Human capital is very important for development, along with real capital. Human capital means the number of skilled, educated, and experienced people; it represents a key resource of organizations and the economy because it encompasses the talent and expertise that can drive productivity and innovation.

Some key factors involved in human capital investment include;

Education and training: Providing opportunities for learning and skill development to improve employees' capabilities.

Health and well-being: Employees should be taken care of because healthy employees are more effective in performing their jobs.

Career development means offering employees new opportunities and support to help individuals grow professionally.

Human capital is defined in the Oxford English Dictionary as "the skill the labor force possesses and regards as a resource or asset.

 Human Capital Formation

Human capital formation means the process of acquiring and increasing the number of skilled, educated, and experienced people who are essential for a country's economic development. Capital formation is impossible without human capital. This concept highlights the crucial role of investment in people for economic development.

Components of Human Capital Formation

The main components of human capital formation include;

1. Formal Education: It is essential to invest in formal education and training programs that help individuals acquire knowledge and skills that improve their capabilities. Education is not beneficial to one person; it can be passed on to others.

2. Health Care: Provide proper health care facilities that contribute to a more productive workforce by reducing absenteeism and improving overall well-being. Different forms of health expenditures, such as making available clean and safe water, medical insurance, and workplace accident expenses, are also included.

3. On-the-job Learning: Encouraging continuous learning and skill development throughout an individual's career helps improve their performance and career growth.  Various forms conduct courses and training programs under skilled supervision, off-campus training, or in-house training.

4. Migration: Unemployment is the reason for rural-urban migration, skilled and qualified individuals migrate from one place to another in search of better opportunities, whereas technically qualified professionals migrate from one country to another.

Why Human Capital Formation Is Important

Human capital formation is important for every sector, such as industrial development, which depends on more real capital, like machinery and technology. The able, experienced, and skilled workers are required to make the best use of imported machinery and plants. Agriculture mechanization also needs people who are skilled and knowledgeable. Human capital development introduces modern land cultivation methods in the agriculture sector.

Human capital plays a significant role and brings social changes, i.e., improvement in education, knowledge, attitude, patience, and people's living standards. The developed countries and international institutions provide loans to underdeveloped countries to satisfy their developmental need. The trained and educated people know how to utilize loans to get maximum advantages.

Problems of Human Capital Formation

Lack of Manpower Planning: 

There is a lack of workforce planning in LDCs; the future is not determined, and the required educational training facilities are not provided. As a result, highly qualified persons are looking for jobs. 

Graduates may find themselves underemployed or unemployed because their education does not match market needs, leading to inefficient use of human capital. Additionally, businesses may struggle to find workers with the skills they need, which can hinder economic development.

Technological Change:

The rapid changes in technology can lead to skills becoming obsolete quickly. Continuous learning and adaptability are required, but not everyone has equal access to lifelong learning opportunities.

Without the continuous development of new skills and competencies, the workforce may become outdated or unable to adapt to technological advancements, reducing the overall productivity of the economy.

Defective Educational System: 

In some cases, the educational system suffers from outdated curricula, poor teaching quality, and a lack of practical skills training, which can lead to inadequate preparation for the workforce.

This limits the skills and knowledge individuals can acquire, reducing their potential to contribute productively to the economy. It also perpetuates cycles of poverty, as education is a key factor in upward mobility.

Poor Health Facilities:

Poor health, malnutrition, and inadequate healthcare can negatively impact cognitive and physical development, affecting an individual's ability to acquire and apply skills.

Chronic health problems, stunted growth, and poor nutrition can result in lower cognitive abilities, reduced educational attainment, and decreased productivity in the workforce.

Low Investment in Education: 

The cost of education and training can be prohibitive for many individuals. Student debt, high tuition fees, and a lack of financial aid can limit access to necessary learning opportunities.

Higher Population Growth Rate: 

The growing rate of population is high, while the resources are not increasing at the same rate. Therefore, human capital is being neglected for development purposes. 

An aging population can strain pension and healthcare systems and reduce the overall growth potential of the economy. Ensuring that older workers continue to be productive and that younger generations acquire the necessary skills becomes increasingly important.

Improper Training Facilities: 

The training facilities for different professions improve the skill and efficiency of the labor force, but businesses and organizations may not invest sufficiently in employee training and development. This lack of investment can reduce overall productivity.

Unequal Distribution of Wealth: 

Due to the unequal distribution of wealth, many people are unable to get a modern education because they can not afford the cost of higher education.

Political and Economic Instability: 

In regions experiencing instability or conflicts, educational and training systems may be disrupted, making it difficult for individuals to develop their skills and contribute effectively to the economy.

Resources may not be effectively allocated to improve education and healthcare services, undermining efforts to build human capital. Political instability can also disrupt education systems and create uncertainty, discouraging investment in skill development.

Human capital formation is an essential driver of economic growth and development. It involves the development of individuals' skills, knowledge, health, and experience to enhance their productivity and contribute to the prosperity of society. Education, healthcare, vocational training, and the accumulation of work experience all play vital roles in this process.. Countries and organizations that invest in these areas typically see improvements in productivity, innovation, and overall economic performance.