(a) (i) Define ‘Human Capital Formation’. (ii) Explain ‘Expenditure on Information’ as a source of human capital formation.

Human Capital Formation refers to the addition to the stock of human capital over a given period of time.

People spend to acquire information relating to the labour market and other markets like education and health. This information is necessary to make decisions regarding investments in human capital as well as for efficient utilisation of the acquired human capital stock. Thus, ‘Expenditure on Information’ is a source of human capital formation.

Shruti is working in the formal sector.

On the other hand; Ramesh is working in the informal sector.

Formal sector includes all the public sector establishments and those private sector establishments which employ $\displaystyle 10$ hired workers or more. Formal sector workers are entitled to fair wages and other social security measures such as pension, provident fund, etc. Additionally, they get paid holidays and medical allowances.

Whereas;

Informal sector includes those private sector establishments which employ less than $\displaystyle 10$ hired workers. Workers in the informal sector do not get regular income and social security benefits. They can be dismissed without any compensation. Additionally, they may not get paid holidays and medical allowances.