Human Capital and

Development
• EL EMPLEO - THE EMPLOYMENT.mp4
 Topic Outline
• Definitions of Capital, Human Capital, and
Human Development
• Human Capital in the Economic Development
• How can a country increase Human Capital
• What are physical/passive factors of an
economy
• How is human capital formed
 Topic Outline
• Problems of human capital formation in LDC
(Less Develop Country)
• The Role of Human Capital in Economic
Development
• The Importance of Human Capital in the
Development of the Economy
• Related Studies on the positive relationship of
Human Capital and Economic Development:
Definition of Terms
 Capital

Usable, productive resources,

all forms of assets and capabilities
that can be harnessed for human
development.
 Capital

• Land, building, machinery and human

abilities (Several forms of capital
introduced by A. Smith)
 Capital

• Natural (including physical and biological),

human (including social and cultural, of
course including scientific etc – notably:
ideas, individuality, values, etc ), financial
and all other human made capitals ..
 Capital

• Anything becomes a resource (only) when

its potential value is recognized by the
human (mind). E.g. air is a resource
regardless whether humans are aware of
it.
 Human Development

• increasing human welfare, well-being and

human capital (possibly increasing human
freedom and creativity)
 Human Capital
• the collective skills, knowledge, or other
intangible assets of individuals that can be
used to create economic value for the
individuals, their employers, or their
community
 Human Capital
• (Economics) the abilities and skills of any
individual, especially those acquired
through investment in education and
training, that enhance potential income
earning.
 Human Capital

• Human capital is the stock of knowledge,

habits, social and personality attributes,
including creativity, embodied in the ability
to perform labor so as to produce
economic value
Human Capital
Development
 Human capital development through
corporate training is an essential function of
the human resources department. In today's
business world - where the IT revolution has
leveled the playing field between big and
small companies and where people are
more mobile and informed than ever - it is
an absolute "must" to keep hold of and
develop your workforce through human
capital development.
 The concept of human capital
development is quite recent. Not so long ago,
employers were not generally investing in
widespread, formal employee training and
development. Executive development was
expected to be done in-house, either by rising
slowly through the management ranks or by
moving to another company. Certainly it was
not usually achieved via an executive training
program or executive development program.
Even the concept of "human capital" was not
thought of.
 But rising demand for an increasingly
skilled workforce, combined with a growing
trend of people to move from company to
company, has made corporate investment in
human capital development more appealing.
 Management training courses are
perhaps the oldest form of human capital
development. These first appeared in the
post-WWII era, when business academics
studying the new multi-national companies
realized they had developed complex
organizational structures that would require
bespoke training courses in organizational
development and organizational
management
• human cap dev..mp4
 Human Capital in the
Economic Development
 Modern economists are of the view that
natural resources (i.e. forest minerals,
climate, accessibility to water, energy
sources, etc.) play an important role in the
economic development of a country.
 Economies are created and managed
by people. These people must be capable of
performing the duties required to create
such an economy.
 This is called human capital, and to
truly understand the world, we must
understand the role that populations play in
an economy's growth or decline.
 Human capital is described as the
skills, training, and health acquired through
on the job training and education. Michael
Pakistan Park defines it as, ''The skill and
knowledge of human beings.'' It is also
defined as the "endowment of abilities to
produce that exists in each human being."
How Can a Country
Increase Human
Capital?
• It can be increased through formal
education
• On-the-job training
• Improved health and psychological well-
being.
 To be more precise, if the people of a
country are well educated, well nourished,
skilled, and healthy, they are said to have
more human capital. As underdeveloped
countries around the world make
investments in human persons, they aim to
increase their programming skills, social
abilities, ideals, and health. These
investments aim to increase productivity.
The success of their economies depends
upon increasing human capabilities.
What Are Physical/Passive
Factors of an Economy?
 Physical factors are considered
"passive factors" of economic growth. They
are not separate from each other, but hinge
upon each other. These human resources
are considered "active factors" of economic
development.
 A country which has developed the
skills and knowledge of its people can
exploit natural resources, build social
economic and political organizations, and
carry forward national development. That
said, a country which does not pay attention
to the passive factors that influence these
goals will struggle to see the rapid growth in
human capital that they desire.
How is Human Capital
Formed?
 Definition of human capital
formation:

Human capital formation is the act of

increasing the productive qualities of the
labor force by providing more education and
increasing the skills, health, and notarization
level of the working population.
According to T.W. Schultz, there are
five ways of developing human capital:

1. Provision of health facilities which affect

the life expectancy, strength, vigor, and
vitality of the people
2. Provision of on the job training, which
enhances the skill of the labor force
3. Arranging education at the primary,
secondary, and higher levels
4. Study and extension programs for adults
5. Provision of adequate migration facilities
for families to adjust to changing job
opportunities
What are the Problems of
Human Capital Formation
in LDCs?
 While there are many benefits to
investing in the formation of human capital in
LDCs (less developed countries), it is not an
easy process. Large populations deal with
large issues.
1. Faster increase in population:

The population of almost all developing

countries in the world (including Pakistan) is
increasing faster than the rate of
accumulation of human capital. As a result,
these countries are not making satisfactory
use of sector expenditure on education.
2. Defective patterns of investment in
education:
In the developing countries of the world, the
governments are giving priority to primary education for
increasing their literacy rates. Secondary education,
which provides critical skills needed for economic
development, remains neglected. Another problem
related to investment in education is that in the public
and private sectors there is a mushroom growth of
universities. These universities are a major cost to
these countries. There are also mass failures at
primary, secondary, and higher levels of education that
result in the wasting of scarce resources that the
country needs for other kinds of development.
3. More stress on the provision of
buildings and equipment:
Another major problem countries run into
when investing in human capital in developing
countries is that politicians and administrators
lay more stress on the construction of buildings
and the provision of equipment than on the
provision of qualified staff. It has been
observed that foreign qualified teachers and
doctors are appointed in rural areas, where
there is little use for them. This misallocation of
educational resources can negatively affect
economic growth.
4. Shortage of health and nutrition
facilities:
In less developed countries there is a
shortage of trained nurses, qualified doctors,
medical equipment, medicines, etc. Having less
availability to health facilities poses a threat to
millions of the people. The people are faced
with unsatisfactory sanitary conditions, polluted
water, high fertility and death rates, urban
slums, illiteracy, etc. All of these deficiencies
affect the health of the people and reduce their
life expectancy. This reduces the growth of
human capital.
5. No facilities for on the job
training:
On the job training (in service training)
is essential for improving or acquiring new
skills. The result is that the efficiency of the
workers and the knowledge held by the
workers causes a growth in human capital.
The competence of the workers is of the
utmost importance for the efficient use of
human resources.
6. Study programs for adults:
Study programs for adults can also be
introduced in order to improve a country's
literacy rate. Study programs for adults have
been introduced in many under developed
countries around the world (including
Pakistan). They provide basic education,
which increases the skills of farmers and
small industrialists. Unfortunately, this
scheme failed miserably, as the adults
showed no interest in getting such training.
7. Halfhearted measures for
promotion of employment:
Throughout most of the world, the ratio
of unemployed or underemployed persons is
very large. To increase employment and
reduce under employment, proper
investment in human capital is required. This
is visibly lacking in LDCs.
8. Failure to plan for the best use
of manpower:
Due to the non-availability of reliable data,
there is little manpower planning in less developed
countries. As a result, the demand for certain skills
and the supply of those skills do not match. The
result is that large numbers of skilled and highly
qualified workers remain underemployed. The
frustration and discontent among the unemployed
and underemployed graduate and post graduates
results in "brain drain." This is when skilled workers
leave the country for better opportunities abroad. It is
a huge loss in human resources for these developing
countries.
9. Neglect of agriculture education:

In LDCs where agriculture is the main

sector of the economy, very little attention is
paid to educating the farmers on how to use
modern agricultural practices. Unless the
farmers are provided agricultural education
and training, they will not be able to raise the
agricultural output and balance supply and
demand.
The Role of Human Capital
in Economic Development
 Human capital is the fundamental source
of economic growth. It is a source of both
increased productivity and technological
advancement. In fact, the major difference
between the developed and developing
countries is the rate of progress in human
capital. The underdeveloped countries need
human capital to staff new and expanding
government services to introduce new systems
of land use and new methods of agriculture, to
develop new means of communication to carry
forward industrialization and to build the
education system.
 Human capital is intimately related to
the growth as it increases the nation’s
capacity to produce goods and services. It
also creates more job opportunities and lifts
the living standards of a country through
increase in income levels.
 Human capital deals with individuals
who learn special skills and knowledge
through education at school, training and
experience in the labor market (Barro et al,
2000). However, economic growth refers to
the increase in the amount of the goods and
services produced by an economy over time
(Jones, 1996). As a result of their skills and
education, productivity level would increase
because educated workers would work at a
faster pace than less educated workers.
 Human capital refers to the knowledge and
skills embodied in people. It is widely recognized
that some types of human capital are obtained
through experience or interactions with others
and with formal education. Human capital is
intimately related to the economic growth.
Masses believe that capital means a bank
account, stock or factory plants in the industrial
area. These are also a type of capital that they
are assets that increase income and other
useful outputs over long periods of time. But
such tangible forms of capital are not the only
type of capital.
 There is another very important type of
capital known as human capital. It implies to
schooling, a computer training course,
expenditures on medical care, and lectures on
the virtues of punctuality, expertise and honesty.
It is because these factors are also contributing
to raise earnings, improve health, or over all
increasing economic growth rate. Therefore,
economists regard spending on training, medical
care, education and so on as investments in
human capital. They are called human capital
because people cannot be separated from their
knowledge, skills, health, or values in the way
they can be separated from their financial and
physical assets.
 The notion of human capital arose of
the awareness that physical capital alone
was not enough to explain long term growth.
Many social indicators such educational
enrolments and life expectancy became
combined in common term: human capital.
Often, human capital is implicitly referred to
as formal and informal education. Yet, it can
also contain factors such as the costs of
raising children, health costs, and ability.
The Importance of Human
Capital in the Development
of the Economy
 Economic growth depends on many
factors such as the quantity and quality of
education, how education can impact on the
fertility rate, government policies to sustain
incentives for human capital, a reduction on
the cost of technology adoption and increase
expenditure on education. Education and
other aspects of human capital is important to
economic growth because more educated
individuals tend to have higher employment
rate and produce more output relative to
those who are less educated.
 Education is considered as a positive
investment that allows individuals to be equipped with
knowledge and skills that can improve their
employability and productive capacities that would
lead to higher earnings in the future, hence, economic
growth. Moreover, it is not only the amount of formal
education that matters, but also that the type of
knowledge possessed by labor in a region also plays
a key role in determining the level of economic
activity. There are various type of education having
their own effect on the economic growth such as
skilled based education-primary education specialized
education higher education and education to develop
entrepreneurial skills, the more the entrepreneurs in
the country, more the business will flourish in that
country. As a result, the country’s economy will rapidly
grow.
 The continuing growth of the economy is
partly due to the expansion of scientific and
technical knowledge that raises the productivity
of labor and other inputs in production. The
increasing reliance of industry on sophisticated
knowledge greatly enhances the value of
education, technical schooling, on-the-job
training, and other human capital. Investment in
human capital is long term as compare to the
investment on physical capital. It is also a
continuous process unlike investment on
physical capital. but the outcome of human
capital is much greater than other investment.
 In past decades the healthy human
capital countries grew faster than the one
where these factors were missing. Economic
growth closely depends on the synergies
between new knowledge and human capital,
which is why large increase in education and
training have accompanied major advances
in technological knowledge in all countries
that have achieved significant economic
growth.
 The outstanding economic records of
Japan, Taiwan, and other Asian economies
in recent decades dramatically illustrate the
importance of Human Capital to growth.
 Related Studies on the positive
relationship of Human Capital and
Economic Development:
 Maudos, Pastor, and Serrano conducted
a study on the role of Human capital in the
productivity gains of OECD [Organisation for
Co-Economic and Development] countries
from 1965-1990. Their study revealed the
correlation of human capital and economic
growth, hence, concluded that human capital
not only is an additional input in the
production formula but also is a catalyst for
technical change.
 Xu, Lai, and Qi conducted research in
2008 concluded that human capital is
contributing towards Total Factor Production
(TFP) which contributes directly to economic
development. In addition, they concluded
that human capital had lower impact in
technologically strong provinces compared
to the technologically backward provinces.
 Chun-li Tsai, Ming-Cheng Hung, and Kevin
Harriott in their research conducted in 2010
identified the different compositions of human
capital and their impacts on the economic
growth: Agricultural Human Capital (AGR); High-
Tech Human Capital (TECH); Business and
Service Human Capital (SERVICE) ; the
Humanities Human Capital (HUMAN) and
Health and Welfare Human Capital (HEALTH).
Study found out that, secondary education is a
large contributor to economic growth in
developing countries than it is in developed
countries. However, they find tertiary education
also plays an important role in economic growth
equally for both developing and developed
countries.
 The findings also indicate high-tech
human capital is positively correlated with
economic growth, meaning that a country
should promote greater enrolment in high-
tech fields of study such as science,
engineering, mathematics, and computer
science-these are important indicators of
high-quality labor-force.
 Daren A. Conrad conducted a research
on four Caribbean countries; he divided
them in two groups according to the nature
of the development-high developed
countries and less-developed countries. He
concluded that countries with high
development status in Caribbean which are
Barbados and Trinidad & Tobago, the human
capital contribution in these countries is high
towards economic development in all
sectors.
 On the other hand, in less developed
countries which includes Guyana and
Jamaica, the human capital contribution is
low in tertiary sector because in these
countries the human capital is not very much
developed because of deficiency of
resources on education, compared to
developed countries. His study gave
concrete reasons of dependency of
economic development on human capital.
 Musila Jacob and Belassi Walid in their
research emphasized on the government
expenditure on the human capital. Government
expenditure on education placed significant
impact on the economic growth-investment on
growth can be represented as the investment on
the human capital. As government will spend
more (long-term investment) on educating the
human capital, more will be the skilled labor to
positively contribute towards the economic
growth of the country. This research clearly
proves the point that how human capital
contributes to economic growth.
 Ruth Judson in 1998 conducted a study
to find answers to his questions: (1) Does
investment in education help growth; and (2)
Does the allocation of investment in
education matter. Thus, study concluded
that if allocation is done in organized
manner in different levels of education, then
countries can gain more from human capital.
 Judson points out that the human capital
speeds up the economic development, it is
necessary that the government in best
possible manner allocates appropriate
investment in different levels of education.
“Basic education is most important as it lays
foundation for further education, so it can be
concluded that, countries should emphasize
greatly on basic education in order to gain
maximum for human capital as human capital
is catalyst for economic growth.” Judson
(1998)
 “Education is empowerment. It is the
key to establishing and reinforcing
democracy, and development, which is both
sustainable and humane. It is also the only
avenue for a lasting peace founded upon the
mutual respect and social justice. Indeed, in
a world in which creativity and knowledge
play an ever-greater role, the right education
is nothing less than the right to participate in
the modern world.” (UNESCO, 1998)
 Conclusion
Through above related studies
presented, it can be clearly claimed that
there is a positive relationship between
human capital and economic development.
 Conclusion
Human Capital and Economic
Development are directly proportional to
each other; weak human capital would slow
down the economic growth. On the other
hand, strong human capital would
accelerate the economic growth.
 Conclusion
Human capital is very important to
nation’s development and it can be said that
it is important to invest on basic education
as it lays foundation for other important skills
and future education.
 Conclusion
Human capital is a resource on which
countries build and it should be polished as
economic growth is dependent on skilled
human capital.
Mr. Raul M. Partoza
PRESENTER