Human capital and its sources

Just as land can be turned into a factory by investing in it, people can be made more productive by investing in them. Human capital is the stock of skill and expertise in a nation's people, built up by such investment. To produce more human capital (more doctors, engineers, skilled workers), we first need good human capital: good teachers and professors.

The sources of human capital:

• Education and health: the two major sources. An educated person earns more and contributes more; a healthy person can work longer and better.
• On-the-job training: firms train their workers, for example by having an expert worker teach new ones, or by sending workers to courses.
• Migration: people move to places where their skills earn more. It has costs (travel, higher living costs, and the psychic costs of living in a strange place, away from family), but because the extra earnings are greater than these costs, it is an investment.
• Information: spending to find out about jobs, wages, and education and health facilities. A Class 12 student finding out which course will lead to the right career is investing in information.

Health spending includes:

• preventive medicine (such as vaccination, which stops disease before it starts);
• curative medicine (treating illness);
• social medicine (spreading health awareness);
• providing clean drinking water and good sanitation.

All of these are investments: they cost money now, but their returns in future earnings and well-being are greater than their costs.