It is an ancient truth that economic growth is a function of a robust labor force and plenty of capital. Notably, countries like China have successfully brought the two resources together to create an economic miracle. However, it is observable that recent years have seen more emphasis shift to financial capital while neglecting human capital.
Nevertheless, human capital remains critical to the growth of any economy. Interestingly, a robust labor force is necessary for an economy to grow at double-digit rates. However, a vital question still lingers, how does the robust human capital affect economic growth?
Economists argue that a robust labor force implies an opportunity for producers to land the best talent cheaply. Notably, a robust labor force is one which is available in plenty and is cheap. Once the labor force is readily available, and producers can cheaply acquire it, production costs substantially go down. Therefore, this means that producers will have much more cash in profits.
The cash from profits is usually the primary objective of any producer. With enough solvency, producers can re-invest in their businesses or other sectors. Notably, re-investment could be in the upskilling of the labor force to facilitate increased productivity. Eventually, the compound effects of this is a very productive economy.
Increased gross domestic product
Gross domestic product is a function of domestic production as well as domestic consumption. Interestingly, consumption depends on the amount of disposable income that people in the economy have.
Like earlier mentioned, a robust labor force brings about increased productivity in the economy. Usually, once the economy begins to perform well, people get pay raises, which increases their disposable income. If people use disposable income to buy more goods and services, there will be adequate aggregate demand.
Interestingly, it is this aggregate demand that enables producers to clear inventory and earn profits. Therefore, the money will circulate with the economy touching every inch of it. The net effect is increased gross domestic product which is sustainable. Eventually, the living standards of many people in the economy will rise to higher levels.
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