Importance of Human Capital Investment for Economic Growth in the UK

 Importance of Human Capital Investment for Economic Growth in the UK







          Human capital refers to the abilities, understanding, and competencies embodied in a person that facilitates their well-being, the society around them, and the economy (Burton-Jones & Spender, 2012). It is arguably the most important aspect that determines economic growth. In 2006, the World Bank estimated that human capital is the leading form of global wealth (Stevens, 2012). Moreover, human resources are one of the most crucial determinants of economic growth. Galor and Weil (2012), argued that “an increase in the level of human capital can trigger a take-off from a Malthusian stagnation to a modern growth regime.” This essay aims at showing the extent to which human capital is vital to the United Kingdom’s Economic Growth.

Importance of Human Capital Investment for Economic Growth in the UK

          Research conducted by Becker (2015), on the connection between education, productivity, and output levels showed that more investment in education and training leads to better economic performance and development. Although some have questioned this fact and instead argued that schools merely act as devices to help employers identify skilled individuals (Allen, 2009), the consensus reveals that education does indeed result in higher economic growth due to increase in personal productivity and earning power of the workers. The increase applies to the individual level and the broader social returns on such investments, with evidence showing substantial private and social benefits.

The European Nations in 2010, carried out a field study on the impact of human capital on the economy of the United Kingdom. The evidence on social rates of profit concentrates on the remunerations to the budget arising from increased learning by calculating all the costs of schooling and training compared to the comparative pre-tax earnings of people in the delivery of such education (Balaz $ Williams, 2014). It showed that more investment in education led to more people acquiring the competent skills required of companies and industries. As a result, businesses performed better, leading to growth in the economy. Another key focus was the deployment of human resources at an organisational level and how that was linked to the economic performance of organisations and economies in broader terms. Most of the research led outside the central economic literature and was mainly based on human capital and firm performance. The quality of human resources that a company has determines the overall performance of the enterprise in the market.

Some different emphases on the research including aspects such as the role played by the human resource, and the role of the leaders and managers in various institutions were made. One important aspect is the role of leadership, with a focus on the role of top executives and managers in influencing performance in the company. In this case, their competence and training are paramount in what are often complex processes (Banhabib et al., 2016). The expansion of recognised education and training in the United Kingdom in recent years has resulted in substantial and readily observable implications for the level of skills and training for the engaged workforce of the country. The growth in GDP is mostly associated with growth in the levels of employment. Research conducted by Eurostat (2015), revealed that the economy has continued to grow over the last ten years due to the increase in educational and training facilities made available by the government.

Macroeconomic models integrate human capital into development specifications through additions of the Solow neoclassical growth model and endogenous growth equations, as developed by (Solow, 2012). Profoundly, neoclassical models indicate that a one-off rise in the stock of human capital leads to an increase in productivity and growth in the economy, whereas the endogenous growth models suggest that the same increase in human capital lead to a permanent increase and growth of the United Kingdom’s economy. Both models produce similar results each dependent on their precise specification. However, the newer models that rely on information and studies performed in recent years indicate expressively higher incomes on investments in human capital.

 Regardless of the specific models used, there is substantial evidence that investment in human capital impacts the economy of the United Kingdom positively. After a survey had been conducted by Sianesi (2014), he concluded that an overall enrolment rate of 1% increase in training institutes and education centers leads to an increase in GDP per capita growth of between 1 and 3 %. An additional one year in secondary school which enhances the stock of human capital, rather than just flow into education, leads to more than a 2% increase in economic growth annually, so there is a substantial gap in the casual relationship.

Human resources and company performance are directly related, according to Bosworth and Jacobs (2016). A company’s performance is then reflected in the economy; excellent education provides proper training for individuals. When these people get employed in companies they reflect the quality of their training in their job performance. As such, higher investment in education reflects directly in the fulfillment of an individual company or organisation (Becker, 2015). Outside the mainstream economic literature, studies conducted by the Organisation of Economic Cooperation and Development (OECD), showed the results concerning the impact of human capital on an organisations and industry performance. The literature bridges the gap between the rate of return analysis and macro-level studies; it reveals that organisations employing managers, professionals, and other staff with better qualifications should expect better economic performance.

 Prahald (2013) talks of a widely held belief to the effect that human resource remains by far the main source of competitive advantage in an organisation. The implication made by this statement is that the quality of leadership and human resources determines organisational performance. A different approach to exploring how human capital determines productivity and economic growth in the United Kingdom has been developed over the last 20 years by economists at the National Institute of Economic and Social Research (NIESR) in the United Kingdom. Much of the work done by these economists was summarised in Paris (2014), and the relevant papers were published in full in many editions of the National Institute Economic review. The research consisted of carrying out empirical comparisons of productivity and associated schooling and vocational training between different countries (Lindsay et al., 2010). The results revealed a similar trend in economic performance as connected to the level and quality of education in different countries. Those countries that had invested well in education also ended up producing well-trained individuals who show high performance in different institutions of the country, thereby leading to growth in the economy.

In Britain, the tax system and labour laws are not in favour of self-employment and investment in buildings and machines, rather than education for the people. Tax reforms for self-employed and a skills and training credit system are recommended to support companies’ investment in people and to create opportunities for people to invest in themselves (Maniadaki $ gray, 2010). Boosting skills and wages in this way has led to inclusive economic growth. The new strategies by the United Kingdom’s government for improving economic growth are by investing in people, providing training for workers and students in school, and improving their skills so that it can boost technical performance and foster economic growth.


          In the United Kingdom, investment in human capital has led to positive results in the economy. The Government has offered more training and increased the quality of education; this has led to the growth and development of the economy.






Allen, R. C. (2009). The British industrial revolution in global perspective (pp. 135-181). Cambridge: Cambridge University Press.


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