What factors contribute to human capital formation?

The creation of human capital is the result of investments made in the fields of education, health, transportation, and communications, as well as in technical knowledge, on-the-job training, and migration. Here is an explanation of these elements.

What factors contribute to human capital formation


Education improves people’s standard of living and quality of life while also promoting contemporary attitudes. Additionally, through enhancing their skills, a workforce’s productivity and productive capacity are increased. 

Education also helps a primitive economy escape the chains of tradition and backwardness by increasing the acceptability of contemporary practises. A financial investment in the education industry has two advantages. It creates an equal society by improving both the ability to generate an income and the lopsided distribution of revenue. 

Investments in the education industry produce long-term benefits. It not only improves a country’s current economic situation but also its prospects for the future. Education is crucial for solving a variety of interconnected macroeconomic issues, such as poverty, income inequality, population growth, underinvestment in infrastructure, and resource underutilization, in developing economies. As a result, a nation must place a high priority on investing in education. 


The greatest riches, according to a proverb, is health. With the help of a healthy workforce, a nation’s wealth can be boosted. Investment in the health sector boosts a country’s workforce’s effectiveness, efficacy, and productivity. 

A healthy individual may work more effectively than someone who is unwell, and as a result, they can contribute proportionally more to the GDP of a nation. Aside from lengthening life expectancy, improved health and medical services also raise living standards. Investing in the health sector guarantees a steady supply of fit workers. 

Better medical facilities, simple access to life-saving medications, routine vaccinations, the dissemination of medical information, the provision of sufficient sanitation and clean drinking water, etc. are some of the frequent expenses incurred in the health sector. Therefore, investing in one’s health is crucial to creating and keeping a productive workforce.

On-the-Job Training

Training is the process of obtaining the abilities, information, and competency needed to carry out a specific task successfully. 

The most successful type of training for a trainee is on-the-job training, which gives him the technical skills and knowledge at the actual working site. A learner in this style of training receives assistance (or hands-on instruction) from a trainer while performing the task. 

This not only enables the student to learn from the experiences of his trainer and boost his efficiency and productivity, it also enables him to master theoretical and practical skills at the same time. Since the enhanced production far outweighs the cost of the training, this is the most typical sort of training programme. 

Because of this, the cost of such training raises the quality of human capital by increasing its productivity, effectiveness, and ability to generate income.


Migration is the term used to describe the movement of people from developing or undeveloped nations to developed nations in quest of better opportunities. Migrations help people use their dormant or underdeveloped abilities because they make it easier for them to do so. 

The price of moving includes the cost of moving and the cost of living in the new location. Because transportation and living expenses are so high in wealthy nations, migration typically has a very high cost. People yet move in quest of lucrative incomes and better employment possibilities. 

Human capital migration enables developing nations to obtain technical know-how, labor-saving techniques, and effective work practises. The emigrants bring these skills and knowledge back to their own nation, which not only contributes to its economic growth and development but also strengthens its human capital.


When determining human capital, the degree of accessibility to employment, earnings, and admissions-related information is also crucial. 

The availability of information about employment and admissions not only enables students to select the best option in accordance with their interests but also promotes the efficient application of human abilities and knowledge. 

Similar to this, people’s health depends on the availability of medical knowledge and health awareness. The effectiveness and efficacy of human capital are thus determined by the amount spent on the dissemination of information (of education and health).

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