Economic growth can be sped up by investing in the skills of the labour force. Finland’s labour force has traditionally been highly skilled, but at present it seems that skills are declining. Taking care of the skills of the labour force contributes to the preservation of the welfare state.
Human capital refers to a person’s knowledge, skills, capabilities, manners and other characteristics (such as health) that have an effect on productivity and well-being. The accumulation of human capital begins in families and continues in education and learning on the job. As such, human capital is a considerably broader concept than education. A skilled labour force often refers to a labour force with a high amount of human capital.
Human capital can affect economic growth via various mechanisms. Firstly, investments in human capital improve the quality of labour and thus the productivity of work. Secondly, human capital facilitates innovation, which in turn facilitates continuous economic growth.
Research and product development are characteristically associated with significant external impacts: innovative solutions have wide-spread impacts throughout society.
These external impacts provide a reason for supporting innovation, and one way of creating the preconditions for innovation is to support the accumulation of human capital. In other words, society can boost economic growth by investing in human capital.
The consensus among economists is that human capital increases economic growth, although the empirical verification of this claim has proven to be very difficult. In other words, the direction of the effect has been established, but there is uncertainty as to its magnitude.