Investing in Human Capital

14 Dec, 2016
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An authored article of Sumit Kumar in World HR Diary talks about importance of on-the-job training in Human Capital.

In 1964, Gary Becker, a Nobel laureate, emphasized the importance of on-the-job training in Human Capital. His research specified that in spite of recognizing how productivity is affected by the job itself, it invariably ignores the effect of productive process on employee productivity.

Though the world over has made a substantial progress in achieving Becker’s goal of fully incorporating the role of on the job training into economic growth. Indian employers are still reluctant to take a plunge into apprenticeships. Only 28500 organizations out of 63 million enterprises in India resort to apprenticeships resulting in sub 3 lac apprentices in country. Many do so because the Act is a gun on the temple which needs to be complied with, only few are true to apprenticeships’ objective of human capital development.

Employers resorting to apprenticeships have realized its actual potential. Not only it builds future pipeline of workforce but also enhances the productivity leading to better output in three broad ways

1. Bridging the skill gap: education leads to qualifications and not capabilities to do a job. 90% of the students passing out of school have knowledge but no skills thus adding to un-employability. Industry can upskills these fresh students through on the job training as per their needs and bridge the scarcity of skilled human resources.  An interesting aspect of on the job training is the distinction between general and specific training. While all training increases the productivity of the worker at the organization providing the training, generic training enhances the capability of person to work in any organization in the industry. On the other hand, specific on the job training provided by an organization leads to building of capability only for that organization. Under NETAP, on the job training program by TeamLease Skills University, emphasize on both by giving a practical exposure under an employer topping up with employability skills applicable to any organization in any industry.

2. Creating future workforce: building human capital is a long term investment. Like any investment, there are initial costs. For on-the-job training, these costs include the time devoted by the worker and co-workers to learning skills; and the cost of any equipment and material required to teach these skills. Like any investment, the returns to these expenditures occur in future periods.

3. Enhanced productivity: return on investment in human capital is measured by the increased productivity of the workers during subsequent periods of employment. Research suggests in the US that for a dollar spent on apprenticeships, return is as high as 3 dollars, accounted for by improved safety, elimination of rework and increased productivity of the craft worker.

4. Socio-economicupliftment: India ranks 105 in the human capital index released by World Economic Forum. The index measures countries ability to nurture, develop and deploy talent for economic growth. Apprenticeship is the best technique to do so. It teaches how to fish rather thanprovide fish. A society which is built on subsidy and grants can’t contribute to its own and nation’s development. The best way to grow the country is to enrich its human capital with craft to do, earn and create wealth.

World Bank Enterprise survey suggests that only 34% Indian employers engage into any formal training, where as in China it is as high as 80%. Comparison between China’s 20 million apprentices against ours less than 3 lac speaks volumes about our engagement with apprenticeships. Though Apprentices Act has undergone a massive amendment in December, 2014 from being policing to enabling employers to develop talent for themselves. Launch of NEEM scheme by MHRD has further made it conducive for employers to engage with traineeship with wider coverage of industries and functional areas. The choice employers need to make now is to sulk or to skill to bridge the gap.

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This article was published in World HR Diary: https://goo.gl/0ppqQw

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