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Economics · 2026 · 4 marks
CBSE 2026 · Region 5 · Set 2 · Q32
(a)Define ‘Human Capital’.(ii)Explain expenditure on ‘On-the-job training’ as a source of human capital formation.Rayansh works as a teacher in a school. He receives a fixed monthly salary, social security benefits, paid leave and medical allowances. His friend Mohan works at a small toy shop. He has very little income, he does not have access to provident fund, paid leave or health insurance.Classify the types of sectors Rayansh and Mohan are working in and highlight the distinction between the two sectors.
(a)
Define ‘Human Capital’.
(ii)
Explain expenditure on ‘On-the-job training’ as a source of human capital formation.
Rayansh works as a teacher in a school. He receives a fixed monthly salary, social security benefits, paid leave and medical allowances. His friend Mohan works at a small toy shop. He has very little income, he does not have access to provident fund, paid leave or health insurance.
Classify the types of sectors Rayansh and Mohan are working in and highlight the distinction between the two sectors.
Marking-scheme solution
(a)
Human capital refers to the stock of knowledge, skills and ability imbibed in the owner.
(ii)
On-the-job trainings have become an integral part of work environment in the recent times as they add to the productive capacity of employees. These enable employees to develop skills and adapt modern technologies. Firms encourage such trainings, as the benefits outweigh the costs of these trainings. Thus, expenditure on ‘On the-job training’ is a source of human capital formation.
Rayansh is working in the formal sector.
On the other hand; Mohan 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 leaves 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 leaves and medical allowances.
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