Question

Explain expenditure on ‘On-the-job training’ as a source of human capital formation.

Hint:

Firms spend on training workers at the workplace. This adds skills and productive capacity, and the benefit exceeds the cost, so it builds human capital.

Answer 1

Step 1: Understand the term:
On-the-job training means a worker learns the job while working in the firm. The firm bears the cost of training.
Often the firm hires a trainer or asks a senior to guide the new worker.

Step 2: How the firm spends:
The firm spends money on trainers, training material, and on the output lost while the worker is still learning.
This is treated as an investment, not an ordinary cost, because the benefit lasts for years.

Step 3: How it builds human capital:
Training adds to the skill and the working ability of employees, so their productive capacity goes up.
Employees also learn to use modern technology and adapt to new methods of work.

Step 4: Why firms are willing to spend:
Better trained workers produce more and make fewer errors. The gain to the firm is larger than the cost of the training.
This is why on-the-job training has become a regular part of the work environment these days.

Final Answer:
Expenditure on on-the-job training raises the skill and efficiency of employees, so it is a source of human capital formation.