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Q.6:- What factors contribute to human capital formation?



The factors that contribute to human capital formation are:

1. Education: It not only helps in increasing individual’s productivity but also stimulates innovation and creates ability to absorb new technologies. It enhances the present economic condition and improves the future prospects of a country.

2. Health: Expenditure on health increases efficiency, efficacy and productivity of a nation’s workforce. A healthy person is more productive and asset for a nation than an unhealthy person. Good health and medical facilities not only increase the life expectancy but also improve quality and standard of living. It includes provision of clean drinking water, good sanitation facilities, better medical facilities etc.

3. Training: Job training is a source of human capital formation as the return of such expenditure in the form of enhanced labour productivity is more than the cost of it. It is the most effective kind of training to a trainee, imparting him the technical skills and know-how at the actual work site.This helps the trainee not only to acquire the theoretical and practical skills simultaneously but also enables him to learn from the experiences of his trainer.

4. Migration: People migrate in search of better job opportunities and higher salaries. Migration involves cost of transportation and higher cost of living at migrated place. The enhanced earnings outweigh the costs of migration so, expenditure on migration is also a source of human capital formation.

5. Information: The degree of availability of jobs, salaries and admissions related information also play an important role in the determination of human capital. This information is necessary to make decisions regarding investments in human capital as well as for efficient utilization of the acquired human capital stock.