HUMAN CAPITAL

There are four aspects in a developing country. They are human resources, Natural resources,
Capital and technology. In human resource adding to population growth there is also human
capital which determines the quality of human resource. Human capital in the skills as well as
the knowledge possessed by humans that gives them value in economic system. It is not
purely dependent on literacy and skills as it can be enhanced through use and depreciated
through inadequate use. Human capital is not only important in the productivity of society
but also has an impact on social, political state to know the current state. Human capital
indicates development and growth of a country. Employees with skill will provide more
productivity leading to innovation in their workplace.

There are several reasons why human capital is an important factor for production. First the
more you gain knowledge the more easily you can do the task. Second, physically and
mentally healthy workers can learn faster. Third, individuals who live longer works harder as
they need to save more for retirement life.

On an average world has developed is human capital by only 62 percent that means the world
is wasting 38 percent of their talent. Across 157 countries Singapore was ranked in the first
place and then it is followed by Japan, Hong Kong and Finland.

Poor investment can lead to less productivity in workforce. India it is ranked 115 and the
expected years for schooling is only 5.8 years which questions the Right to Education Act that
ensures compulsory education for 8 years. In India only 83 percent of 15 year old will survive
more than 60 years and 38 percent of kids is the at the danger physical and mental health
issues that last throughout their life.

Health is an important factor in human capital. Only if you are healthy you can be more
productive. Proper nutrition in early childhood will help in mental well-being of children. In
India mathematics based games was introduced in preschools to improve their abilities.
Countries will become more efficient when more human capital is accumulated.

Government should be involved in acquisition of human capital because due to lack of

information or other restrictions from society individuals may not be able to afford it. Even if
you education may be free still transportation and other school supplies makes education still
expensive. In such cases government intervention can make a huge difference.

The component of human capital index are survival, school and health. Survival means under
5 mortality rate that is not all children survive until the age when formal education begins.
Component 2 school is a combination of both quality as well as quantity of education. The
quantity of education refers to number of years a child is expected to receive education within
the age of 18. It ranges between 4 to 14 years. The third component is health which is divided
into adult survival rates which means 15 year old children who survives until the age of 60
and healthy growth among children under the age 5 which shows the stunting rates

So human capital index is measures as 𝐻𝐶𝐼 = 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙 × 𝑆𝑐ℎ𝑜𝑜𝑙 × ℎ𝑒𝑎𝑙𝑡ℎ

1−𝑢𝑛𝑑𝑒𝑟 5 𝑚𝑜𝑟𝑡𝑎𝑙𝑖𝑡𝑦 𝑟𝑎𝑡𝑒

Where, 𝑆𝑢𝑟𝑣𝑖𝑣𝑎𝑙 = 1

There are four components of Human capital index and they are capacity, deployment,
development and know-how.

Capacity involves literacy rate, primary, secondary and tertiary education attainment rate.
Deployment consist of labour force participation rate, employment gender gap,
unemployment rate. Development shows about quality of primary schools, skill diversity of
graduates, Quality of education system, primary, secondary, vocational and tertiary
education enrolment rate. The last component know-how consist of high skilled and medium
skilled employment share, economic complexity, availability of skilled employees.
HUMAN CAPITAL INDEX scale (0-1)

Income 2018 2017

Group

INDIA Lower 0.44 0.4

middle
income
USA High 0.76 0.8
income
GERMANY High 0.79 0.8
income
SINGAPORE High 0.88 0.9
income
NIGERIA Lower 0.34 0.3
middle
income

HUMAN CAPITAL INDEX

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2018 2017

INDIA USA GERMANY SINGAPORE NIGERIA

HUMAN CAPITAL INDEX PER PERSON

Human capital index per person provides average years of schooling and the return to
education.

2017 2016 2015 2014 2013

INDIA 2.123 2.100 2.077 2.054 2.032
USA 3.738 3.733 3.728 3.722 3.717
GERMANY 3.670 3.668 3.665 3.663 3.660
SINGAPORE 3.974 3.809 3.657 3.518 3.389
NIGERIA 1.924 1.899 1.875 1.851 1.827

HUMAN CAPITAL INDEX PER PERSON

4.5

3.5

2.5

1.5

0.5

0
2017 2016 2015 2014 2013

INDIA USA GERMANY SINGAPORE NIGERIA

In these tables it is evident that Singapore has higher Human capital index than India. It has
beaten South Korea, Japan and Hong Kong. In Singapore 88 percent of potential will become
more productive for children once they grow up. Investing in human capital is the smartest
way to boost long term economic growth. At the same time India is ranked lowest among
countries mainly because of low educational as well as deployment of human capital

In Neo classical theory by Solow, Romer and Lucas Solow said that L is the measure of human
capital. He acknowledged technology but did not included it in the model. His model is known
as the exogenous growth model.

𝑌 f (𝑌/𝐿)
𝐿

)
S f (K/L)

𝐾
𝐿

Kt = Kt-1 + It + δKt-1

Investment leads to decrease in capital stock. When,

𝐾
I > δ there is increase in 𝐿

𝐾
I < δ there is reduction in 𝐿

𝐾
In steady state 𝐿 remains constant

In the journal of Eurasian Economic review the paper Human capital and economic across
regions: a case study in Indonesia written by Yoga Affandi, Donni Fajar Anugrah and Pakasa
Bary investigates on the role of human capital both quantitatively and qualitatively. The paper
shows that not just school enrollment but also the quality of educational system is very
important to ensure higher economic growth.

Labor is the factor for higher economic growth so without increase in labor productivity it is
always difficult to escape from middle income trap. So government started spending on
health as well as education sector to improve human resource. Like in education compulsory
education and high quality teachers were ensured. There is a qualitative as well as
quantitative relationship between education and output.

Mankiw-Romer-Weil model an extension towards Solow’s growth model adds human capital
as an additional factor for production. It says that more skilled labor gives higher output. This
model is expressed as

Yt = Ktα Htβ (AtLt )1-α-β

With the hypothesis that human capital has positive effect on output the empirical test shows
higher education matters. School enrollment and attendance is also measure of determining
human capital and must also stress on the ways through which cognitive skills are improved.
While improving the quality of teachers it is important to increase the qualification of
teachers.

Human capital can also depreciate if he does not upgrade or use his skills more efficiently. So
human capital must not be neglected as educated people are able to use capital, use
technologies more effectively thereby increasing productivity.