What were the losses for young people and developing economies, and can they be recovered? What lessons learned can we take forward to prevent future crises? To help us learn more, Norbert Schady, Chief Economist for Human Development at the World Bank Group and co-author of this year’s report, joins Expert Answers.
00:00 Welcome! Introducing the topic and the expert 01:08 What is human capital and why is it so important 03:26 The impact of the pandemic in three critical life stages 08:20 The specific impact in developing countries and poverty rates 11:19 What countries can do in the long term to be better prepared 17:24 What caught your attention the most in the report? 19:30 Thanks Norbert for sharing your expertise!
[00:00] WB Expert: Human capital is a fundamental driver of economic growth. So taking, you know, reducing the levels of human capital for countries that already were struggling with having a sustained reasonable level of growth is really, really a problem.
Host: Hello everyone and welcome to Expert Answers. I'm Srimathi Sridhar with the World Bank. On this episode, we're looking at one of our newest reports, "Collapse and Recovery, How COVID-19 Eroded Human Capital And What To Do About It." You'll notice I'm on a playground right now and that's because this report really looks at the severe extent to which the pandemic has impacted children and young people under the age of 25. Now, kids may be back at school, but this doesn't necessarily mean things are back on track especially in the developing world. Norbert Schady, who is the Royal Bank Group's Chief Economist for Human Development and one of the report co-authors joins me to explain more. Let's take a look at what he had to say.
[01:08]Host: Norbert, first off, I want thank you so much for joining me here on Expert Answers today on a very beautiful day, and we're lucky enough to be at an early childhood development center to talk about this report that you've co-authored. It's called Collapse and Recovery. And before we get into the specifics of it, it talks about the effects that the pandemic has had on this thing called human capital. Can you tell me what is human capital and why is it so important?
WB Expert: Human capital is what some people refer to as wealth embodied in people. And what I mean by that is it's the characteristics, the things that people have acquired, especially in their early years that make them more productive later on. It really embodies a lot of different components of the skills that people have. And what I mean by that is, on the one hand, it's the learning they've acquired over time, but it's also things like their health status that makes them be able to be more productive. It's their social-emotional development. So, what we call emotional intelligence, all of these things together are what people call human capital. In that sense, I want to describe three things that are particular about the way in which human capital accumulates which are really worth keeping in mind when you think about what did the pandemic do. The first is that human capital is cumulative, or the way in which it accumulates is sequential. And what happens at one stage in the life cycle builds on what happened before and in turn affects what happens later on. So, you can't really take a particular chunk out of a lifecycle or a particular, you know, couple of years of the lifecycle, see what happened to these people without really understanding what happened before and after. The second thing is that the rate at which human capital accumulates is much steeper if you want, early on in a person's life than later on when they're primarily working or eventually are in old age. So, these two characteristics and the fact that also that human capital is multidimensional that it's really this integral process makes it different from other forms of capital and makes it particularly important that we look at the effect the pandemic had at the first if you want quarter century yourself a person's life which is when human capital accumulates most rapidly.
[03:26] Host: So Norbert, let's talk specifically about the developmental stages because you know, this report really is a comprehensive analysis of global data for, like you said, people under the age of 25. And I believe you identify three critical life stages. Can you talk more about those and how the pandemic has impacted each one?
WB Expert: What we do is we first look at children who are of an age before they enter formal schooling in most countries. So, these are children five and under. Then we look at children who are school age at a time when most are not yet considering working. And so, we look at children between the ages of 6 and 14 and then we look at youths, individuals between the ages of 15 and 24 which is the point at and time at which individuals are either entering the labor market or making decisions about whether to continue their schooling. So first, looking at individuals between the ages of zero and five. What we do there is in some sense we look at children under the age of three or under and those were four and five because the kinds of services that governments provide generally are quite different for three and under a year old and four and five year olds. But what we show is regardless of the age, what we show is that there were serious declines in immunization coverage. There were increases in food insecurity. And here's where the age distinction comes into play for four and five year olds, where a substantial proportion of them are enrolled in preschool in particular middle-income countries, preschools shut down for inordinately long periods of time. So, these children were kind of locked out of school literally. And I say this distinction is important because in most developing countries the coverage of if preschool or daycare for zero to three year old is very low. So, we see this sort of shutdown of critical services that these young kids need. And perhaps not surprisingly, we see these alarming declines in child development. And I just want give one example which refers to cognitive development. Cognitive development is very highly predictive of how well these children do eventually in school and even later in the labor market. In Bangladesh, data that we collected for this report, we compare a cohort of children who were roughly two years of age in 2019 before the pandemic hit. And then we went back to those same villages and collect the data on a new cohort of children also 24 months of age or so in 2022. And what we find is these alarming declines in child cognition, in child cognitive development declines that we know contrary what is popular perception these children are not going to make up on their own. So, it really is a very serious concern what happened to young children. And one that has been under-emphasized in the policy dialogue, I think. Then we go to school-aged children. And what we show there is that in developing countries, roughly one billion children, this is not one million, this is one billion. It's very rare to be talking about billions of people being affected by something. This is one billion children in developing countries missed a year of school or more. Despite widespread efforts by governments everywhere to put in place some form of remote instruction or hybrid schooling, the average child learned close to nothing during that time that they missed schooling. Actually, if you want unlearned some of what they already knew.
WB Expert: And what I mean by that is you can imagine a girl who perhaps was 10 years old when the pandemic hit who knew how to add and subtract and was meant to learn how to multiply and divide thereafter. So, not only did she not learn how to multiply and divide because schools were closed and the remote instruction didn't work, but she actually forgot how to add and subtract because this is a cumulative process. It's not like, oh, well they didn't learn that so let's just move on. And they can learn the next time. You don't know how to divide, you're not going to be doing higher level math obviously. So, this is really a critical finding as well. Finally, when we look at young people, what we find is large declines in their labor force participation and large declines also in various other indicators of job quality, for example, wages. Now one might say, well this wouldn't be a problem if these individuals who normally would've gone to work are now going into school. But we don't find that by and large. So, there are a lot more if you want NEETs. NEETs are individuals who are neither in employment or education or training. If you want idle youth, there are more NEETs throughout the world as a result of the pandemic. For example, in Pakistan alone, we estimate that an additional 1.6 million youth are NEETs, who would not, in the absence of the pandemic, have been this. What we also find that the recovery post if you want the most acute phase of the pandemic has been very uneven. In some countries we do see a recovery in youth employment and in many countries we don't.
[08:20] Host: So, the impact of the pandemic obviously far-reaching and global, but you really focus on developing countries here. Tell me more about how developing countries have been uniquely impacted by the pandemic and what are the implications really when you think about poverty?
WB Expert: I mean we know for example, that in terms of economic recovery and in terms of the recovery of overall employment the recovery in developing countries has been slower. There are a variety of reasons for that including the ability of richer countries to invest more to recover the economy. But moreover, almost consistently the levels of human capital in these countries are much lower than those in developed countries. The years of schooling and how much kids learn in school are obviously very different. If you're looking at Finland and you say, well, let's look at what the levels of human capital were even in the absence of the pandemic were in, say, Chad, we're talking about radical differences.
Host: Of course.
WB Expert: Having even further declines of human capital in these countries where human capital was already very low to begin with is really particularly alarming. Human capital is a fundamental driver of economic growth. So taking, you know, reducing the levels of human capital for countries that already were struggling with having sustained reasonable levels of growth is really, really a problem. And that all sounds kind of abstract, but if you take it one level down and you go down now to what it means for individual people, it means we estimate that the declines in human capital amongst people in developing countries could lead to, if unremedied could lead to declines in their lifetime earnings of between 10 and 20%. Now, this is really serious. In the Bank, we use the word a ticking time bomb because in a way this is going to take some time to work its way through.
WB Expert: If you want, as these kids age. The cohorts that were most affected by the pandemic are going to be 90% of the prime age workforce in 2050. Not only that, the impacts are largest for those who are already poorest to begin with. So, children or young people whose parents are low levels of education. So, we're saying that we are already living through an age as many have pointed out, in which inequality has been rising dramatically for a variety of reasons. And public policy has been struggling to address that in both wealthy countries as well as lower-income countries. Now we're saying we've kind of turbocharged that. So, these are really, there are concerns obviously. The effects of the pandemic are concerns for both developed and developing countries, but I think they're particularly dire for developing countries and particularly dire also because they have the fewest resources to really address this in the short term.
Host: Yeah, and I mean just that idea of a ticking time bomb, it's like the time to act really is now, right?
WB Expert: Well that's right.
[11:19] Host: We can't really wait to fix this. So, speaking of that, you've really laid out the scale of the problem here Norbert. So, how do we fix this, you know, what can we do and what can countries do, do you think in the long term to better prepare against future crises?
WB Expert: We divide the policy responses into, if you want two groups. One are things that countries should do right away to try to recover some of this human capital. And the other is sort of systemic changes that they should begin now to prepare for crisis in the future. The window of opportunity to remedy, revert, some of these shortfalls is short. And that sounds kind of redundant, but it really is so. And the reason is if kids come back to school just to use that example and they don't understand anything that's happening and six months later they still don't understand anything that's happening, well they're not going to stick around school forever. So, we are perpetuating the problem, making it worse. These kids are going to drop out of school. So, a really important point we make, and then I'll give you some specific examples is that, you know, we used to be on a trajectory of human capital if you want that rose steeply, and then more gently and just to get back to a parallel trajectory so lower, but parallel to that requires serious investments. Because if we don't do anything, what the default if you want is not just that they don't make that up, but they keep on furthering, they keep on falling further and further behind. So just to, like I said, have lower levels of human capital, but levels of human capital are not declining more in the future already requires a concerted effort by government. To get to a trajectory that puts you back where you were before requires very serious effort and very serious policy attention by governments. It means that for every year now we need to put in place policies that allow individuals to learn more if you want, while they're in school or have higher growth rates in their child development when they're younger than they did before. So, this is really, really a tall order for countries. And so, one of the pieces of advice we give governments is rethink your curriculum. Your school curriculum. School curriculum are already overburdened if you want in many developing countries. And this is the time to particularly prioritize those skills that if you don't pick up now, you really aren't going to pick up later and that are going to determine what happens to you in your life for a long time. And the critical thing about this example is that, that actually doesn't cost a lot of money. It's an issue of political will, sort of saying, okay, this is important, we're going to do it. And it's an issue of, if you want, implementation capacity to actually make that happen. But there's a second basket of interventions that are not specific to each sector. And let me give you a little bit of background on that. Governments who responded well, were able to in some cases expand the coverage of existing programs either increase the number of people who were in them or increase the intensity of those programs. And that sounds a little bit vague. Let me give you an example. Many programs, many countries had cash transfer programs in place. So, they were either able to increase the amount given to existing households in the cash transfer program to protect them against the shock or increase the coverage. So, bring in additional households who normally would not have been in the program. So, there were responses that governments took that were somewhat effective as best they could, they took these. But there were responses by and large, with very few exceptions, they were responses that actually affected only one program or at best one ministry. And so, where we find the biggest, if you want shortages or the biggest limitations of government responses was in the ability to coordinate these different investments and to rethink them as more data came in from the pandemic. But countries that had been faced with something like this before were better able to resolve those coordination problems and those, if you want, that necessity to resolve trade-offs. And I'm going to give you two examples sort of, if you want, at different ends of the income spectrum.
WB Expert: One example comes from West Africa and these are countries that were sadly suffered from the Ebola epidemic in 2014. In 2014 they were responded as best they could. It was an unexpected dramatic shock. They shut down schools, there was a public health emergency. All of these things that we see now in the pandemic happened to some extent in these countries. And as a result they were able to learn from that and they were more effective at responding to the pandemic than other countries of similar even higher income levels who hadn't been faced with a shock like that. And at the other end of the spectrum, you have a country like Finland where there is a body of high level government authorities and experts who meet once a month in order to, if you want, game out how to respond to particular kind of national shock.
WB Expert: So, it could be something like there is no power in the country for three days. It could be something like there is a pandemic and every month they meet and on the basis of that they have recommendations to the higher levels of government. And look, if you really want to prepare for the next aggregate shock, you need to think about this and you should do this, for example, stock up on face masks and things like that. So, at both ends of the spectrum, there really is an ability to really learn from the current pandemic. We all want to just put it behind us and think about something else. But I think that will be a mistake. And I think this is the opportunity to learn about how better to coordinate these investments in the future to make sure that we are, the countries are in a better position to respond to future shocks, be there climate shock, a war, a famine or God hope not, another pandemic.
[17:24] Host: So Norbert, we've talked about some pretty heavy issues here. So, I do want to end this on a bit more of a personal note. For someone like yourself who's been so heavily involved with this research and this report what really resonated with you and what kind of leaves you feeling hopeful regardless of kind of what we've talked about here today?
WB Expert: - So, one thing that resonated with me, Sri, very deeply is the fact that the effects of the pandemic on human capital were regardless of the age group, regardless of the outcome, regardless of the country were invariably worse for households with fewer resources. And I want to share just one anecdote. A couple of years ago I was traveling in, again in Peru in northern Peru with my family. And I remember seeing waves of Venezuelan refugees that were streaming across the border into Peru. And these were people who left everything behind who just were literally were walking northern Peru. This is through a desert. They were walking on the Pan American highway the main highway with nothing, with young children, whatever, just and you sort of sit there and think to see that people like these or other people like these poor people who really had so little to begin with, that they've been deprived of sort of these critical investments that would've allowed them to aspire to a better life. We do have interventions that we know actually can make a difference at this juncture. We have interventions in education, we have interventions in health, we have interventions in nutrition, in social protection that have been tried in many countries.
WB Expert: It's a situation where this was terrible. It continues to be terrible and it's important to remind decision makers of that. But there are things we can do to at least partly, hopefully fully redress some of these costs to those who are most vulnerable in the developing world.
[19:30] Host: Well, on that note, Norbert, I want to thank you again so much for joining me here on Expert Answers to talk more about the report Collapse and Recovery. I really appreciate your time.
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