Problems of Human Capital Formation

To produce more human capital from resources, we need to invest in human capital. The process of adding to the stock of human capital over time is known as Human Capital Formation. In other words, Human capital formation is the process of acquiring and expanding the number of competent, educated, and experienced people who are essential to the country’s economic, social, and political development. Thus, human capital formation is associated with an investment in human beings and their development as a creative and productive resources.

For example, if at the beginning of the year, a country’s human capital stock includes 40 lakh skilled workers and at the end, it increases to 45 lakh skilled workers, then there is human capital formation to the extent of 5 lakh skilled workers in a year. Despite its various advantages, human capital formation faces numerous problems.

Problems of Human Capital Formation

Some of the problems of human capital formation are as follows:

1. Insufficient Resources:

The resources required for the formation of human capital are much more than what’s available. Therefore, the facilities required for human capital formation have remained inadequate.

2. Brain Drain:

People move from one place to another to search for better job opportunities and high salaries than what they are getting at their present job. This migration of people results in the loss of quality people, such as engineers, doctors, etc., with high calibre. In developing countries, these people are already rare and their movement to other countries creates a problem. Also, the cost of losing quality human capital is high.

3. Serious Inefficiencies:

The capabilities of an educated person are either not getting used (because of unemployment) or are underutilised (because of underemployment), and a lot of society’s resources are getting wasted. Besides this, other inefficiencies like massive illiteracy, poor health and education facilities, non-education of many children, etc., are also creating a problem in human capital formation. 

4. High Growth of Population:

As the population is continuously rising, it is adversely affecting the quality of human capital as it reduces the per head availability of facilities.

5. Weak Science and Technology:

In terms of education, the performance of human resources is quite unsatisfactory when it comes to science and modern technology development.

6. Lack of proper Manpower Planning:

There is no proper balance between the demand and supply of human resources in many places. This imbalance is common mostly to the demand and supply of highly skilled personnel. The lack of balance ultimately results in the wastage of resources.

7. Several Imbalances:

A huge percentage of the resources have been diverted towards higher education; however, such education is meant for a few people. Most people require primary and secondary education, and because of this, the economy’s general productivity is low.

8. Long Duration:

Developing the skills of human resources takes time as it involves a prolonged process. Therefore, the activity process slows down and fails to meet the demand for human capital at the right place and at the right time.

9. High Regional and Gender Inequality:

Besides other problems, human capital formation also faces the problem of regional and gender inequality making it difficult to produce more human capital.

10. Inadequate On-the-Job Training:

On-the-Job Training required by the farmers for the working of advanced tools and equipment is not provided to them in the agricultural field making it difficult for them to learn these tools. This ultimately slows down the process of human capital formation.