A firm places its new workers under the supervision of a skilled worker in its factory for three months, to learn to run the machines. It then asks them to keep working for the firm for two years. Which source of human capital formation is the firm spending on?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → On-the-job training
The firm trains its own workers in the firm itself, under a skilled worker. This is one of the two forms of on-the-job training. The firm pays for it, so it asks the workers to stay and recovers the benefit of their higher productivity.
Option (1) Education — Incorrect. Education is schooling and college study. Here the workers learn their skill at work, from the firm.
Option (2) Information — Incorrect. This is spending to find out about the labour market, such as salaries and course fees. The workers here are learning a skill, not looking for details.
Option (3) Migration — Incorrect. Migration means moving to another place for a better-paid job. These workers stay in the same factory.
Option (4) On-the-job training — Correct. The firm spends on training its workers, and the return in higher labour productivity is more than the cost.
NCERT (2026-27): “4.3 Sources of Human Capital … Firms spend on giving on-the-job-training to their workers. This may take different forms: one, the workers may be trained in the firm itself under the supervision of a skilled worker; two, the workers may be sent for off-campus training. In both these cases firms incur some expenses. Firms will, thus, insist that the workers should work for a specific period of time, after their on-the-job training, during which it can recover the benefits of the enhanced productivity owing to the training. Expenditure regarding on-the-job training is a source of human capital formation as the return of such expenditure in the form of enhanced labour productivity is more than the cost of it.” |