Human Capital Development SS3 Economics Lesson Note

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Define human capital development
2. State and explain the types of human capital development
3. Give examples of human capital development
4. Discuss how human capital development relates to the economy

INSTRUCTIONAL TECHNIQUES: 

• Identification, 
• explanation, 
• questions and answers, 
• demonstration, 
• videos from source

INSTRUCTIONAL MATERIALS: 

• Videos, 
• loudspeaker, 
• textbook, 
• pictures

NOTE

What Is Human Capital?

The term human capital refers to the economic value of a worker’s experience and skills. Human capital includes assets like education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. As such, it is an intangible asset or quality that isn’t (and can’t be) listed on a company’s balance sheet. 

Human capital is perceived to increase productivity and thus profitability. The more

investment a company makes in its employees, the chances of its productivity and success become higher.

 Understanding Human Capital

An organization is often said to only be as good as its people from the top down, which is why human capital is so important to a company. It is typically managed by an organization’s human resources (HR) department, which oversees workforce acquisition, management, and optimization. Its other directives include workforce planning and strategy, recruitment, employee training and development, and reporting and analytics.

The concept of human capital recognizes that not all labor is equal. But Employers can improve the quality of that capital by investing in employees. This can be done through the education, experience, and abilities of the employees. All of this has great economic value for employers and the economy as a whole.

Since human capital is based on the investment of employee skills and knowledge through education, these investments in human capital can be easily calculated. HR managers can calculate the total profits before and after any investments are made. Any return on investment (ROI) of human capital can be calculated by dividing the company’s total profits by its overall investments in human capital.

For example, if Company X invests $2 million into its human capital and has a total profit of $15 million, managers can compare the ROI of its human capital year-over-year (YOY) to track how profit is improving and whether it has a relationship to the human capital investments.

Special Considerations

Human capital tends to migrate, especially in global economies. That’s why there is often a shift from developing places or rural areas to more developed and urban areas. Some economists have dubbed this a brain drain or human capital flight. This describes the process that keeps certain areas underdeveloped while others become even more developed.

Human Capital and Economic Growth

There is a strong relationship between human capital and economic growth, which is why it can help boost the economy. That’s because people come with a diverse set of skills and knowledge. This relationship can be measured by how much investment goes into people’s education.

Some governments recognize that this relationship between human capital and the economy exists, and so they provide higher education at little or no cost. People who participate in the workforce with higher education will often have larger salaries, which means they can spend more.

 Does Human Capital Depreciate?

Like anything else, human capital is not immune to depreciation. This is often measured in wages or the ability to stay in the workforce. The most common ways human capital can depreciate are through unemployment, injury, mental decline, or the inability to keep up with innovation.

 Consider an employee who has a specialized skill. If they go through a long period of unemployment, they may be unable to keep these levels of specialization. That’s because their skills may no longer be in demand when they finally reenter the workforce.

An individual’s human capital may depreciate if they can’t or won’t adopt new technology or techniques. Conversely, the human capital of someone who does adopt them will.

History of Human Capital

The idea of human capital can be traced back to the 18th century. Adam Smith referred to the concept in his book An Inquiry into the Nature and Causes of the Wealth of Nations, in which he explored the wealth, knowledge, training, talents, and experiences of a nation.

1. Adams

He suggested that improving human capital through training and education leads to a more profitable enterprise, which adds to the collective wealth of society. According to Smith, that makes it a win for everyone.

In more recent times, the term was used to describe the labor required to produce manufactured goods. But the most modern theory was used by several different economists including Gary Becker and Theodore Schultz, who invented the term in the 1960s to reflect the value of human capacities.

2. Schultz believed human capital was like any other form of capital to improve the quality and level of production. This would require an investment in the education, training, and enhanced benefits of an organization’s employees.

 Criticism of Human Capital Theories

The theory of human capital has received a lot of criticism from many people who work in education and training. In the 1960s, the theory was attacked primarily because it legitimized bourgeois individualism, which was seen as selfish and exploitative. The bourgeois class of people included those of the middle class who were believed to exploit those of the working class. The theory was also believed to blame people for any defects that happened in the system and for making capitalists out of workers.

 What are examples of human capital?

Examples of human capital include communication skills, education, technical skills, creativity, experience, problem-solving skills, mental health, and personal resilience.

What is the relationship between human capital and the economy?

Human capital allows an economy to grow. When human capital increase in areas such as science, education, and management, it leads to increases in innovation, social well-being, equality, increased productivity,and improved rates of participation, all of which contribute to economic growth. Increases in economic growth tend to improve the quality of life for a population.

 How can I increase my human capital?

Ways to increase your human capital include more education, automating finances to improve efficiency, expanding your horizons outside of your social and workplaces, obtaining more experience, increasing participation in a multitude of activities or organizations, improving your communication skills, improving your health, and expanding your

 Factors Affecting the Efficiency of Human Capital

1. Increased level of education: The provision of higher and specialized education increases the efficiency of human capital.
2. On-the-job training: Provision of formal and informal training programmes while employed, increase the skill of the workers and enhance the efficiency of human capital
3. Improved health condition: Provision of better health facilities improve the health of the providers of labor, thereby enhancing their efficiency.
4. Standard of living: An increase in the standard of living increases the efficiency of human capital.

 Brain Drain and its Effect on the Nigeria Economy

Brain drain is the large-scale emigration, over a comparatively short period, of a large number of highly skilled intellectuals and technical labor to a more favorable geographic, economic, and professional environment. E.g. large-scale movement of Nigerian healthcare professionals to India, America, and other high-income countries. It is also referred to as “capital flight”.

 Reasons for Human Capital Flight

1. Poor social environment in the source countries:The fewer life opportunities, political and social instability, economic depression and health risk cause the movement of labor on a large scale from less developed countries to those countries with better opportunities.
2. Better social environment in host countries:Owing to rich opportunities for profitable employment, political stability, better living conditions, developed economy, intellectual freedom, etc, there is large scale movement of labor to these countries.
3. Individual reasons: These include family influence such as the presence of overseas relatives, personal preference, and ambition for an improved career.

 Effects of Brain Drain on Nigeria’s Economy

1. Loss of professional skills and talents:The nation is denied the services and expertise they would otherwise have provided in various areas of the economy such as institutions of higher learning, health institutions, industries, etc, leading to low levels of production and development.
2. Capital waste:The resources used in training them, either in the forms of scholarships, loans, etc. are lost to the advanced countries which may have contributed little.
3. Increased level of poverty: This is due to the generally low level of productivity arising from the scarcity of highly productive labor.
4. Decrease in wealth creation, employment, and tax revenue: More entrepreneurs taking their investments abroad contribute to the high rate of unemployment and decreased wealth creation within the country, with a consequent reduction of tax revenue.
5. Encourages Individuals to acquire greater education and skills:They do this in order to meet the demands of the advanced countries that are in demand for their services.

 Effects of Brain Drain on the Destination Country

1. Higher labor skills are available for services and production in other sectors of the destination country
2. There is an influx of illegal aliens who wish to take advantage of the greater opportunities available

EVALUATION:   

1. Define human capital development
2. State and explain the types of human capital development
3. Give examples of human capital development
4. Discuss how human capital development relates to the economy

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively