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What Is the Relationship between Human Capital and Economic Growth?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 04 November 2016
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Human capital and economic growth are related by the fact that strong human capital is a facilitator of rapid economic development. The wealth of knowledge and skills within people is referred to as human capital, and it may be acquired through formal or informal education and training. Another connection between human capital and economic growth is the fact that capital investment in the health and wellbeing of people also translates to the development of the economy.

The measurement of the relationship between human capital and economic growth is based on the level of investment from the people. This may be compared to other forms of investments which are expected to yield good dividends. In this case the investment is in the form of education, which yields dividends in the form of increased skills and knowledge that can be applied toward the development of the economy. One differences between human capital and other forms of business capital is the fact that human capital cannot be separated from the person.

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The simple fact that human capital cannot be separated from people establishes a connection between human capital and economic growth. Most governments give incentives to companies that provide extensive training to their employees, because they realize that the knowledge gained by such individuals will stay with them, even if they leave that particular company. This knowledge can be used in other areas to help develop the economy by employees working for the government to help develop their industry or by even starting their own businesses. For example, an individual who works for a computer software development firm may receive a lot of training while on the job. The employee may later leave the computer firm and use his or her training and skills to further develop the economy by coming up with unique concepts that will be useful.

Human capital and economic development are also connected by investments in the health of people, because healthy people are necessary for the economic development of a nation. The human capital health investment includes factors like the development of the health care system, good hospitals, and easy access to health care facilities. An example of how a lack of investment in the health of people may affect economic development can be seen in a situation where there is a high rate of mortality in the general population due to a lack of adequate health care facilities.

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turquoise
Post 3

I watched President Obama's State of the Union address in January 2015 and he mentioned something about community colleges being free in the near future. I think that's a great step in the right direction. He also acknowledged that America is where it's at today because of free high schools and incentives for military personnel to go to college. It's good that the American leadership knows the importance for education and human capital for economic growth.

ddljohn
Post 2

@SteamLouis-- Human capital isn't only going to college for white collar jobs. We also need more skilled workers and we need people to go to trade schools.

I agree with you that if we want a better future for our children, education needs to be more affordable. But we also need to improve opportunities for trade schools where people can learn a valuable skill without going to college. We need those people too, they are the strength of our industries.

SteamLouis
Post 1

If the relationship between human capital and economic growth is so obvious, why isn't education more affordable in the US?

College tuition started rising when I was a freshman in college and it has been going up nonstop. I don't have children yet and one of the reasons is because I don't know how I will be able to fund my children's education.

We need to put a cap on college tuition so that more people can afford to go to college. Otherwise, we can expect economic growth to decline in the coming decades in America as less and less people go to college.

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