Human Capital Concept by Theodore W. Schultz

Introduction

Human capital is a concept that should be thoroughly considered with a view to its relevance and appropriateness. The importance of human capital can be scarcely overestimated because it is the basic means of production and economic growth. The article was written by Theodore W. Schultz “Reflections on Investment in Man” contains a discussion of the concept of human capital, effectiveness of investment in human resources in different periods of history, and economic progress in the Post-war years in the United States of America and other countries that had experienced economic difficulties due to the war actions.

The author of this article claims that investments are important at every stage of human development. It is natural when people tend to increase results and reach growth in various spheres of economics. The production and output growth depends on the human resources and their qualifications. In case when the production depends only on the facilities and locality and people are not engaged in the process of production to the same extent as in the active production, and when people possess equal information and skills, they are sure to have equal income. At the same time, even passive production with people of different skills would bring them different incomes.

Educational Capital

Schultz emphasizes the concept of human capital in terms of different training programs and education that would increase the chances of individuals to gain more to invest in their skills, to be more exact, in their development, and to develop skills of their children. As children are considered forms of human capital that can be treated as a source of personal satisfaction in rich countries:

“in poor countries, children also contribute substantially to the future real income of their parents by the work that children do in the household and on the farm and by the food and shelter they provide for their parents when they no longer can provide these for themselves” (“The Value of Children”, 1973, p. 5).

This means that children are considered an investment into the future income of the family. Moreover, children can become a good tool used for a country’s economic growth when investing in their education.

In addition, education capital is believed to be one of the most important parts of economic growth and development. It is documented that a country’s economic situation depends directly on the education capital and the return from this kind of investment. The theory treats the concept of investments into the skills and improvements into the quality of labor as a weak element that is not likely to increase the economics largely. Meanwhile, the practical approach and statistics show that the education capital, namely schooling, and training, tend to contribute greatly to economic growth (“Reflections”, 1962, p. 4).

Schultz argued about human capital and education capital as a part of the human capital. He suggested a theory why some countries, suchlike West Germany and Japan, had recovered faster from the consequences of World War II. He claims that the fast recovery was the result of education and health investment (people were healthy and educated) which supported fertility and allowed people to reproduce themselves (“Reflections”, 1962, p. 3). Children were a successive generation of highly qualified and healthy people, and “human capital embodied in adults, especially in women, affects fertility and the supply for labor” (“The Value of Children”, 1973, p. 2).

Education is considered the basic factor which can affect economic growth, though more factors should be included in the concept of human capital as well as investment into education. Kuznets (1961, p. 390) has suggested that “the study of economic growth over long periods and among widely different societies – the concept of capital and capital formation should be broadened to include investment in health, education, and training of the population itself … investment in human beings” (cited by Schultz in “Reflections”, 1962, p. 5).

As suggested by Weisbrod (1961), education as an investment into people is extremely beneficial. The benefit can be considered not only that of consumption, earnings, or income, but of developing talents. Students can reveal their abilities and develop them in the process of schooling (“Reflections, 1962, p. 8). However, education can be treated as a good investment because it allows people to improve their skills, become more highly qualified professionals, receive more income, and contribute more to the national income rate.

Woman’s Labor Force

Meanwhile, education can be treated as an investment when it is worked out by a mother of the child, “the negative effects of increases in the price of the mother’s time on the number of children leaves little room for doubt that there is a role for economics in analyzing fertility” (“The Value of Children”, 1973, p. 8). This means that the number of children in the family is closely connected to the price of a woman’s labor force: the more her time costs, the fewer children she is likely to deliver and rear. If a woman has numerous children, she cannot invest in every child equally.

A woman’s labor force depends directly on her education, as well as the choice of the lifemate, the attitude to children, the time she can spend maintaining the house and rearing her children (“The Value of Children”, 1973, p. 8-9). It is clear that women are not likely to invest in the schooling of their children if they have numerous children in the family.

Families and Economic Growth

The changes in economic conditions should have some reaction from the population. Families in countries with a higher income rate can control their fertility level, so, they can afford to invest in their children’s schooling equally. At the same time, families from developing countries are not able to control their fertility; as a result, they are dependent greatly on the economic changes in their country. This means that families in developing countries are likely to have lower education levels as well as income levels. It indirectly causes economic decline because people cannot educate their children appropriately, neither can they invest in their health and schooling. This involves poor health which affects fertility and successive generation of the labor force. “The responses of parents in adopting these contraceptive techniques is also further support of the economic postulate that parents are not indifferent in their fertility behavior to changes in economic conditions” (“The Value of Children”, 1973, p. 10).

The family has one of the major roles in consumption and household production; it is the basic unit that affects education capital and investments into human resources development and qualification. It is family that is considered the beginning of the individuals as would-be contributors to the economic development of countries. Parents, especially educated ones, invest in their children in order to be satisfied with the results of rearing and schooling in many years.

Schultz, as the author of the article about human capital and education capital as its integral part, argues that improvements in the technology of contraception, economic growth that will affect larger investments into education of children, and larger working opportunities for women and teenagers are likely to influence marriage, fertility level, and investments in children.

Conclusion

To conclude, the concept of human capital can influence the life of every individual. It is natural that citizens of the country make its major non-production facilities. People can invest in their children or themselves (if they do not have a family to support them and have no children to care about) by means of investing in their health, schooling, education, and training. This presupposes that every person can achieve better results if being invested in.

The concept of human capital can be analyzed in terms of the importance of investing in training and improvement of human ‘facilities’ in order to receive better results, and economic growth as well. The family is considered to be an integral part of the human capital as it contributes greatly to the education of the children. Human capital is the method of increasing output, improving the economic situation, and developing the economics of the country. Developed countries are likely to spend more on education and training programs. Developing countries will not attain economic growth until they invest greatly in the education of their children.

Reference

Schultz, W. T. (1962). “Reflections on Investment in Man.” The Journal of Political Economy, 70(5.2): 1-8

Schultz, W. T. (1973). “The Value of Children: An Economic Perspective.” The Journal of Political Economy, 81(2.2): 2-13