'Human capital' (economics) - Essay Example

Economics August 23, What is “human capital,” and how does human capital affect labor productivity and economic growth? Human Capital refers to the skills acquired by employees through training and experience at work. It increases an employee’s value in the marketplace over time. Investment in training, both on the job and off the job, as well as education, medical facilities, fringe benefits etc. increases human capital. The state of human capital in a country determines its level of progress and its capabilities No matter how rich a country is in terms of its natural resources, but if it does not invest in its human capital there is little that it can do to progress.

Realizing the importance of human capital, countries especially in the West are investing an increasing amount of money in developing human capital. Labor productivity refers to the amount of output produced per unit time. It is a measure of economic growth for a country. One of the factors which are shown to contribute positively towards increased labor productivity is human capital. Several studies at the macro as well as the micro level have been conducted which show a positive relationship between the investment in human capital and productivity; i.e. the better the quality of human capital the higher the earnings as well as the capability to generate efficient output.

Studies by Becker (1964), Schultz (1961) and Miner (1971) have proven that there exists a positive relationship between human capital and labor productivity which then translates into higher economic growth. Investment in human capital increases workers’ efficiency and it helps produce better quality products at lesser costs which contribute to economic growth. Investment in human capital ensures that workers are aware of production methods and technologies. This prevents them from wasting precious business resources which enhances productivity.

When the labor productivity is higher, there is more output available for the country to market and sell. This increased capability then translates into higher local and international earnings thus speeding up economic growth. Recently, economies such as the Philippines, Malaysia and Thailand etc. have proven the importance of investing in human capital. These economies have sped up their economic growth rates tremendously by investing in education and training for its labor force thus highlighting the positive relationship between human capital, labor productivity and economic growth.

Works Cited1. “Human Capital”, Investorwords.com, Investorwords, n.d. Web. August 23, 20112. Jajri, I., Ismail, R., 2010, “Impact of Labor Quality on Labor Productivity and Economic Growth”, African Journal of Business Management, Vol. 4(4), pp. 486-495. AcademicJournals.org. PDF file.3. “Labor Productivity”, Investopedia.com, Investopedia, n.d. Web. August 23, 2011