Evaluation of Investment in Human Capital Economical Effectiveness

Abstract

According to human capital theory the higher education is considered as an investment decision. In order to be beneficial from economic point of view and in comparison with other investment opportunities, investment in education should give a higher rate of return on investment. Knowledge about the return on investment can help to make competent decisions, which would have an economic benefit in the future. Evaluating the investment in human capital (education) as an individual decision, since the vast majority of individuals for gained education should pay themselves and only a part of the price shall be covered by the state, the rate of return on investment becomes an increasingly important evaluation criterion. Making an investment decision it is very important to allocate resources properly. For the individual the costs of this investment include poor wages and direct costs. It can be assumed that individuals with higher education will be paid more than the others without education. Thus, the investment in higher education (human capital) is useful as long as there is a positive difference between marginal benefit and marginal costs. Higher education is a guarantee of a higher life quality. But, in order to ensure the higher life quality, such main factors as individual skills and labour productivity should be eximined. Investment in human and physical capital doesn't only promote the growth of labour market. The investment such as lower inflation rates and freer trade (lower limits) also stimulates the economic growth. The ability to absorb easily technological change increases labour productivity and efficiency. Education, lifelong learning and health are very important investment in human capital. The foreign scientists performed researches and proved that income growth of individuals depends on the level or degree of education the individual has gained. Rate of return on investment in human capital is positive even after direct and indirect costs estimation. The individuals with higher education have higher incomes in comparison with individuals with college education. Education is one of the most important development factors of the modern knowledge based economy. However, educational and scientific development requires the long-term and huge investment. This investment also should be assessed from the social aspect. On the one hand investment in human capital should be stimulated; on the other aspect it should assess their effectiveness. As the investment in human capital is a complex problem from both practical and scientific aspect, so the practice of such evaluation and applied methods do not give an unambiguous answer. It is very important to evaluate the effectiveness of this investment, to estimate the detention of the time, the money flows: incomes (revenues) and outcomes (expenditures).Keywords: human capital, investment in human capital, rate of return on investment, internal rate of return (IRR), shortperiod return on revenue.

Regional Recovery from the Economic Crisis: Assessment Opportunities

“…Many Lithuanian and foreign scientists and economists have examined the causes of the economic downturn and the issues of regional recovery from the economic crisis [4], [16], [1], [5], [2], [10], [11], [17].…”

“…The actual question is why nowadays a human should be recognized as part of human capital, why and how this capital could influence regional 10.7250/eb.2014.005 recovery from the economic crisis. Human capital comprises education, knowledge, competence, attitude, ability to adapt in the labor market, skills, values, skills, and other abilities and individual lineament that determine an individual's productivity, welfare of the society and the country's economic growth [16]. Every individual is unique, with individual qualities, skills and competences.…”

Contribution of ROI Methodology to Romanian Pharmaceutical Industry through E-learning to Improve Employees’ Performance

“… Evaluation of the impact of the training programs on the performance of the organizations from the pharmaceutical sector using the ROI methodology is the object of a paper that is under review within another specialty publication. Under these circumstances, this research aims to put into practice the theoretical frame of the ROI methodology of evaluating the human resources training programs in five stages (Giziene, Simanaviciene, Palekiene, 2012), suggested by Dr. Jack J. Phillips, who developed D. L. Kirkpatrick's four-level model (Kirkpatrick, 1994(Kirkpatrick, , 1998, by adding the fifth level, named ROI, that consists in measuring the investment return of training human resources in organizations (Phillips, 1998(Phillips, , 2003. ROI methodology can help determine the extent to which human resources training programs contribute to an organization's success, while promoting the development of strategic analysis and decision-making capabilities.…”

Assessment of Investment in Higher Education: State Approach

“…Loss of human capital due to migration has a negative impact on the country's economic growth (Čekanavičius&Kasnauskienė, 2009). However, it is noted that neither foreign nor Lithuanian authors did not provide a coherent labor market and education indicators connection with investments into higher education evaluation, which would help to determine the investment in higher education benefits to the individual and the state (Giziene, Simanaviciene &Palekienė, 2012).…”