Human capital and economic growth have a strong relationship. Human capital affects economic growth and can help to develop an economy through the knowledge and skills of people.
Human capital refers to the knowledge, skill sets and motivation people have, which provide economic value. Human capital realizes not everyone has the same skill sets or knowledge and that quality of work can be improved by investing in people's education.
Economic growth is an increase in an economy's ability, compared to past periods, to produce goods and services. It can be determined by measuring the change in the real gross domestic product (GDP) of a country. For example, suppose a country increased its real GDP at an annual rate of 2.5%. This country is experiencing economic growth and has an increase in the value of all goods and services.
How Human Capital and Economic Growth Are Related
Human capital is directly related to economic growth. The relationship can be measured by how much is invested into people's educations. For example, many governments offer higher education to people at no cost. These governments realize that the knowledge people gain through education helps develop an economy and leads to economic growth. Workers with more education tend to have higher earnings, which then increases economic growth through additional spending.
A company can help increase human capital and increase economic growth as well. For example, consider a computer programmer working at a technology company; she receives on-site training, attends in-house seminars and the company pays for part of her tuition for higher education. If she decides to stay at the firm, she may develop new ideas and new products for the company. She may also leave the company later in her career and use the knowledge she attained to start a new company. Either way, this investment in human capital can lead to economic growth. (For related reading, see: Human Capital: The Most Overlooked Asset Class.)