Human Capital Explanation of the Contribution of Education and Essay

Human Capital Explanation of the Contribution of Education and Training in the Economy - Essay Example Human capital explanation is one such explanation; it states that education and training has sizeable impact to the individuals, organizations, and the overall economy (Blundell, Dearden, Meghir and Sianesi, 1999, p. 3). In general, human capital explanation takes in stock the personality attributes, knowledge, and competencies that are embedded in the people’s capabilities to perform labour that ultimately results to economic value production. Human capital explanation suggests that education and training increases people’s productivity by imparting useful values, skills, and knowledge thereby raising their income and facilitating the functioning of economic structures (Burton- Jones and Spender, 2011, p. 32). It should be noted that human capital is itself a product of education and training coupled with other aspects such as experience and discipline. Haldar and Mallik (2010, p. 9) observes that numerous studies that have extensively explored on how education and tra ining impact the economy have shown that they significantly contribute to overall output generation in economy. In the context of human capital, education and training are viewed as investments which enable individuals of a particular society to be equipped with skills and knowledge that improve their productive capacities and employability eventually leading to higher earnings. At the aggregate level, human capital explanation stipulate that education and training contribute significantly to the economy through its impact on productivity growth and domestic output (Burton- Jones and Spender, 2011, p. 40). It is in the light of this, that this essay seeks to explain the human capital explanation of the contribution of education and training in the economy. Additionally, the essay discusses the role that the government should play in support of post compulsory education and training so as to provide the incentive structure to individuals and firms. Burton- Jones and Spender (2011, p. 40) note that the human capital explanation has three main components that are critical in understanding the contribution of education and training in the economy. These components include: knowledge and qualifications gained through formal education; competencies, expertise, and skills obtained through training on a specific job; and innate or acquired ability. According to Becker (2004, p. 11), the human capital explanation is founded on the recognition that the decisions of individuals and firms to invest in human capital is the same to that decisions concerning other types of investments that individuals and firms undertake. As such human capital concept view education and training as human capital investments that involve initial costs such as forgone earnings while an individual is at school, training course fees, and tuition fees among other initial costs that an individual hopes to make returns in the future such as through higher firm productivity or increased earnings. Ha ldar & Mallik (2010, p. 22) argue that just like physical capital investments, human capital investments will be undertaken by individuals or firms that aim at maximizing wealth if the return that is expected from the investments is higher than interest’s market rate. So, how does the human capital concept explain the contribution of education and training in the economy? According to Blundell, Dearden, Meghir and Sianesi (1999, p. 20), human capital has three explanations regarding

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Essay Example Economics considers resource availability, such as land and capital as well as factors of production. An economic model serves as an analysis of financial considerations. Economic models are theoretical constructs using charts, graphs, or other mathematical analysis tools to better understand how to make financial, business, or investment decisions. Such models consider many different variables, such as consumption and consumer incomes, to assist businesses in forecasting production or pricing their products; as one example. Government uses economic models to plan logistics or even create economic policy (or monetary policy) based on observable trends in the economy or environment. It can include accounting modeling to measure credits or debits in industry, or even scenario planning to guide executive decision-making related to finance and capital investment. Microeconomics involves the study of economics as it pertains to the individual. It involves studying firm finance and resources, individual consumer finance and activities, and the worker related to their productivity or income allocation. As one example, microeconomics would measure the relationship between household income and the volume of products consumed, such as household budgeting planning and banking needs. Macroeconomics is more in-depth and measures the whole of an economy. It would consider all consumers related to a national economy. Issues of consumer supply and demand, related to price setting, would be an example of macroeconomic study. For government, it might also measure the income capacity of many different urban regions to determine what area of the country would be best served for investment in infrastructure projects. Normative economics measures what should be, while positive economics studies what actually is. Normative economics is subjective and is based on value judgments