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Human capital is a term popularized by Gary Becker, an economist from the University of Chicago, and Jacob Mincer that refers to the stock...

Human capital is a term popularized by Gary Becker, an economist from the University of Chicago, and Jacob Mincer that refers to the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. The subject is closely associated with the study of human resources management as found in the practice of business administration and macroeconomics. Arthur Lewis is said to human capital formation pdf begun the field of development economics and consequently the idea of human capital when he wrote in 1954 “Economic Development with Unlimited Supplies of Labour.


There is such a thing as investment in human capital as well as investment in material capital. So soon as this is recognised, the distinction between economy in consumption and economy in investment becomes blurred. For, up to a point, consumption is investment in personal productive capacity.

This is especially important in connection with children: to reduce unduly expenditure on their consumption may greatly lower their efficiency in after-life. Even for adults, after we have descended a certain distance along the scale of wealth, so that we are beyond the region of luxuries and “unnecessary” comforts, a check to personal consumption is also a check to investment. The use of the term in the modern neoclassical economic literature dates back to Jacob Mincer’s article “Investment in Human Capital and Personal Income Distribution” in the Journal of Political Economy in 1958. Then Theodore Schultz who is also contributed to the development of the subject matter.

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. 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. 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. Some contemporary growth theories see human capital as an important economic growth factor. Further research shows the relevance of education for the economic welfare of people. Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society.

The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person. Those talents, as they make a part of his fortune, so do they likewise that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expense, repays that expense with a profit.

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed, or applied, seem to have been the effects of the division of labour. There is a complex relationship between the division of labor and human capital. These resources are the total capacity of the people that represents a form of wealth which can be directed to accomplish the goals of the nation or state or a portion thereof. Many theories explicitly connect investment in human capital development to education, and the role of human capital in economic development, productivity growth, and innovation has frequently been cited as a justification for government subsidies for education and job skills training.

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