Efficiency of investments in human capital and economic growth in Russia

1. Introduction

Economic growth is possible only with the active participation of the population in the economy. Moreover, it is impossible without creative potential, high-quality workforce and knowledge, skills, abilities and experience. The welfare of the country is achieved through the greatest return from human capital and human resources. Human resources are directly linked to human capital, that is why all developed countries invest in them. Human resources must be developed, because over time they are transformed into full-fledged human capital, which indicates the presence and development of skills of the population, their competencies and abilities that could potentially be invested and generally used in various business operations of economic institutions, while ensuring results.

Human resources and, as a result, the resulting human capital together play a rather important role in the country’s economic sector. With the active use of human capital, Russia has a great potential to become a more competitive country and follow an innovative path of development. Human capital contributes to economic development, improving knowledge-intensive industries, increasing the activity of production, and as a result, improving the quality of life of the entire society as a whole. Effective investment in human capital and due to economic growth in the country is one of the most important development vectors for the state.

The aim of the research is to study the theoretical basis of human capital and economic growth, including the examples of the impact of economic growth on the stages of development of society, study and evaluate the indicators of the main human capital development index, analyze investment in human capital, assess the prospects for economic growth and development of investment in human capital in the economy of Russia.

Achieving this goal led to the formulation and consistent solution of a number of tasks:

1. To study the essence and features of investment in human capital in the economy, to identify the main types of investment;

2. Consider the impact of economic growth on the development of society;

3. To assess the impact of the pandemic crisis of 2020 and sanctions on the indicators of the human capital development index and conduct the analysis of investing in human capital.

Since the mid-twentieth century, the American Economist D. Minser [12, p. 281–302] first proposed the term human capital. Further development of this theory was continued by G. Becker with his research in the book “Investment in Human Capital” [1, p. 9–49], which presented the development of the macroeconomic foundations of the theory of human capital, which became the basis for further studies and research in this area. S. Kuznets [11, p. 11–34] in his works revealed the role of human capital as a factor of economic growth. However, the basic work of economic science was the work of his follower T. Schultz [15, p. 42–47], where he defined human capital as a stock of knowledge that allows you to produce economic goods in order to obtain a high income. S. Fischer [4, 166–180] believed that human capital can be divided into several levels depending on the scale and developed the theory.

In Russia for a long time, instead of the concepts of “human capital” and “human resources”, the concept of “labor force” was used, which was defined as a person’s ability to work, but already at the end of the 20th century, public thought put forward the idea that the most important factor of production is a person, and if suddenly he does not apply zeal to work, society does not develop, there is a so-called stagnation. This is how the term “human factor” appeared, which was later reflected in the terms human capital and human resources. As for Russian economics, the term “human capital” was first introduced by the economist R. Kapelyushnikov [8].

The hypothesis is that investments in human capital development play a crucial role in achieving economic growth goals.

The methodology combines quantitative data analysis with qualitative review. Statistical data from official sources allow us to determine the characteristics of Russia's human resources. Industry comparisons reveal a structural imbalance.

2. The concept, features and types of investments in human capital

It is obvious that it is important and necessary to continue investing in this human capital constantly. There are many different ways to invest in human capital, through education, reading literature, exploring objects, traveling, gaining experience, and much more. It is quite expensive to generate capital, but it is reasonable, since the costs equal to investments that involve a contribution to the future.

The subject literature emphasizes that human capital is a resource that is a source of future income received from services of a certain value, and, as such, cannot be traded on the market and cannot change ownership, since it is its internal feature. When defining human capital, attention is focused not only on the role that it plays in the entire national economy, but also on its role among individual owners of this resource, but also on its crucial importance for the development and functioning of individual organizations. For example, in V. Smirnov’s monograph [16], human capital is considered as a set of characteristics and properties embodied in people (knowledge, skills, abilities, health status, motivation), which have a certain value and are a source of future income, both for the employee – owner of human capital, and for organizations using the same capital under certain conditions.

It is also popular to claim that human capital has the capacity to perform work and, consequently, to change the conditions necessary for the correct operation and duration of the socio-economic system, and that it is “more competitive than all the other capital that the organization has at its disposal” [9]. The formation of individual human capital is influenced by many factors that have their origin both in the family and in the society in which the individual functions (Figure 1).

Figure 1. Formation of individual human capital

Source: compiled by the author based on [16].

Next, we should formulate the very definition of investment in human capital. Such investments are those costs that were made in order to increase the potential productivity of employees, and then contribute to the possible growth of future incomes of both the employee and the company (society) as a whole.

Companies that invest rationally in human capital promote self-efficiency, efficiency, and innovation, and as a result can take a dominant position in the market.

Human capital is an integral element of a person that can be accumulated through investment in this valuable resource. When considering the problems of investing in human capital, it is necessary to realize that the characteristic feature of investing in human capital is the fact that the results of such enterprises are obvious in the long term. This is a rather important question that should not be overlooked, because if the effect of investing in people was instantaneous and the risk was negligible, one might agree that the simplified approach of investingй in people is rational, but the exact opposite is true. Despite this, there are many rational prerequisites for justifying investing. Their common feature is a clear definition of the rank of investing in human capital, which directly translates to the efficiency and effectiveness of knowledge-based organizations.

Currently, there is a generalized classification of types of investment in human capital (Figure 2).

Figure 2. Classification of investments in human capital

Source: compiled by the author based on [6].

By far the most significant investments were and will continue to be investments in education and health. They directly reflect the indicators of “investing” in a person, their social status, level of education, state of health and much more. All costs of this investment are divided into:

– indirect (costs that unintentionally saved or accumulated human capital – lost earnings);

– direct (costs associated with paying for education);

– moral damage (costs associated with overwork and exhaustion of the nervous system).

There is also a different classification of factors of the investment process in human capital from the point of view of manageability, presented in Table 1.

Table 1

Factors of investing in human capital

In general, investing in human capital is significantly different from any other type of investment, having a number of features. In the process of investing in human capital, any company expects that the labor return of employees will be activated, which would increase the profit of the organization. With such a widespread use of tactics, it is possible to seriously influence the increase in economic growth in the country.

3. The essence, characteristics and factors of economic growth in the economy

Every day the situation on the world market can vary depending on a variety of factors that affect the development of the country’s economy. In my opinion, one of the most important factors is demographic growth. After all, it is the labor force that is fundamental in any production process, so investing in human power, as an intensive factor, will help to improve the professional training of employees and accelerate economic growth in the organization.

Looking at the period from 1992 to 2021, we can see that starting from 1994, an economic recovery begins in Russia, due to the growth of the production index (Figure 3) (the indicator of the manufacturing industry increased by more than 77,5%, clothing and textile production – by about 45%, the automotive industry – by 91%, food production increased by more than 60% [7]).

Figure 3. Dynamics of index of industrial production, as % of the previous year, 1992-2021.

Source: compiled by the author based on Rosstat [7].

However, despite such strong growth in 2009, due to the global economic crisis, Russia’s GDP declined by almost 8% [5]. Rehabilitation also took place quite quickly – in just two years, investments in Russia exceeded $350 billion a year over the past 20 years. In addition, the creation of a Single Economic Space between Russia, Belarus and Kazakhstan in 2012 had a huge impact on the stabilization and improvement of our country’s economic growth. It is also worth noting that economic growth was influenced by the Russian Federation’s accession to the World Trade Organization (WTO). And in general, the growth rate of inflation decreased to critical values – in accordance with this, the price increase corresponded to only 6,5% in 2011, which had a very positive impact on the overall development of the domestic economy and the situation of citizens.

Based on this, we can conclude that the economic growth in Russia over the past 20 years has been driven by a huge number of innovations that have had a very positive impact on the economic development and growth of our country. Of course, human capital has influenced growth at an impressive level, but there is also an inverse relationship between the development of society and the economic growth of our country.

4. The impact of economic growth on the development of society

Human resources are one of the most important types of strategic resources and are also a full-fledged productive force of any socio-economic formation, as mentioned above. Looking at the population size for the period from 1990 to 2023, we can identify a general trend of deterioration in the state of human resources in terms of population indicators: from 1992 to 2011, there was a significant decrease in the country’s population, since 2012, and by at the moment, the population indicators have increased, but they are still lower than the indicators that were observed in 1990s (Figure 4).

Figure 4. Population of Russia, in millions of people, 1990-2023

Source: compiled by the author based on Rosstat [14].

When comparing the GDP values for the same period with the population, we can conclude that the population began to grow after the stabilization of economic growth in the country through a variety of internal and external mechanisms.

It is difficult to track how the population has changed during recent years – in a place with a total population, the number of economically active people also changes.

The working-age population has grown in comparison with the 90s and reached its peak in 2006 (more than 90 million people), but then it began to decline again, and at the moment the level of the working-age population is lower, which means that human capital also suffers. However, if we do not consider the demographic component of human capital, but pay attention to the socio-economic component, we can see significant progress in such investments in human capital as education and medicine.

The same situation is happening with medicine. Significant progress is being made in this area, possibly due to the pandemic that spread in 2020. An example of the development of medicine is the development of a vaccine against COVID-19, as well as improving the skills of a large number of doctors. In my opinion, such data may indicate the development of the competitiveness of Russian human capital.

5. Indicators of the human capital development Index

Many economic factors that should characterize labor activity often do not give an accurate description and do not reflect reality, since economic statistics can be inaccurate. Active and employable categories are characterized by intensive “life migrations” – these are indicators that can be used to characterize human capital. Based on the level of mobility of the population, it is possible to put forward a classification of regions using indicators of the number of newcomers and the proportion of indigenous people who left the region. This classification can help to better typify regions according to the degree of working capacity of the active population. However, it is important to mention how developed the human capital of our country is in terms of the labor force aged 15 years and older in Table 2.

Table 2

The number of workers aged 15 years and older in the regions of the Russian Federation, in thousands, for 2017-2022

You should start with the minimum value of labor activity, which is typical for regions where most children live. These are regions such as the South of Siberia and the North Caucasus. Here, in the social structure, a rigid conservatism can be traced: the economically active population, although leaving to self-actualize in the central regions of the country, still returns to their small homeland. This conservatism, unfortunately, does not allow full self-realization in places of residence – the manifestation of the Caucasian specifics.

The central part of Russia, on the contrary, is characterized by a predominance of elderly people. There is a balance of able-bodied and disabled people here and all because the society is characterized by a harmonious structure. In the regions of the central part of the country, there is an increased, but low, level of population migration. Here conservatism is noticeable only in the middle Volga region, the forest-steppe zone and the fertile chernozem, where a slight decrease in active life migrations can be traced. In general, in 2021, the number of people who left Russia was 3 847 540 and in 2022, their number increased, reaching 4 133 662 people per year (Table 3) [13].

Table 3

General results of migration of the population of the Russian Federation for 2021–2022 years.

Regions such as the Vladimir, Yaroslavl, Nizhny Novgorod, Samara, and Ivanovo regions, which are located in the European part of the country, are characterized by a preponderance of the economically active population – the share is more than 50%.

An increased, but not the highest level of economically active population can be traced in the European and Middle Siberian North, in St. Petersburg and in the entire Leningrad region, and the greatest importance of labor activity of the population is observed in Moscow, the northern regions of the Far East, in the Khanty-Mansiysk and Yamalo-Nenets Autonomous Districts. These regions have the highest earnings and the highest level of small business activity, along with the service sector. These regions are characterized by the most active life migrations: the economically active population tends to adapt easily to new working conditions, it is easier to get out of crisis situations, and look for various ways to solve work problems. Moreover, the male working-age population demographically prevails, so we can talk about an unbalanced structure here.

6. The problems of investing in human capital and the possibilities of their solution

It is obvious that for a long time investing in human capital has not been a fundamental theme of the development movement of both the economy and the entire state as a whole. This aspect was simply not considered separately from the rest of the driving forces of the countries’ economies. But this does not mean that there were no problems in this area. In addition, investment in human capital is not currently given so much attention, both in practice and in theory.

The biggest and most generalizing problem is that such investments are associated with a rather high level of risk and, moreover, pay off only in a very long time. Also, the very fact of evaluating the effectiveness of such an investment in human capital is quite difficult, so in most organizations, when the financial situation is unstable, this type of investment will suffer the most.

In accordance with the standards of investment in professional training and retraining of personnel, it is worth noting that in our country the deduction for training and advanced training of personnel is less than 0,5%, while in Western Europe the norm is the cost of 15%. This is due to the fact that in the West there is a unified system of additional training of personnel, while in the Russian Federation there is no such system. It is also greatly influenced by the attitude to innovation and, in general, the prospects for investing in this kind of area. Let’s pay attention to a universal problem – the problem of trust in investing in human capital.

In order to solve this problem, Professor T. Korkina [10], a specialist in the field of management, developed a scheme for assessing the so-called “investment attractiveness of an employee”, which implies that an employee has any properties that suggest a predisposition to further develop their own potential, as well as the ability to achieve the goals set by the investor, taking into account all the factors that potential risks.

Due to the fact that Russia is currently continuing a more active transition to an innovative economy, the main goal of the vector of investments in human capital is also changing – at the moment, the most optimal solution is to intensify the innovative development of the organization and then further develop the national economy of the state.

7. The impact of human capital on economic growth

Education has become the basis for the development of the modern world economy,

a knowledge-based and learning society. Any organized society can be called “capital”, which both determines the implementation of various economic goals at the state level and confirms the theory of the development of the same state, as well as the basic rights of man and society and its development. Of course, any investment in human capital is an unlimited, long-term investment. They are one of the main factors that stimulate the socio-economic development of companies and countries in general and form the level of international competition of the economy of this state.

In the modern economy, competitiveness and efficiency have become less and less dependent material factors of production, but rather have begun to depend on any technical, economic and organizational knowledge that и allows people to create and develop new technologies in the production of products and services. Of course, all this is due to the level of education and skills of innovative, critical, creative and analytical thinking. The education process itself must always be consistent with the transfer of knowledge and skills, values, and social models from the more experienced to the less experienced. They should be inspired by creating creative attitudes, developing independent thinking and adaptability to a changing environment.

In Russia, the human potential is approximately at an average level. Scientific research is mainly limited to government centers. New technologies are used to a limited extent and in limited areas, so this state of affairs weakens the international competitiveness of our country’s economy in comparison with others. Because of this, it is extremely important to develop appropriate strategies, that will be aimed at improving the quality of the human factor and the domestic development of technologies. Contrary to all of the above, education is becoming relatively expensive, and money is becoming an increasingly important and significant means of selection in access to education (especially secondary and higher education). Currently, it is particular importance in the development of human capital for its impact on economic growth.

Extremely significant from the point of view of economic developmentя is the high share of the industrial population in relation to other groups – consistently exceeding the mark of 60% of the total population of Russia from year to year.

However, the number of people of post-production age is also growing, and this indicates a widespread aging of society, which affects the overall economic state of the state.

As an example of this dependence, we can pay attention to the level of education of people and, based on this, the level of their earnings, which affects the growth of the country’s economy. Currently, there are many difficulties in measuring the real state of human resources, which is caused by methodological complications arising from the multiple sources of their defining characteristics, as well as the level of socio-economic deterioration of society (income level, housing conditions, health care, cultural and social activity, level of communication and household services, conditions of upbringing and education, conditions of social development, labor, etc.). These problems mainly affected agricultural regions and, in particular, those in which state agriculture prevailed. They are currently experiencing serious social and economic problems. In general, all rural areas are characterized by a low quality of human resources, which, along with other socially negative characteristics, makes them quite limited compared to other more financially literate people.

8. Solutions

In the light of the challenges facing the Russian economy, it is necessary to take measures for the effective development of human capital:

– Increasing the state’s interest in the development of the education system, as well as increasing deductions for training and professional development of personnel;

– Providing greater access to high-quality medical services;

– Support for innovations.

9. Conclusion

Based on the analysis, it can be concluded that human capital and human resources are an integral part of the country’s economy. With their help, the economy becomes competitive, moreover, the right investments in capital and resources lead to an improvement in the country’s economic situation: demographic indicators increase, the quality of medicine and education improves, and knowledge-intensive industries develop. That is why it is so important to use all opportunities to invest in human capital.

Assessing the human capital of Russia to date, it was possible to identify a number of certain contradictions. On the one hand (demographic), there is a general trend of deterioration in the state of human resources and capital, but significant progress is being made in the socio-economic sphere (education, medicine). Moreover, it was possible to obtain information from a number of resources that human capital develops particularly well in crisis situations in a market economy.

It is worth saying that human resources and human capital are limitless, it is important to use them rationally and constantly invest, because each generation creates its own human capital.