Human Capital Theory
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The document discusses human capital theory. It defines human capital as the skills, knowledge, and abilities embodied in individuals that can be used to produce economic value. The theory postulates that investments in education and training increase workers' productivity and future income by raising their lifetime earnings potential. The concept of human capital originated in the 1950s and was developed by economists like Jacob Mincer, Gary Becker, and T.W. Schultz to explain differences in individual incomes. Critics argue that the theory oversimplifies human activity and productivity gains from education.
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Human Capital Theory
- 1. HUMAN CAPITAL THEORY MEGHNA GEORGE MEENATHEKONIL
- 2. TYPES OF FIXED CAPITAL • useful machines, instruments of the trade; • buildings as the means of procuring revenue; • improvements of land; • the acquired and useful abilities of all the inhabitants or members of the society.
- 3. ORIGIN OF THE TERM • Jacob Mincer's article "Investment in Human Capital and Personal Income Distribution" in The Journal of Political Economy in 1958.
- 4. ORIGIN OF THE TERM • Was not used due to its negative undertones till Arthur Cecil discussed.
- 5. ORIGIN OF THE TERM • T.W. Schultz who is also contributed to the development of the subject matter
- 6. HUMAN CAPITAL • Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value.
- 7. HUMAN CAPITAL • “….. the ability to read and write, or in specific terms, such as the acquisition of a particular skill with a limited industrial application…”
- 8. HUMAN CAPITAL • Similar to "physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's outputs depend partly on the rate of return on the human capital one owns
- 9. HUMAN CAPITAL • “A means of production, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land/ labor”
- 10. ORIGIN OF THE TERM • The best-known application of the idea of "human capital" in economics is that of Mincer and Gary Becker of the "Chicago School" of economics.
- 11. GROWTH OF HC-INDIAN SCENARIO • Consistently increased after Independence due to qualitative improvement in each generation. • 3RD Gen -qualitatively most superior human resource in India.
- 12. THE THEORY • Education or training raises the productivity of workers by imparting useful knowledge and skills, hence raising workers’ future income by increasing their lifetime earnings.
- 13. THE THEORY • It postulates that expenditure on training and education is costly, and should be considered an investment since it is undertaken with a view to increasing personal incomes.
- 14. SOURCES OF HC DIFFERENCE • Innate ability • Schooling • Training • Pre-labour market influences
- 16. CRITICISM • It is unable to understand human activity other than as the exchange of commodities • Notion of capital employed is purely a quantitative one • Misses the point that capital is an independent social force where the creation of social value comes about through its capital accumulation.
- 17. CRITICISM Education in fact improves productivity and thus could explain higher wages. ?? • Did not take into the account of the transfer of learning. • Does the duration of education and training really could increase productivity?
Notes de l'éditeur
- Justin Slay defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters).
- Becker's book entitled Human Capital, published in 1964, became a standard reference for many years. In this view, human capital is similar to "physical means of production", e.g., factories and machines: one can invest in human capital (via education, training, medical treatment) and one's outputs depend partly on the rate of return on the human capital one owns. Thus, human capital is a means of production, into which additional investment yields additional output. Human capital is substitutable, but not transferable like land, labor, or fixed capital.
- It has developed the service sector of India with the export of financial services, software services,tourism services and improved the Invisible balance of India's Balance of payments. The rapid growth of Indian economy in response to improvement in the service sector is an evidence of cumulative growth of Human Capital in India.
- The human capital approach is often used to explain occupational wage differentials. capital
- Pre-labour Market Influencesthere is increasing recognition among economists that peer group effects to which individuals are exposed before they join the labor market may also affect their human capital significantly. At some level, the analysis of these pre-labor market influences may be “sociological”. But it also has an element of investment. For example, an altruistic parent deciding where to live is also deciding whether her off-spring will be exposed to good or less good pre-labor market influences. Therefore, some of the same issues that arise in thinking about the theory of schooling and training will apply in this context too
- A higher productivity indeed does increase the wages. However many other factors do influence the productivity. There are differences of wages in different regions. The pay also depends on the kind of industry the employee is in. In some industries, even pay are regulated by unions.