Question

A decrease of human capital in an economy tends to,  

	a.	increase real incomes, because of increased labor productivity
	b.	increase real incomes, because of increased labor bargaining power
	c.	decrease real incomes, because of decreased labor productivity
	d.	decrease real incomes, because of decreased labor bargaining power

Answer 1

Option C.

• Human capital refers to the skills, knowledge or experience that workers gain when the firm's provide them with proper guidance or training when they enter the job.
• When human capital decreases, the real income that is received by the worker's decreases.
• This is because the labour productivity decreases when human capital decreases.
• When less investment is done in human capital, the level of productivity decreases as the worker's do not have enough skills or experience in producing more.
• This will decrease the real wages or incomes received by the worker's within the economy.