New World Bank Human Capital Index measures how much countries lose
in economic productivity by underinvesting in their people
BALI, Indonesia, October 11, 2018 — New World Bank research released today gives policymakers compelling evidence that delivering better outcomes in children’s health and learning can significantly boost the incomes of people—and of countries—with returns far into the future.
The Human Capital Index, launched today at the World Bank-IMF Annual Meetings, shows that 56 percent of children born today across the world will lose more than half their potential lifetime earnings because governments are not currently making effective investments in their people to ensure a healthy, educated, and resilient population ready for the workplace of the future.
Human capital—the knowledge, skills, and health that people accumulate over their lives—has been a key factor behind the sustained economic growth and poverty reduction rates of many countries in the 20th century, especially East Asia.
“For the poorest people, human capital is often the only capital they have,” World Bank Group President Jim Yong Kim said. “Human capital is a key driver of sustainable, inclusive economic growth, but investing in health and education has not gotten the attention it deserves. This index creates a direct line between improving outcomes in health and education, productivity, and economic growth. I hope that it drives countries to take urgent action and invest more – and more effectively – in their people.
The Human Capital Index measures the amount of human capital that a child born today can expect to attain by age 18, given the risks of poor health and education that prevail in the country where he or she lives. The Index measures each country’s distance to the frontier of complete education and full health for a child born today. The measure includes:
- Survival – Will children born today survive to school age?
- School – How much schooling will they complete and how much will they learn?
- Health – Will they leave school in good health, ready for further learning and/or work as adults?
Human Capital in PNG & the Pacific
Notable measurements in the Index for Papua New Guinea (PNG) and the Pacific Islands include:
- In the overall Human Capital Index, PNG and the Pacific Islands have lower scores than the East Asia Pacific regional average and below countries in a similar income group.
- In most countries in the Pacific region, the probability of survival to age 5 is below East Asia Pacific regional averages, with four out of seven Pacific countries having lower probability scores than their income group average.
- Tonga and Tuvalu have comparably low rates of stunting, however Vanuatu, Solomon Islands and PNG, on the other hand, have significantly higher stunting rates, with PNG’s rate among the highest in the world (50 percent).
- For expected years of school, most Pacific countries performed below what is expected for their income group.
The Human Capital Index demonstrates the value of strong, sustained value-for-money investments in health and education, and tracks progress of those efforts. In PNG, for example, as highlighted in the government’s Development Strategic Plan 2010-2030, if most of PNG’s population is able to read, write and solve maths problems by 2030, PNG’s economy will be K3.5 billion better off each year.
“With our large, rapidly growing rural population, we very much subscribe to the idea that building human capital is so very important,” said Papua New Guinea’s Deputy Prime Minister and Treasurer, the Hon. Charles Abel, who is in Indonesia for the World Bank-IMF Annual Meetings, where the project was announced. PNG is one of the 28 early adopter countries of the Human Capital Project. “We are in this project to help Papua New Guinea realize, through its wonderful natural blessings, improved resource allocation, and delivery of basic services right down to village level, so we can fully achieve the wonderful potential of our many young people that is under-realized.”
Michel Kerf, World Bank Country Director for PNG and the Pacific Islands said that the project would help drive health and nutrition programs – particularly in early life – that improve long-term welfare, productivity and earnings, and reduce future health costs and inequality.
“We look forward to working closely with the PNG government, and governments across the Pacific, to support efforts to improve health, nutrition and education outcomes that will build the region’s critical human capital, and most importantly, improve and save lives,” said Kerf.
What is the Human Capital Index?
The Human Capital Index reflects the productivity as a future worker of a child born today, compared with what it could be if he or she had full health and complete, high-quality education, on a scale from zero to one, with 1 as the best possible score. A country score of 0.5, for example, means that individuals – and the country as a whole – are forgoing half their future economic potential. Calculated over 50 years, this translates into deep economic losses: a 1.4 percent annual loss in GDP growth.
The Index ranks where each country is now in terms of productivity of the next generation of workers. In countries like Azerbaijan, Ecuador, Mexico, and Thailand, children born today would be 40 percent more productive as workers in the future if they enjoyed complete education and full health. In countries like Morocco, El Salvador, Tunisia and Kenya, 50 percent more.
Sex-disaggregated data is available for 126 of the Index’s 157 countries. For this subset of countries, both boys’ and girls’ human capital is still far from the frontier of potential human capital accumulation. In most countries, the human capital gap for both boys and girls from the frontier is larger than the gap between boys and girls.
Evidence shows that progress is possible. Poland enacted education reforms between 1990 and 2015, and experienced one of the fastest improvements in PISA scores in OECD countries. Vietnam recently topped the OECD average PISA score. Malawi succeeded in reducing its rate of stunting by nearly 20 percentage points in under two decades. But the index shows much more needs to be done.
The Index is part of the World Bank Group’s Human Capital Project, which recognizes human capital as driver of inclusive growth. In addition to the Index, the Human Capital Project includes a program to strengthen research and measurement on human capital, as well as support to countries to accelerate progress in human capital outcomes.
Some 28 countries*, including Papua New Guinea, have expressed advance interest in participating in the Project and have nominated focal points within their governments to work with the World Bank Group. These countries have begun work on elevating human capital policy dialogue across their government line ministries and identifying national priorities for accelerating progress on human capital, based on each country’s own development plans.
The Index is included in the forthcoming World Development Report 2019 on the Changing Nature of Work, which addresses the importance of investing in human capital to prepare for the future of work.
*The 28 early adopter countries are Armenia, Bhutan, Costa Rica, Egypt, Ethiopia, Georgia, Indonesia, Iraq, Jordan, Kenya, Kuwait, Lesotho, Lebanon, Malawi, Morocco, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Rwanda, Saudi Arabia, Senegal, Sierra Leone, Tunisia, Ukraine, United Arab Emirates, Uzbekistan.
Last Updated: Oct 11, 2018