic growth.

Howard Gardener – different types of human capital. Gardener emphasised the different types of human capital. One could increase education, but be a poor manager. A successful entrepreneur may have no education. Human capital is not unidimensional.

Schultz/Nelson-Phelps – ability to adapt . Human capital should be looked at from the ability to adapt. Can workers adapt to a changing labour market? A labour market which is shifting from full-time manual work in manufacturing to flexible work in the service sector.

Spence View – Observable signs of human capital like education are essentially a signalling function.

Evaluation of human capital

Social upbringing . A sociologist like Pierre Bourdieu argues that human capital is strongly related to social upbringing. This influences cultural, social and symbolic forms of capital. For example, UK society dominated by Old Etonians and Oxbridge graduates who gain confidence and social capital from having the right social networks.

Signalling. Related to the social capital of going to the right school, is the idea that what constitutes human capital is often just ‘signalling’. For example, gaining a degree from Oxbridge improves status in the workforce and enables a higher salary for the graduate. However, three years of studying a degree in modern history/PPE may give only a small amount of knowledge directly related to the work environment.

Discrimination . Differences in wages and job opportunities are not necessarily due to differences in human capital, but the result of discrimination, labour market imperfections or non-monetary benefits of jobs.

Related posts

• Factors affecting economic growth
• Labour productivity
• Factor immobility
• The knowledge economy

Further Reading on Human Capital

• Human Capital by Gary S.Becker
• Basic theory of human capital LSE

32 thoughts on “Human Capital definition and importance”

Very interesting and educative

Very nice piece of work

Very educative and nicely elucidated.

please sir what are the factors affecting efficiency of human capital

Very interesting keep it up

Interesting knowledge

Very much educating and interesting.

I don’t believe in capitalism, Capatital is just a term for money, money belongs to no one but the federal union, lets say you got paid and the money came from your parents, even if it did, your parents didn’t just get the money from no where.

my thoughts on human capital definition and importance is mainly on the skills a person acquires their experience overall

The site provides clear information

Very very educating

This one is nicely written. Good work. Good Contribution to knowledge.

Comments are closed.

Home — Essay Samples — Economics — Economy — The Meaning and Concept of Human Capital

The Meaning and Concept of Human Capital

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Published: Sep 19, 2019

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Introduction, the meaning of human capital, concept of human capital.

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Education, Human Capital, and Economic Growth Essay

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Human Capital

External benefits of education, education contributions to economic growth.

Human capital is a set of knowledge, skills, and experience used to meet the diverse needs of individuals and society as a whole. In the broad sense, it is an intensive productive factor of economic development, including the educated part of the labor resources, knowledge, tools of intellectual and managerial work, and the environment of living and working. Capitalism with its urbanization, the first machines and equipment, and the corresponding increase in labor productivity have become an embodiment of the accelerated development of human capital, increasing its productivity through the new quality – intellectual power and new knowledge.

It was creative, cultured, and educated people, professionals in their fields and industries, who made the industrial revolution. Scientific, innovative, industrial, and technological innovations accumulated by previous generations and by themselves as well as knowledge and competition lead them on their way to success. Investing in human capital is rather beneficial for the field of education as it promotes leadership and the growth of the national and global economy. At this point, the decentralized and egalitarian education proved to be more effective than the traditional one.

One of the external benefits of education refers to financial advantages or public savings that include the summarized amount of funds from several industries affected by the level of education. For example, the situation with plenty of uneducated African-American males in the US promotes higher unemployment and crime rates, while the increase in their graduation level would address these challenges. As an example, one may mention the lower spending on health and crime prevention as well as taxes that are likely to improve public savings.

Therefore, the investment in African-American males’ education should be assigned a top economic priority. Along with economic benefits, one may emphasize social advantages that are to benefit the society in general and further generations. Among such benefits, it is possible to list the contribution to ensuring rights, eliminating poverty, making an environmental impact, or using the technology. The growing body of the research shows that there are both short- and long-term benefits, the former of which tend to be less stable and the latter seem to be more substantial that proves the great role of long-standing perspectives and investments in the field of education.

Speaking theoretically, education should contribute to the economic growth by producing the qualified workforce able to revolutionize the economic processes and outcomes. The existing evidence illustrates that the educational quality has a great potential to impact the economic growth due to the implementation of skills and knowledge by employees at their workplaces. In this regard, the policies concerning education need to be properly reconsidered and adjusted to the modern requirements and market trends. In addition to improving the situation with those who are uneducated, it is important to focus on educational institutions with low schooling levels and enhance them.

The mentioned solution to the given problem is likely to help in producing more contribution to the growth of economy by providing a more skilled staff. The quality of schools should be regarded as the most important issue linking education and economy, thus integrating them in an attempt to promote growth and develop the society. The upcoming reforms should target students’ performance and attendance of classes to make sure that they have a proper preparation for the future responsibilities and tasks at their workplaces, thus promoting the development of economy.

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What Is Human Capital?

Understanding human capital, special considerations, the bottom line, human capital definition: types, examples, and relationship to the economy.

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

Investopedia / Ellen Lindner

The term human capital refers to the economic value of a worker's experience and skills. Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.

As such, it is an intangible asset or quality that isn't (and can't be) listed on a company's balance sheet . Human capital is perceived to increase productivity and thus profitability. The more investment a company makes in its employees, the chances of its productivity and success become higher.

Key Takeaways

• Human capital is an intangible asset not listed on a company's balance sheet.
• Human capital is said to include qualities like an employee's experience and skills.
• Since all labor is not considered equal, employers can improve human capital by investing in the training, education, and benefits of their employees.
• Human capital is perceived to have a relationship with economic growth, productivity, and profitability.
• Like any other asset, human capital has the ability to depreciate through long periods of unemployment, and the inability to keep up with technology and innovation.

An organization is often said to only be as good as its people from the top down, which is why human capital is so important to a company. It is typically managed by an organization's human resources (HR) department, which oversees workforce acquisition, management, and optimization. Its other directives include workforce planning and strategy, recruitment , employee training and development, and reporting and analytics.

The concept of human capital recognizes that not all labor is equal. But employers can improve the quality of that capital by investing in employees. This can be done through the education, experience, and abilities of employees. All of this has great economic value for employers and for the economy as a whole.

Since human capital is based on the investment of employee skills and knowledge through education, these investments in human capital can be easily calculated. HR managers can calculate the total profits before and after any investments are made. Any return on investment (ROI) of human capital can be calculated by dividing the company’s total profits by its overall investments in human capital.

For example, if Company X invests $2 million into its human capital and has a total profit of $15 million, managers can compare the ROI of its human capital year-over-year (YOY) in order to track how profit is improving and whether it has a relationship to the human capital investments.

Human capital tends to migrate, especially in global economies. That's why there is often a shift from developing places or rural areas to more developed and urban areas. Some economists have dubbed this a brain drain or human capital flight. This describes the process that keeps certain areas underdeveloped while others become even more developed.

Human Capital and Economic Growth

There is a strong relationship between human capital and economic growth , which is why it can help boost the economy. That's because people come with a diverse set of skills and knowledge. This relationship can be measured by how much investment goes into people’s education.

Some governments recognize that this relationship between human capital and the economy exists, and so they provide higher education at little or no cost. People who participate in the workforce with higher education will often have larger salaries, which means they can spend more.

Does Human Capital Depreciate?

Like anything else, human capital is not immune to depreciation . This is often measured in wages or the ability to stay in the workforce. The most common ways human capital can depreciate are through unemployment, injury, mental decline, or the inability to keep up with innovation.

Consider an employee who has a specialized skill. If they go through a long period of unemployment , they may be unable to keep these levels of specialization. That's because their skills may no longer be in demand when they finally reenter the workforce.

An individual's human capital may depreciate if they can't or won't adopt new technology or techniques. Conversely, the human capital of someone who does adopt them will.

History of Human Capital

The idea of human capital can be traced back to the 18th century. Adam Smith referred to the concept in his book "An Inquiry into the Nature and Causes of the Wealth of Nations ," in which he explored the wealth , knowledge, training, talents, and experiences of a nation. Adams suggested that improving human capital through training and education leads to a more profitable enterprise, which adds to the collective wealth of society. According to Smith, that makes it a win for everyone.

In more recent times, the term was used to describe the labor required to produce manufactured goods. But the most modern theory was used by several different economists including Gary Becker and Theodore Schultz , who invented the term in the 1960s to reflect the value of human capacities.

Schultz believed human capital was like any other form of capital to improve the quality and level of production . This would require an investment in the education, training, and enhanced benefits of an organization's employees.

Criticism of Human Capital Theories

The theory of human capital has received a lot of criticism from many people who work in education and training. In the 1960s, the theory was attacked primarily because it legitimized bourgeois individualism, which was seen as selfish and exploitative. The bourgeois class of people included those of the middle class who were believed to exploit those of the working class. The theory was also believed to blame people for any defects that happened in the system and for making capitalists out of workers.

What Are Examples of Human Capital?

Examples of human capital include communication skills, education, technical skills, creativity, experience, problem-solving skills, mental health, and personal resilience.

What Is the Relationship Between Human Capital and the Economy?

Human capital allows an economy to grow. When human capital increases in areas such as science, education, and management, it leads to increases in innovation, social well-being, equality, increased productivity, and improved rates of participation, all of which contribute to economic growth. Increases in economic growth tend to improve the quality of life for a population.

How Can I Increase My Human Capital?

Ways to increase your own human capital include more education, automating finances to improve efficiency, expanding your horizons outside of your social and workplaces, obtaining more experience, increasing participation in a multitude of activities or organizations, improving your communication skills, improving your health, and expanding your network.

What Is Human Capital Risk?

Human capital risk refers to the gap between the human capital requirements of a company or organization and the existing human capital of its workforce. This gap can lead a company towards inefficiencies, inability to achieve its goals, a poor reputation, fraud, financial loss, and eventual closure. To reduce and eliminate human capital risk, an organization should train, foster, and support its workforce.

Human capital refers to the economic value of a worker's abilities and skills. Companies can enhance their human capital through recruitment or training, as well as by implementing management techniques that optimize the productivity of their existing workers. Maintaining and improving the value of human capital is usually the role of a company's HR department.

World Bank. " Building Human Capital ."

Scholars at Harvard. " Human Capital ," Page 1.

Schultz, Theodore W. "Investment in Human Capital." The American Economic Review, vol. 51, no. 1, 1961, pp. 1-17.

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Performance through people: Transforming human capital into competitive advantage

At a glance.

• When companies emphasize skill development, it pays off for workers. Skills learned on the job contribute 46 percent of the average person’s lifetime earnings, and companies that build human capital are more likely to propel their employees into higher earnings brackets over the course of a career.
• Building human capital also pays off for firms in the form of more consistent earnings and greater resilience during crisis. In addition to being more consistent than their sector peers, human capital builders are better at retaining talent, with attrition rates that are about 5 percentage points lower.
• Some firms (“People + Performance Winners”) prioritize developing their employees and manage to deliver top-tier profitability at the same time. These companies are more likely to become large-scale “superstars.” They exist in all sectors and average more than $1 billion in economic profit.
• People + Performance Winners have a distinctive organizational signature that challenges and empowers employees while fostering bottom-up innovation. This form of organizational capital contrasts with that of other top-performing firms, which tend to be more top-down and transactional. This management style seems to activate human capital and create a tangible competitive advantage.

MGI’s previous research has shown that human capital development pays off for workers , with skills learned on the job accounting for almost half of the average person’s lifetime earnings. But does investing in people actually benefit companies? Most business leaders agree that it’s the right thing to do. But they are less clear on how those efforts relate to the bottom line—and why some organizations are so much more effective than others at turning human capital into a real competitive advantage.

To explore these questions, we analyze 1,800 large companies across sectors in 15 countries, sorting them based on two factors: how much they focus on developing human capital and whether they financially outperform their sector peers.

One subset in particular stands out: People + Performance Winners (P+P Winners) excel at creating opportunities for their employees to build skills (which we measure by looking at internal mobility, training hours, and organizational health scores) while consistently clearing the highest bar for financial performance. Another group, Performance-Driven Companies, similarly achieve top-tier financial results but do not put the same kind of emphasis on skills development and the work environment. A third group, People-Focused Companies, put resources into developing employees but are unable to translate that into strong financials. Finally, the majority of firms are Typical Performers that stand out on neither dimension.

P+P Winners distinguish themselves from Performance-Driven Companies in two important ways. They achieve more consistent results and have greater earnings resilience, and they also have a superior ability to attract and retain talent (Exhibit 1). These are important advantages at a time when companies are facing economic headwinds and labor shortages.

While they closely tracked Performance-Driven Companies on profitability and shareholder returns over the prepandemic decade, P+P Winners were roughly 1.5 times more likely to remain in the top tier year after year, and they had about half the earnings volatility.

P+P Winners are not only consistent through the normal ups and downs of business cycles; they are also more resilient in times of crisis. When the pandemic struck, they were more likely to weather the crisis and avoid taking major hits. Only 54 percent of P+P Winners saw a reduction of more than 0.5 percentage point in return on invested capital from 2019 to 2020, compared to 65 percent of Performance-Driven Companies. In fact, 36 percent of P+P Winners saw an increase of more than 0.5 percentage point (versus 29 percent of Performance-Driven Companies). More P+P Winners found growth opportunities in the crisis years as well. From 2019 to 2021, they grew revenue twice as fast as Performance-Driven Companies (8 percent versus 4 percent). Organizations that had spent years building reserves of loyalty, goodwill, and innovative capacity by investing in people may have had more internal resources to draw on when the chips were down.

Investing in human capital is associated with consistency and resilience for other companies, too. In the two segments that are not top performers financially, People-Focused Companies demonstrated greater stability than Typical Performers. Typical Performers were 1.5 times more likely than an average firm in our sample to remain in the bottom quintile of profitability in nine out of ten years, while People-Focused Companies were only 1.1 to 1.3 times as likely. The latter also demonstrated greater resilience during the pandemic, growing their revenue twice as fast as Typical Performers (6 percent versus 3 percent) from 2019 to 2021.

A McKinsey event on "Performance through people: Transforming human capital into competitive advantage"

P+P Winners are also talent magnets, with attrition rates almost five percentage points lower than those of Performance-Driven Companies. Their employees report higher job satisfaction and are 1.3 times more likely to move into higher lifetime earnings brackets than employees of Performance-Driven Companies. People-Focused Companies have similarly high levels of employee satisfaction and even lower attrition than P+P Winners, although not with the same stellar financial performance.

How do P+P Winners manage to succeed on both fronts? While investing in people is important, our research shows that another ingredient is needed to bring out their best and channel their efforts into results: organizational capital—that is, the management practices, systems, and culture within each company. This concept encompasses everything from training programs to workflows, department and team structures, employee communications, norms, culture, and leadership. When these elements are effective, they can turn a collection of talented individuals into a cohesive team.

Organizational capital is the fabric that surrounds employees, and its pattern matters. We compare the practices of each group of companies using McKinsey’s Organizational Health Index diagnostic and other firm-level metrics. P+P Winners have a distinctive signature characterized by consultative and challenging leadership styles; bottom-up innovation and collaboration; positive and inclusive work environments; and rewards and advancement opportunities for employees (Exhibit 2). Performance-Driven Companies have similar leadership styles but are more externally oriented to customers and competitors, with less emphasis on engaging their people through company-wide innovation, motivation, work environment, and on-the-job coaching. People-Focused Companies have many practices in common with P+P Winners (such as motivating employees and creating positive work environments), but they are less results-oriented, and they do not emphasize bottom-up innovation.

On average, companies spend about one-third of their revenue on human and organizational capital (which we measure by using the proxy of compensation for the former and adjusted selling, general, and administrative spending for the latter). This is a significant investment, and companies need to make it as productive as possible. P+P Winners achieve roughly 30 percent higher revenue growth than both Performance-Driven and People-Focused Companies for every dollar they invest in human and organizational capital. By contrast, Performance-Driven Companies generate higher return on R&D and sales and marketing investment—but they have the potential to boost their overall results even further by making their investments in people and workplace systems more effective.

Corporate leaders need a deeper focus on the nuances of organizational capital. Human capital is not merely a labor input; people are any company’s core asset. The workplace should work for employees, with coaching to help them develop, structures for support, and workflows that remove frustrations. Employees know what works on the front lines, and their voices and viewpoints should inform any redesign. Beyond improving the day-to-day experience for workers at every level, these principles can enhance competitiveness and adaptability in a fast-moving world.

In some cases, altering company-wide policies and systems could spur positive change. In others, it will take behavior change from leaders. While C-suite executives can articulate the vision and set the example, frontline and middle managers are key actors since they set the tone for individual teams, have greater visibility into what’s working, and can be the biggest influence on the employee experience.

Not every company will choose to follow the P+P Winner template. Some are singularly driven by financial results; focusing on people may not be in their DNA. Remaking organizational culture is a difficult, ongoing commitment that requires energy, self-reflection, and a willingness to change familiar patterns.

But companies that adopt a more people-oriented focus along with a more challenging and empowering organizational culture have a lot to gain. In addition to boosting financial returns, they can improve their consistency, resilience, talent retention, employee loyalty, and reputation—and these are the hallmarks of companies that thrive over the long term.

Want to know more about Performance through People?

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Anu Madgavkar is a McKinsey Global Institute partner in New Jersey; Bill Schaninger is a McKinsey senior partner in the Philadelphia office; Dana Maor is a senior partner in the Tel Aviv office; Olivia White is an MGI director in San Francisco; Sven Smit , MGI’s chair, is based in Amsterdam; Hamid Samandari is a McKinsey senior partner in the New York office; Lola Woetzel is an MGI director in Shanghai; Davis Carlin is a McKinsey partner in New York; and Kanmani Chockalingam is an MGI fellow in Bengaluru.

This article was edited by Lisa Renaud, an MGI executive editor in Los Angeles.

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Essay on Human Capital | Economic Growth | Economics

Here is an essay on ‘Human Capital’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Human Capital’ especially written for school and college students.

Introduction to Human Capital :

Simon Kuznets (1955) argued that the main stock of an economically advanced country is not its physical capital but “the body of knowledge as tested from findings and discoveries of empirical science, and the capacity and training of its population to use this knowledge effectively.”

The contrast in economic growth between Japan and Germany on one hand and the Third World countries, on the other hand, in the post Second World War (1939-45) period illustrates the importance of labour quality. Although much of the physical capital in Germany and Japan was in ruins or depleted, their economies grew rapidly after the war, as the skill, experience, education, training, health, discipline and motivation of the existing labour force remained intact.

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Why is labour productivity higher in developed countries (DCs) such as Japan and Germany than in the LDCs? The key variable is formal education and training. The term ‘human’ refers to the stock of useful and valuable skills and knowledge accumu­lated by people in the process of their education and training. Doctors, lawyers and engineers invest in their formal education and on-the-job training. They spend large sum of money on wages foregone and often work long hours.

A major portion of the high salaries of these profes­sionals should be viewed as a return on their investment in human capital—a return on the education that makes these highly trained workers a very special type of labour.

In other words, human capital refers to the productive capacities of human beings as income producing agents in the economy. Capital is a stock which has value as a source of current and future flow of output and income.

Human capital is the stock of skills and productive knowledge embodied in people. The yield or return on human capital investment lies in enhancing a person’s skills and earning power, and in increasing the efficiency of economic decision-making—both within and without the market economy.

Three Points:

1. Education improves labour productivity by increasing workers’ ability to perform a task quickly and efficiently.

2. Education and human capital formation lead to technological progress.

3. Human capital can act as a substitute of natural capital. So growth of human capital implies a consumption of non-renewable natural resources.

No doubt investment in human capital is productive on average. Individuals who have quan­titative abilities or computer skills have an economic advantage in today’s labour market. Peo­ple with higher education start out with higher incomes and enjoy more rapid growth in income than do less educated groups. The World Development Report (2004) showed that higher PCI is strongly associated with lower mortality and higher school completion.

Often people refer to the role of luck in determining economic circumstances. But chances favour the prepared mind. In a world of rapidly changing technology, education enables a person to understand and profit from new circumstances. [In his permanent income hypothesis, Milton Friedman focussed on the development of a person’s skill and earning capacity over the life cycle and suggested that luck gives temporary income but human capital is a source of permanent income.]

Conservation :

According to environmentalists, output can be produced with either natural capital (K N ) or human capital (K H ). The isoquant in Fig. 1 shows the combination of inputs that will yield a given amount of output in the future (Q*), holding other inputs con­stant. This output can be produced at point C with a very little natural resource (energy) leaving much oil and gas and relatively little human capital for the fu­ture. Alternatively, it might be produced with huge natural resource.

This strategy is feasible if natural capital is abundant. At point B, society consumes stocks of natural capital today and builds up stocks of human capital and improves technology through R and D (i.e., research and development).

Point A indicates that we can produce future output level Q* with no oil and gas. With greater scientific and technical knowl­edge represented by point A, society can develop and introduce substitute technologies like coal or solar energy to replace the exhausted oil and gas.

Contribution of Human Capital to Economic Growth :

In a broad sense, labour inputs consist of workers and of the skills of the workforce. Many economists believe that the quality of labour inputs—the skills, knowledge and discipline of the labour force—is the single most important element in economic growth. A country might buy fast computers, modern telecommunication devices, sophisticated electricity generating equipment, and hypersonic fighter aircraft.

However, these capital goods can be efficiently used and maintained only by skilled and trained workers. Improvements in literacy, health and discipline, and, most recently, the ability to use computers, add greatly to the productivity of labour. India’s green revolution rate had achieved limited success since most farmers were illiterate and did not know how to use modern technology.

Policy Implications :

Perhaps the main policy area where human capital is important is in public provision of train­ing and manpower and development programmes for the poor. The logic of these policies rest on the proposition that a person’s income in a market economy reflects the quality of resources that the person controls and the value of these resources. People who are permanently poor have less skills than the non-poor. So, an attractive policy to help eliminate poverty is to give them more and better resources through education and training.

Signalling and Information :

Spence’s signalling hypothesis maintains that education has no direct effect on improving a per­son’s skills but rather serves as an informational device for identifying more and less talented people. Education serves as a signal of ability.

Since education and ability are highly correlated, higher education implies higher productivity and earnings. Since direct observation of a person’s ability and productivity is costly it is interesting to examine the direct effects of education on productivity (and not on income alone).

Much research has been made on educational production functions. Griliches reviews the issues at the aggregate level. However, the sharpest results have arisen in agriculture, a sector which has shown an enormous and sustained growth in productivity for at least five decades. The rate of return to education among farmers is substantial.

More educated farmers control larger resources in the form of larger farms. These farmers are also much more efficient in their techniques of production. Moreover, their education is used primarily to keep them informed of recent technological changes in agricultural produc­tion, which they adopt with greater frequency and with quicker response. No doubt, education makes farmers more efficient processors of new information.

New Growth Theory :

New growth economists such as Paul Romer stress external economies to capital accumulation that can permanently keep the marginal product of physical or human capital above the interest rate and prevent diminishing returns from causing stagnation.

Views of Schultz and Other Researchers :

In the 1950s, and 1960s economists developed considerable interest in understanding the na­ture and sources of economic growth and development. Detailed national income accounting showed that conventional aggregate output measures grew at a more rapid pace than aggregate measures of factor inputs.

Some researchers identified the-unexplained ‘residual’ with techni­cal change. Research associated with T. W. Schultz and Edward Denison attributed much of the measured residuals to improvements in factor inputs.

Schultz adopted an all-inclusive concept of human capital. At the heart of the concept lay secular improvements in worker’s skills based on education, training and literacy; but he also pointed to sources of progress in improved health and longevity, the reduction in child mortal­ity and greater resources devoted to children in the home, and the capacity of a more educated population to make more intelligent and efficient economic calculations.

No doubt human capital as well as physical capital can yield a stream of income over time: Schultz assumed that a society can invest in its citizens through expenditure, training, re­search and health—that enhances their productive capacity. Although there are direct returns to physical capital by itself, there are constant returns to all (human and physical) capital.

John Kendrick systematically pursued the empirical implications of these ideas and demon­strated that the rate of return on these inclusive human capital investments is of comparable magnitude to yields on non-human capital.

Conclusion :

For all these reasons, developing countries should not underestimate the importance of human resources. Most other factors can be bought in the international market place. Most labour is home-grown, although labour can sometimes be augmented through immigration.

The crucial role of skilled labour has been shown time and again when sophisticated mining, defence or manufacturing machineries fell into disrepair and disuse because the labour force of develop­ing countries had not acquired the necessary skills for its operation and maintenance.

Eco­nomic planners in the developing countries should improve education, reduce illiteracy and train workers. Educated people are more productive because they can use capital more effec­tively, adopt new technologies and learn from their mistakes.

For advanced learning in science, engineering, medicine and management, countries will benefit by sending their best minds abroad to bring back the newest advances. But countries must be aware of the ‘brain drain’ in which the most able people get drawn off to high-wage countries.

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Browse Theses

January 2020

• University of Oxford (United Kingdom)

Human capital is the term used to describe the skills, experience, attitudes, aptitudes of an individual. It encompasses a wide array of skills that are contribute to the macroeconomic performance of an economy and the successful functioning of an individual. It is important for productivity, per capita incomes and sustaining growth. Insights from other disciplines such as psychology, child development and education can inform economic models. These disciplines have a long history of research on human capital, albeit using different labels. Overall, this thesis incorporates both constructs and methods from other disciplines, to help examine important research questions through an economic framework. These chapters contribute to our understanding of the development of human capital and socio-economic position. Chapter 2 and 3 examine the role of specific inputs in the human capital process. Both of these chapters focus on the earliest years of a childs' life, recognising their importance as critical periods of development. Chapter 2 expands the existing literature of human capital production function estimation by including preschool as an important input for explaining cognitive and health skills at age 5 and 8. It compares these estimates for four lower-middle income countries; Ethiopia, India, Peru and Vietnam. Chapter 3 examines if the existing understanding of human capital production functions can be improved by including a measure of an infants' disposition - temperament - using a dataset from Ireland. In contrast to the other two chapters, Chapter 4 focuses on the full period of childhood and adolescence up to early adulthood. It proposes that existing measures of socio-economic status, such as education or income, may not be the most appropriate. It proposes a more composite measure that accurately captures the complex socio-economic positions of young people in today's economy. It examines the role of distinct types of negative shocks that occur at different points in the lifespan and how these impact the likelihood of being advantaged or disadvantaged in adulthood. It also links this measure of SES to parenting behaviours and human capital at 9 months, providing some insight into intergenerational transmission of human capital.

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The Role of Human Capital in Economic Growth

Updated 13 September 2023

Subject Workforce ,  Economy ,  Work

Downloads 40

Category Economics ,  Government ,  Life

Topic Economic Growth

Human capital is defined as the knowledge, skills and competencies possessed by the labour market which is used to produce goods, services and ideas. Various attributes are embodied in human capital. For instance, a person’s education might be good but possess poor management skills. Human capital is therefore dimensional and should be looked at from the ability to adapt and respond efficiently to the customers’ needs. The labour market is currently changing from the full-time manual work to a flexible work environment. This raises the need for countries and organisations to ensure that their human capital is competitive.

Human capital has a direct impact on a country’s productivity, competitiveness and economic performance. There are various determinants of the competitiveness of human capital which include: the social upbringing, education level, the levels of discrimination, among others. The differences in the quality of goods and services produced are highly dependent on human capital. In addition, a worker’s general performance at the workplace which results from different factors such as creativity, innovation, job satisfaction, among others, is also dependent on human capital. The developed countries possess a common trait, significant attention to the quality of their human capital. In most cases, countries had to adopt strategies that are aimed at increasing the diversity of their human capital for them to realise a positive impact on their Gross Domestic Product (GDP). This study, therefore, recognises the importance of conducting more research on human capital and its effect on productivity, competitiveness and economic growth.

The Relationship between Human Capital, Productivity, Competitiveness and

Economic Growth

According to De (2011, p.133), the relationship between human capital and productivity can be well understood if viewed from the context of measuring productivity. By so doing, the connection can be evaluated from the context of home, organisation, society and country. The link between human capital and productivity in these settings exhibits direct proportionality between the two variables.

In the context of a home, human capital is highly valuable in many vital ways. The skills, knowledge and experience that people have are generally converted into significant output which takes the form of the improved value of the person during his or her life. For instance, a parent with competitive human capital who possess desirable wisdom, morals, culture, experience and knowledge, typically manage his or her home well and raise disciplined children and relate to his or her spouse wisely and respectfully. Such homes also have a positive influence on the society regarding their productive value (Shapiro 2006, p.377).

Human capital is highly valued in the context of organisations or workplaces. Most companies have realised the fact that they can earn a competitive advantage by developing their human capital, and ate hence incorporating all the available resources to do the same (Andrzejewski 2010, p.539). Organizations are increasingly adopting motivational strategies that are aimed at attracting and retaining employees that have the right mix of human capital. Companies even go to the extent of offering higher salaries to employees who have a competitive human capital mix in their rival companies as a way of ‘poaching’ them. Research has proved that the more competitive an organisation’s human capital is, the more the production, which translates into more profits (Andrzejewski 2010, p. 437). Organizations also invest in training their employees which pays off regarding competitive leadership as well as visionary and productive employees.

The combined home, society and organisational competitive productivity leads to a high overall national productivity. Scholars have confirmed that productivity is one of the critical determinants of economic growth (Engelbrecht 1997, p.1480). A right mix of human capital allows firms to produce high quality with the same quantity of resources which by extension leads to economic growth.

A study conducted by De (2011, p.37) examined the effects of a country’s literacy level on productivity. The research found out that education and productivity have a directly proportional relationship. The more educated a country is, the more competent the human capital is, and hence more productivity. His research included both formal and non-certified education, whereby its effects were significant on both micro and macroeconomic levels. There are various indicators of productivity that were considered as a result of increased education levels. These include value added per worker, the profits realised by the organisations and the probability of organisational survival in the market. A healthy and significant relationship was also established between education levels and GDP per capita income (Rodriguez Perez and Ordóñez 2003, p.138).

Del et al. (2002, p.44) claims that foundational skills have the most significant influence on productivity. The reason behind this claim is the fact that foundational skills generally for the basis for further studies and engagement in productive activities at the workplaces, hence determining human capital. However, foundational skills have been classified as the hardest skills to attain as an adult. There is, therefore, need for intervention to equip people with the skills during their earlier stages in life. The other factors which determine the competency of human capital are management leadership skills (Engelbrecht 1997, p.246). Organizations benefit from improved performance and high rates of innovation from employees who possess recommendable leadership and management skills. This, in turn, leads to improved productivity in the organisation.

The role of science and technology in today’s world has made the human capital investment to be one of the most critical factors that lead to increased national competitiveness (Tamura 2002, p.76). Human capital has been used as an accelerator of competitiveness in a contemporary economy where the globe has access to technology and modern operational methods. Human capital accumulation produces desirable externalities by which social returns on education are indisputably higher than individual returns. People acquire an education with the purpose of benefiting individually. However, what starts as a personal decision eventually benefits the general levels of society’s knowledge, which in turn facilitates the acquisition of knowledge by others.

The ties between higher education, scientific research and productivity are getting stronger (Tamura 2006, p.64). Economists have consistently confirmed that competitiveness and knowledge stimulate economic growth. This is the reason why all countries that aim at sustaining economic growth and competitiveness, in the long run, must pay undivided attention to the quality of their human capital. International competitiveness can be addressed in different ways. Firstly, it refers to the ability of enterprises and nations to manage the totality of their competencies with the aim of higher profits and prosperity (Lepak and Snell 1999, p. 79). Secondly, international competitiveness is a part of the economic discipline which seeks to analyse the policies and facts that determine the ability of a country to create and sustain an environment that leads to more value creation for its people (Rastogi 2000, p.68). It has also been defined as a collection of policies, factors and organisations that shape the level of prosperity and productivity of a country. One outstanding fact about the above-mentioned definitions is the fact that competitiveness is aimed at increased profits and productivity of a nation as well as its respective enterprises. Therefore, competitiveness is aimed at attaining a long-term economic growth. In addition, competitiveness requires policies that are aimed at developing the quality of human capital.

The role played by human capital in promoting the performance and competitiveness of an economically significant. A classical economist, Smith, claimed that the best way of sustainable economic growth is by ensuring a progressive increase in knowledge and educational development (Rastogi 2000, p.194). Accumulated skills and competency are essential factors that determine the economic growth of a country. Unlike physical capital, human capital is embodied in people and therefore grows through use and experience. Organizations must, therefore, give their employees quality platforms for them to exercise their knowledge as a way of increasing their experience and competency.

The demand for additional training is high among mid-life employees (Lepak and Snell 1999, p.106). However, it is worth noting that the demand for additional training is dependent on the acquired habits and opportunities provided earlier in life. Human capital development should, therefore, be directed towards the young generation, since if they are influenced early enough, then they will have the desire for additional learning and on-the-job-training. Since some skills decline with age and also diminishes if they are not put into use, it is essential for countries to establish a continuous human development system for them to remain competitive (Hitt et al. 2001, p.33).

Economic growth refers to an improvement in the ability of an economy to produce goods and services, compared to past periods of time (Mathur 1999, p.203). Mathur confirmed the fact that economic development is highly associated with human capital, productivity and competitiveness. This relationship can be measured by evaluating the number of resources that are invested in human capital development against the changes in the real gross domestic product (GDP). For instance, if a country decides to offer higher education to the people at subsidised costs, then the citizens are likely to acquire it, hence increasing their knowledge levels which in turn lead to higher productivity. People who have higher education earn more, which increases their disposable income which increases economic development through additional spending.

Organizations can help in increasing human capital and participate in economic growth as well. Economists have associated human capital development with the economic well-being of the nation (Savvides and Stengo 2008, p. 16). The most critical component of a nation’s wealth is increased human skills and competency. An individual’s investment in human capital can also be translated into national development when the information and skills are shared with others. In addition, human capital leads to the development of competitive resource allocation skills (Hitt et al. 2001, p.37). This ensures that a country’s resources are allocated and consumed in a way that leads to maximum value addition.

The more excellent skills acquired through improved human capital increases the mobility of workers into various industries. Their ability to adapt to new work environment increases due to the diversity of skills. This ensures that the labour market is ready to seize opportunities as they are presented, helping the country to re-allocate other resources towards more productive opportunities. Human capital also increases the ability of the labour market to embrace new technologies, which determines the productivity and competence of a nation. Such a labour market is also in a better position to acquire and apply foreign knowledge in local situations. In other words, human capital is the answer to innovation, increased productivity and economic growth (Rastogi 2000, p.63).

A Discussion on Whether the Market for Human Capital can be Made to Work Better

The World Bank and other agencies have recently been promoting policies that focus on the improvement of human capital (Asteriou and Agiomirgianakis 2001, p. 482). Most of the policies are aimed at the development of health, nutrition and education as a way of ensuring access to a healthy and well-educated workforce. It is clear that the developing world requires an increase in human capital for them to start and sustain value-added industries. According to the World Bank, research on human capital is complicated because its determinants are interconnected. For instance, education raises awareness on the need for healthy living. In addition, nutrition ensures a healthy people who are capable of absorbing skills and utilising them accordingly. The intervention on improving human capital is also difficult to measure because it takes longer to learn and the fact that learning is a continuous process that goes on even at the workplaces. 

However, research has succeeded in confirming that a country can improve its economic conditions through improving its labour market (Lee and Mason 2010, p. 160). According to Lee and Mason, if a country can improve its health conditions to a level that leads to an increase in one year on its life expectancy, then it can attract a 4% increase in health spending, which translates into about 0.5% increase in GDP per capita income. Higher levels of education can also lead to improvements in technology adoption which translate into economic growth.

Human capital has contributed significantly to China’s economic growth. According to Jones and Schneider (2016, p. 88), 38.1% economic growth of China between 1978 and 2008 was due to human capital. The percentage is expected to be higher for the period between 1999 and 2008. This is because human capital improved significantly due to the significant educational expansion that took place during this period. Enrolment into higher education institutions increased approximately fivefold for the period between 1997 and 2007. Although the GDP changed slightly over this period since changes in human capital take time before they are translated into GDP increments since people learn through experience, the country’s productivity increased.

According to Yan and Yudong (2003, p.45), one of the primary drivers of China’s economic growth is the Chinese people. Its culture supports caring, ambitious and hardworking families, which is translated into overall improvements in its human capital. Yan and Yudong (2003, p. 51) confirm that there are at least forty Chinese phrases that encourage children as well as grownups to have big dreams and aspirations. As mentioned before, it is hard to change the character traits of an adult, unlike a child who masters certain attitudes and turns them into his or her way of life. The strategies that are aimed at improving the quality of the labour market should, therefore, include well-laid procedures of influencing the children to have big dreams for their future. The Chinese phrases which are known as “Chengyu” motivate the people to work hard and have faith that they will succeed in whatever they do.

The other contributing factor towards China’s improved human capital is the government’s emphasis on education. The PISA international student assessment ranked China as number one in both its 2009 and 2012 evaluations (Jones and Schneider 2016, p. 92). The Chinese higher education institutions graduate approximately 6-7 million college graduates each year, with 40% specialising in engineering and science courses. The Chinese engineers and scientists are the primary drivers of the country’s technological developments, which translates into economic growth. In fact, educated Chinese immigrants have become drivers of significant economies in the world, for instance, the American economy.

Another factor that has led to high-quality human capital markets in China is thrift. The country’s population records 25% personal saving rate, which ensures that the Chinese people rarely suffer from personal bankruptcies. The high saving rates lead to financial security for the Chinese population, hence having reduced government expenditures on social welfares. The funds that would have otherwise been spent on social welfares are spent on other developmental projects such as infrastructure (Lee and Mason 2010, p. 77). The true success driver of the Chinese economy is the investment in human capital which was significantly conducted between the 1950s and 1970s. This has led to the various economic developments, for instance, the glittering skylines and fancy airports in Shanghai and Beijing (Yan and Yunding 2003, p.25). Human capital development has paid the Chinese economy in the long run.

Human capital refers to the skills, knowledge and competency of the people which is used in the production of goods, services and ideas over a specified period. It is evident that human capital, productivity, competitiveness and economic growth are substantially related, whereby an increase in one of them is likely to lead to an increase in the others. This study has succeeded in proving that whenever the human capital is developed, people gain better skills and experience which makes them produce more quality with the same resources, hence increasing productivity. An increase in productivity due to better skills and knowledge is experienced in various contexts, that is, at home, society, companies and the country at large.

Likewise, investment in activities that improve human capital such as education and healthy living programs has a direct positive impact on a country’s competitiveness. It is important to note that globalisation has made it possible for most countries to have access to modern technology, meaning that technology in itself plays a smaller role in determining a country’s competitiveness. However, the ability of a country to earn a competitive advantage is determined by its human capital, which in turn determines how well the country adopts the new technology. This has a direct impact on its GDP, which determines its economic growth. China developed its human capital through ensuring affordable higher education to its people and adopting a culture that encourages children and adults to have big dreams in life. This, in turn, led to a positive effect on its economic development. Human capital development is more effective when conducted among the young generation, as a way of introducing an attitude of hard work and the need to achieve. Countries and organisations should, therefore, focus on improving their human capital as a way of attaining competitive advantage, increased productivity and overall economic development.

Andrzejewski, J., 2010. Human Capital and Productivity. In Kalamazoo College Psychology VanLiere Symposium Collection. Kalamazoo, Mich.: Kalamazoo College.

Asteriou, D. and Agiomirgianakis, G.M., 2001. Human capital and economic growth: time series evidence from Greece. Journal of Policy Modeling, 23(5), pp.481-489.

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Q. Without investing in human capital, the goal of becoming a $5 trillion economy will remain a pipe dream for India. Discuss. (250 words)

• Explain the relevance of economic growth and need for sustainable development in the introduction.
• Mention the steps taken by the government in human capital formation.
• Mention steps to increase investment in human capital in the way forward.

Introduction

India continues to remain one of the fastest growing economies in the world. Despite recent slowdown, India’s growth of real GDP has been high with average growth of 7.5% in the last 5 years as per Economic Survey 2018-19.

However, there are structural problems like non-inclusive growth, jobless growth, inadequate spending on social infrastructure and unsustainable development. Economic growth should be in consonance with other major developmental goals like improvement in education, health, expansion in productive employment for all and environmentally sustainable development.

Human capital and its significance:

Human Capital is a measure of the skills, education, capacity and attributes of labour which influence their productive capacity and earning potential. Investment in human capital is needed for technological growth, improving productivity, creating social innovations, etc.

Steps taken by the government:

• Health: Ayushman Bharat Yojana aims at making interventions in primary, secondary and tertiary care systems, to address healthcare holistically.
• Skills: Skill India Mission launched to fulfill the growing need in India for skilled manpower across sectors.
• Education: Samagra Siksha Abhiyan, which subsumed the three erstwhile schemes of Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Shiksha Abhiyan (RMSA) and Teacher Education (TE) aims to provide equal opportunities for schooling and equitable learning outcomes.
• Employment: Increase in wages of rural employment scheme MNREGA to boost rural domestic demand and improve livelihood opportunities for the poor.

Way Forward

• Investment in SHE (Skill, Education and Health): There is a need to increase government spending in these areas to create a healthier, smarter and competitive workforce.
• Industrial training: Incentives should be provided to job creating sectors like IT, BPOs, diamond, textiles industry, leather industry, etc for on the job training and skilling of workers.
• Use of technology: With rising internet penetration, government should collaborate with industry leaders to create online tutorials in local regional languages to impart knowledge and skills to all.
• Reviving agriculture sector: Rural youth should be promoted to adapt to new methodologies of farming which are in high demand. For ex: organic farming, aquaponics, drip irrigation techniques, etc.
• Promoting labour-intensive sectors such as gems and jewellery, textiles and garments and leather goods.
• Investment in infrastructure: Good transport, communication, availability of mobile phones and the internet are very important for the development of human capital in any developing economy.

By increased investment in human capital formation, we can reap the benefits of our demographic dividend. Human capital is an important asset for the economy as it boosts domestic demand and consumption spending. Hence, investing in human capital formation is critical for achieving the goal of $5 trillion economy.

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Britain’s Violent Riots: What We Know

Officials had braced for more unrest on Wednesday, but the night’s anti-immigration protests were smaller, with counterprotesters dominating the streets instead.

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By Lynsey Chutel

After days of violent rioting set off by disinformation around a deadly stabbing rampage, the authorities in Britain had been bracing for more unrest on Wednesday. But by nightfall, large-scale anti-immigration demonstrations had not materialized, and only a few arrests had been made nationwide.

Instead, streets in cities across the country were filled with thousands of antiracism protesters, including in Liverpool, where by late evening, the counterdemonstration had taken on an almost celebratory tone.

Over the weekend, the anti-immigration protests, organized by far-right groups, had devolved into violence in more than a dozen towns and cities. And with messages on social media calling for wider protests and counterprotests on Wednesday, the British authorities were on high alert.

With tensions running high, Prime Minister Keir Starmer’s cabinet held emergency meetings to discuss what has become the first crisis of his recently elected government. Some 6,000 specialist public-order police officers were mobilized nationwide to respond to any disorder, and the authorities in several cities and towns stepped up patrols.

Wednesday was not trouble-free, however.

In Bristol, the police said there was one arrest after a brick was thrown at a police vehicle and a bottle was thrown. In the southern city of Portsmouth, police officers dispersed a small group of anti-immigration protesters who had blocked a roadway. And in Belfast, Northern Ireland, where there have been at least four nights of unrest, disorder continued, and the police service said it would bring in additional officers.

But overall, many expressed relief that the fears of wide-scale violence had not been realized.

Here’s what we know about the turmoil in Britain.

Where arrests have been reported

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