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Human capital (HC) is about people — as individuals and as communities — and their welfare-enhancing qualities. For the individual, their human capital is not only an element of well-being, like good health and self-esteem, but also a means to facilitate their welfare, at least in the long term, through longevity as well as market and non-market productivity. For the community — group, organization, or nation — the benefits of HC to individuals can further be enhanced through social interdependencies, positive externalities, and optimal allocation of HC in the group, thus making HC a public good. Investment of a share of the benefits of HC in its formation makes for social and economic long-term sustainability of the community. The term “human capital” semantically combines the words “human” and “capital.” From an economic point of view, “capital” refers to the physical factors of production, including land, used along with labor-enhanced HC to create goods or services. These factors are not themselves significantly consumed or depreciated in the short-term production process (Boldizzoni, 2008). That is, skilled humans oversee production (and consumption) processes that yield social and economic value for them. From this perspective, human capital essentially refers to people’s ability — as individuals and as a collective — to identify and use the (physical) resources available to them for their current and future, even intergenerational, well-being. Both the formation and the use of HC are strongly associated with the demography of the community, mainly with regard to population growth and age distribution, because these determine the community’s potential and ability to form and optimally use its HC, subject to the constraint of market failures and imperfections. The objective of this paper is to indicate (1) challenges relating to the formation and deployment of HC in Israel, and (2) potential ways to meet these challenges. The first, theoretical part introduces concepts, models, approaches, and metrics. It starts with pertinent aspects of demography that relate to a nation’s optimal use of its individuals’ human capital and continues with a discussion of critical dimensions of human capital — knowledge and skill, location of economic activity, and health. |
