Question

Explain ‘Expenditure on migration’ as a source of human capital formation.

Hint:

People move to get higher earnings. The earnings at the new place are more than the costs of travel, living and adjustment, so the spending on migration is an investment in human capital.

Answer 1

Step 1: Understand the term:
Human capital formation means adding to the stock of skilled, educated and healthy people in an economy over a period of time.
Money spent on migration is one of the ways in which this stock grows.

Step 2: Why people migrate:
People move from one place to another in search of jobs that pay a higher income.
Technically qualified persons such as engineers and doctors move to other areas because they get better pay and better opportunities there.
A person who earns more can spend more on education, health and skills, so the quality of the labour force rises.

Step 3: What migration costs:
Migration is not free. The migrant pays transportation costs to reach the new place.
The cost of living at the new place is usually higher.
There is also a psychic cost, because the migrant has to adjust to a new social and cultural setup.

Step 4: Compare the gain with the cost:
The extra earnings at the new place are larger than all these costs put together.
Spending that gives a return greater than its cost is an investment, not a plain consumption expense.
So the money spent on migration adds to the productive ability of the person.

Final Answer:
Expenditure on migration is a source of human capital formation because people spend on moving to get higher earnings, and these earnings are more than the transport, living and psychic costs of moving.