THEORY OF HUMAN CAPITAL
2 a ii). Give an explanation for the contemporary economists’ point of view on education as an investment
CONTEMPORARY ECONOMISTS ON EDUCATION AS AN INVESTMENT
HUMAN CAPITAL THEORY
Human capital refers to a term which was popularized by Gary Becker, who was an economist at the University of Chicago and Jacob Mincer. It refers to the stock of knowledge, social, habits and personality atributes inclusive of elements such as creativity, embodied in the ability to perform labor so as to be able to produce the much required economic value.
It is also referred to as the “The theory of Investment in Man”. The theory can be traced to Schultz (1960) who argued that education should not be viewed merely as a form of consumption but rather as a productive investment. Schulz asserted that education does not only improve the individual choice available to men but that the educated population provides the type of labor force necessary for industrial development and economic growth.
Another scholar, Mark Blaug (1968) defines human capital as: “ the idea that people spend on themselves in diverse ways not for the sake of present enjoyments but for the sake of future pecuniary and nonpecuniary benefits. They may purchase health care; they may spend time searching for a job with the highest rate of pay instead of accepting the first offer that comes along; they may purchase information about job opportunities; they may choose jobs with economists’ pay but with high learning potential in preference to dead-end jobs with high pay”.
The human capital theory postulates that the most efficient path to national development of any society lies in the improvement of its population, i.e., human capital (Fagerlind & Saha, 1983).
Human capital theorists contend that for any economic growth and development to occur, two requirements are necessary:
- The improvement and greater efficiency of technology. This is because higher technology results in greater production
- The utilization of human resources in the employment of technology.
Human capital theorists observe that the skills and motivation for productive behavior are imparted by means of formal education. Therefore, an investment in education is an investment in the productivity of the population.
Central notions (beliefs) to the Human Capital Theory
- Individual and government decision to spend on education or additional education are investment decisions which involves foregoing of present consumption for expected future monetary and non-monetary benefits;
- The skills and knowledge acquired are a form of capital embodied in man;
- The capital (human capital) is a direct product of education;
- The capital yields returns just like investment in other forms of capital do;
- The returns are positive, quantitatively important and statistically significant
From the foregoing, it is clear that the main concern of the Human Capital Theory is with computation and comparison of costs and benefits associated with educational investment.