How does the following act as a source of human capital formation: (i) Expenditure on Health (ii) Expenditure on Education

Question – How does the following act as a source of human capital formation: (i) Expenditure on Health (ii) Expenditure on Education

Answer –

(i) Expenditure on Health: – Health is a state of complete physical, mental and social well-being.

• Expenditure of Health includes;
• Preventive medicine (vaccination)
• Curative medicine (during illness)
• Social medicine (spreading of health literacy)
• Provision of clean drinking water
• Good sanitation facilities

• Poor health and underemployment adversely affect the quality of manpower because a sick labour, without access to medical facilities, is forced to abstain from work,which causes loss in productivity.
• On the other hand, adequate food and proper nourishment to people along with adequate health and sanitation facilities leads to improvement of quality of human capital.
• Thus, a healthy person contributes to a country’s GDP more than an unhealthy person.
• Health expenditure directly increases the the physical and mental ability of human being and produces healthy labour force and thus, it is an important source of human capital formation.

(ii) Expenditure on Education: – Investment in education is considered the main source of human capital formation.

• Education is the process of teaching, learning and training especially in schools or colleges to improve knowledge and develop skills.
• Expenditure on Education is a way of enhancing and enlarging a productive workforce in a country.
• Labour skill of an educated person is more than an uneducated person, because education generates technical skills and creates a manpower which is suited for improving labour productivity.
• Spending on education by individuals is similar to spending on capital goods by companies with the objective of increasing future profit over a period of time.
• The difference between benefit and cost of education measures the market value of human capital formation.

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