Human Capital, Education and Unemployment
Human capital formation, market vs non-market activities, disguised unemployment, HDI.
Human Capital, Education and Unemployment
People as Resource
What you'll learn
- Why people are an economic resource — not just mouths to feed.
- Human capital — how education and health turn people into productive assets.
- Economic activities: market and non-market; paid and unpaid work.
- Quality of population — literacy, health, skill as drivers of development.
- Unemployment — types and impact on India.
Key concepts
People as resource
- Population is often seen as a burden (more people = more demand on resources).
- Alternative view: people are a resource — their labour, skills, creativity produce goods and services.
- Human resource = people with education, skills, and good health who contribute to the economy.
- Just as a country needs physical capital (machines, roads), it needs human capital.
Human capital formation
Human capital = the stock of skills, knowledge, and health embodied in a person.
Investment in human capital:
| Investment | How it builds human capital |
|---|---|
| Education | Improves knowledge, skills, earning capacity |
| Health | Healthy workers are more productive; less absenteeism |
| On-the-job training | Skill development while working |
| Migration | Moving to better opportunities builds experience |
| Information | Access to market/job information improves decisions |
Economic activities
| Type | Features | Examples |
|---|---|---|
| Market activities | Produce goods/services sold for money; included in GDP | Factory work, teaching in private school, trading |
| Non-market activities | Produce goods/services for own use; NOT counted in GDP | A farmer growing food for family, a woman cooking at home |
Important: housework, caregiving, subsistence farming are economically valuable but invisible in national accounts. Women do most of this unpaid work.
Quality of population
| Indicator | India's position |
|---|---|
| Literacy rate | 74% (Census 2011); men 82%, women 65% |
| Life expectancy | ~69 years (2020) |
| Infant mortality rate | 30 per 1000 live births (2019) |
| Skill level | Large but largely low-skilled workforce |
Higher quality population → more productive → higher GDP growth.
Educated population — the multiplier effect
- Educated people earn more → spend more → boost economy.
- Better decisions: smaller families, healthier children, higher savings.
- India's IT boom (1990s–2000s): driven by English-speaking, technically educated workforce → global outsourcing hub.
Unemployment in India
Unemployment = when people willing and able to work cannot find work.
Types
| Type | Definition | Example |
|---|---|---|
| Open unemployment | Person actively seeking work but finds none | Urban job-seeker |
| Disguised unemployment | More workers than needed; marginal productivity of extra workers = 0 | 5 people doing work that needs 2; common in Indian agriculture |
| Seasonal unemployment | Work available only in certain seasons | Agricultural labour idle between harvests |
| Educated unemployment | Degree holders unable to find suitable jobs; mismatch between education and market | Engineering graduates unable to find engineering jobs |
Why disguised unemployment is important
- Widespread in Indian agriculture — families on small farms with too many members.
- If 2 of 5 family members working on 1 acre moved to another job, farm output would NOT fall.
- These people are "employed" but add no extra value → hidden unemployment.
Consequences of unemployment
- Loss of income → poverty.
- Talent and potential wasted.
- Social problems: crime, frustration, migration.
- Lower tax revenue → government has less to invest.
Sectors of the economy
| Sector | Activity | Workers |
|---|---|---|
| Primary | Agriculture, fishing, mining, forestry | ~45% of Indian workers |
| Secondary | Manufacturing, construction | ~25% |
| Tertiary | Services — IT, banking, trade, transport, education | ~30% |
India's challenge: shift workers from low-productivity primary to high-productivity secondary and tertiary sectors.
Role of education and health in development
- Kerala model: high literacy (94%), low IMR, high life expectancy — achieved on modest income; proves investing in people pays off.
- Punjab model: high income from agriculture but lagging on health/education indicators.
- UNDP Human Development Index (HDI): ranks countries on income + education + health → India ranked 132/193 (2022).
Quick check
- What is human capital? How is it different from physical capital?
- Distinguish between market and non-market activities. Why does this matter for women?
- What is disguised unemployment? Where is it common in India?
- What is seasonal unemployment? Give one example.
- Why is the quality of population important for economic development?
Open the Practice tab for graded questions on People as Resource.
Key Takeaways (TL;DR)
- What you'll learn
- Key concepts
- Quick check
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