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