The Human Capital Project is a global eﬀort to accelerate more and better investments in people for greater equity and economic growth. As of July 2021, 82 countries at all income levels are working with the World Bank Group on strategic approaches to transform their human capital outcomes. We are scaling up human capital investments in Sub-Saharan Africa with a strong focus on women’s empowerment, leveraging technology, and accelerating innovation, among other priorities. In the Middle East and North Africa, we are focusing on areas such as early childhood and building the resilience of vulnerable people.
We have launched a Human Capital Project country network to connect governments that are prioritizing human capital and to channel expertise where it is most needed. Focal points, usually based in the Ministries of Finance, Economy, or Planning (and sometimes in sectoral ministries) connect regularly to exchange knowledge and feedback.
Human capital is at the center of our global strategy for development. Protecting and investing in people is one of three main ways we are working to reach our goals of ending extreme poverty by 2030 and boosting shared prosperity in all countries. It is closely integrated with our eﬀorts to promote sustainable, inclusive growth and build resilience across developing countries. It is also a cross-cutting priority for IDA-19, the current cycle of IDA ﬁnancing covering July 2020 - June 2023, the World Bank Group’s fund for the world’s poorest countries.
Human capital consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society. Investing in people through nutrition, health care, quality education, jobs and skills helps develop human capital, and this is key to ending extreme poverty and creating more inclusive societies.
As noted in the World Development Report (WDR) 2019: The Changing Nature of Work, the frontier for skills is moving rapidly, bringing both opportunities and risks. There is mounting evidence that unless they strengthen their human capital, countries cannot achieve sustained, inclusive economic growth, will not have a workforce prepared for the more highly skilled jobs of the future, and will not compete eﬀectively in the global economy. The cost of inaction on human capital development is going up.
Finance Ministers who have been meeting to discuss human capital at recent Spring and Annual Meetings of the World Bank Group have emphasized the importance of human capital to the jobs and economic transformation agenda in countries at all stages of development.
Despite unprecedented human development gains over the past 25 years, serious challenges remain, especially for developing countries.
In 2019, more than 1 in 5 young children were stunted due to under-nutrition (with low height for their age—a red ﬂag indicator for the risk of physical and cognitive deﬁcits) (JME 2020). The current global pandemic may lead to even higher numbers of children stunted.
A learning crisis is holding many countries back. Data show that in some countries, children acquire signiﬁcantly fewer years of learning than in other countries, despite being in school the same length of time. This is exacerbated by the pandemic – with many children out of school and losing out on learning.
People in developing countries spend half a trillion dollars annually — over $80 per person -- out of their own pockets to access health services, and such expenses hit the poor the hardest. COVID-19 is also causing significant disruptions in essential health services including routine vaccinations and child healthcare.
In the world’s poorest countries, four out of ﬁve poor people are not covered by a social safety net, leaving them extremely vulnerable to shocks.
Nearly 300,000 children die every year from diarrhea linked to a lack of access to safe water and sanitation.
The ﬁrst edition of the Human Capital Index (HCI), published by the World Bank Group in October 2018 and updated in 2020, shows that nearly 60% of children born today will be, at best, only half as productive as they could be with complete education and full health (as deﬁned by the index, see question 5). This reﬂects a serious human capital crisis, with strong implications for economic growth and the world’s collective ability to end extreme poverty by 2030.
Gaps in human capital are at risk of widening amid rapid global changes in technology, demography, fragility, and climate. Conﬂict events and pandemics can have a devastating eﬀect on human capital through loss of life, livelihood, nutrition, and the interruption of essential health and education services. Such impacts will likely reverberate throughout many individuals’ lifespan limiting their productivity. Yet investment in people is often neglected. This is despite many examples of rapid national transformation of human capital—including Singapore, the Republic of Korea, and Ireland—and speciﬁc successes in some of the world’s poorest countries.
COVID-19 threatens to wipe out a decade of human capital gains – leaving a generation behind – as countries struggle to contain the virus, save lives, and rebuild their economies.
- Most children – more than 1 billion – have been out of school due to COVID-19.
- Globally $10 trillion of lifetime earnings could be lost for this cohort of students, due to lower levels of learning, school closings, or the risk of dropping out of school.
- Lower- and middle-income countries are reporting significant disruptions in essential health services, like routine vaccinations and child health care.
- The pandemic is exacerbating risks of gender-based violence, child marriage and adolescent pregnancy, all of which further reduce opportunities for learning and empowerment for women and girls.
Without immediate and massive action, such as the those outlined in the analysis Protecting People and Economies, the erosion of health, knowledge, skills and opportunities due to the pandemic today could undermine economic recovery and prosperity for entire nations in the future.
As countries around the world work to contain the spread and impact of COVID-19, the World Bank Group has mounted the fastest and largest crisis response in its history to help developing countries strengthen their pandemic response and health care systems.
With the pandemic’s rapid spread into developing countries, the World Bank Group is delivering record levels of support to clients. It is making available up to $160 billion in financing capacity through June 2021. Our support is tailored to the health, economic, and social shocks that countries are facing, and includes over $50 billion of IDA resources on grant and highly concessional terms.
The Bank Group’s emergency support operations are helping over 100 developing countries save lives and detect, prevent, and respond to the pandemic. We are also helping countries access critically needed medical supplies by reaching out to suppliers on behalf of governments.
In addition to ongoing health support, operations emphasize social protection, especially through cash transfers, as well as poverty alleviation and policy-based financing. The World Bank is also working to restructure, redeploy, and reallocate existing resources in projects it finances.
The World Bank Group’s crisis response comprises three stages – relief, restructuring, and resilient recovery. It focuses on the following main areas:
Saving lives – We are helping countries stop transmission, deliver health services, ensure vulnerable households’ access to medical care, and build readiness for future pandemics. We are committed to making sure that poorer countries have fair and equitable access to vaccines as these become available.
Protecting poor and vulnerable people – We are supporting income and food supplies for the most vulnerable as well as employment for poorer households, informal businesses, and microenterprises. We are helping communities and local governments cope with crisis impacts, improve and expand services, and build resilience for future shocks.
For example, the Bank is helping India scale-up cash transfers and food benefits, using a set of existing national platforms and programs, to provide social protection for essential workers involved in COVID-19 relief efforts. This is benefiting vulnerable groups, particularly migrants and informal workers, who face high risks of exclusion.
Ensuring sustainable business growth and job creation – We are providing policy advice and financial assistance to businesses and financial institutions, to help preserve jobs and ensure that companies, especially small and medium enterprises, can weather the crisis and return to growth.
Strengthening policies, institutions, and investments – With an emphasis on governance and institutions, we are helping countries prepare for a resilient recovery. Working closely with the IMF, we are helping countries manage public debt better, make key reforms in financial management, and identify opportunities for green growth and low-carbon development as they rebuild.
Going forward, countries should strive to align their COVID-19 responses to longer term Human Capital objectives. Governments, civil society, international financial institutions and the private sector must join forces to deploy ambitious, evidence-driven investments to help equip every person to achieve their potential.
- Boost social expenditures, protecting fiscal space after the debt moratorium, to ensure that essential services and financial support reach the poor & vulnerable.
- Invest in essential service delivery.
- Strengthen social safety nets to protect against shocks and to facilitate reforms
- Sharpen focus on primary health care and pandemic preparedness, nutrition, early child development, learning and essential services across sectors – with the use of technology and improved governance.
Ambitious, evidence-driven policy measures in health, education, and social protection can recover lost ground and pave the way for today’s children to surpass the human capital achievements and quality of life of the generations that preceded them. Fully realizing the creative promise embodied in each child has never been more important.
The Human Capital Project is helping create the political space for national leaders to prioritize transformational investments in health, education, and social protection. The objective is rapid progress toward a world in which all children are well-nourished and ready to learn, can attain real learning in the classroom, and can enter the job market as healthy, skilled, and productive adults.
The project has three pillars:
The Human Capital Index (HCI) quantiﬁes the contribution of health and education to the productivity of the next generation of workers. Countries are using it to assess how much income they forego because of human capital gaps, and how much faster they can turn these losses into gains if they act now. Learn more from this video.
The index was launched in October 2018 and updated in mid-September of 2020. The update leverages new PISA results and includes 17 additional countries to cover 98% of the world’s population. The 2020 HCI also has more complete gender disaggregation.
A robust measurement and research eﬀort is underway to complement the index and help countries take eﬀective action. Within countries, credible measurement of education and health outcomes sheds light on what works and where to target resources. It also increases policy makers’ awareness of the importance of investing in human capital, creating momentum for government action. Globally, comprehensive measurement and novel primary data collection eﬀorts are essential to identify areas of strength and opportunity to improve human capital outcomes. The Human Capital Project will help nourish the research and analytics on what promotes human capital development, for example, by scaling up the Service Delivery Indicators program and the Measuring Early Learning Quality and Outcomes survey.
Country engagement, based on a “whole of government” approach, is helping countries tackle the worst barriers to developing their human capital. This approach encourages high-level leadership across time, connecting the dots between sectoral programs and strengthening the evidence base. Our work with countries emphasizes eﬃciency and quality, policy reforms, and domestic resource mobilization, so that they aren’t just spending more—but spending better.
One example of this approach as seen in World Bank country engagement is Madagascar’s Investing in Human Capital Development Policy Operation series. The first operation aims to support the Government of Madagascar's investment in human capital by improving human resources in health and education, availability and predictability of ﬁnancial resources in the social sectors, and legal protections for women and children. The second is being prepared.
The Human Capital Project is supporting the scale-up of this type of support for policy and institutional reform, and also working on a range of tools and products to help countries achieve their goals, for example, on human capital public expenditure and institutional reviews, and case studies capturing country-level successes and innovations.
Human Capital Index FAQs
I. Definition, Data and Methodology
The index is a summary measure of the amount of human capital that a child born today can expect to acquire by age 18, given the risks of poor health and poor education that prevail in the country where she lives. A full accounting of the HCI methodology is available on the World Bank’s Open Knowledge Repository, and a helpful video is available here.
A signiﬁcant innovation is that the index measures the contribution of health and education to the productivity of individuals and countries, anchored in rigorous micro-econometric studies.
Ranging between 0 and 1, the index takes the value 1 only if a child born today can expect to achieve full health (deﬁned as no stunting and survival up to at least age 60) and achieve her formal education potential (deﬁned as 14 years of high-quality school by age 18).
A country’s score is its distance to the “frontier” of complete education and full health. If it scores 0.70 in the Human Capital Index, this indicates that the future earnings potential of children born today will be 70% of what they could have been with complete education and full health.
The index can directly be linked to scenarios for the future income of countries as well as individuals. If a country has a score of 0.50, then future GDP per worker could be twice as high if the country reached the benchmark of complete education and full health.
The index is presented as a country average and includes a breakdown by gender for countries where data is available.
The HCI quantitatively illustrates the key stages in the trajectory from birth to adulthood of a child born in a given year and their consequences for the productivity of the next generation of workers, with three components:
Component 1: Survival. This component of the index reflects the unfortunate reality that not all children born today will survive until the age when the process of human capital accumulation through formal education begins. It is measured using the under-5 mortality rate, with survival to age 5 as the complement of the under-5 mortality rate.
Component 2: School. This component of the index combines information on the quantity and quality of education.
The quantity of education is measured as the number of expected years of school a child would complete by age 18 given the prevailing pattern of enrollment rates. The maximum possible value is 14 years, corresponding to the maximum number of years of school obtained as of her 18th birthday by a child who starts preschool at age 4.
The quality of education reflects work at the World Bank to harmonize test scores from major international student achievement testing programs into a measure of harmonized test scores. These are measured in the units of a global scale of harmonized learning outcomes similar to the scale used in the Trends in International Mathematics and Science Study (TIMSS). A score of 625 corresponds to the TIMSS high-performance benchmark, while a score of 300 corresponds to the low-performance benchmark equivalent to the minimum benchmarks used in several regional assessments.
Component 3: Health. There is no single broadly accepted, directly measured, and widely available summary measure of health that can be used in the same way as years of school as a standard measure of educational attainment. Instead, two proxies for the overall health environment are used:
Adult survival rates. This is measured as the share of 15-year-olds who survive until age 60. This measure of mortality serves as a proxy for the range of nonfatal health outcomes that a child born today would experience as an adult if current conditions prevail into the future.
Healthy growth among children under age 5. This is measured using stunting rates, that is, as 1 minus the share of children under 5 who are below normal height for age. Stunting serves as an indicator for the prenatal, infant, and early childhood health environments, summarizing the risks to good health that children born today are likely to experience in their early years, with important consequences for health and well-being in adulthood.
HCI component data and final HCI scores for countries, along with detailed notes on sources, are reported in HCI Country Data files on the Human Capital Project website and are also available for download on the World Bank’s DataBank website. The global HCI dataset in Excel, also available for download on the Human Capital Project website, includes an HCI calculator with equations to compute the HCI, allowing users to enter component values and calculate the HCI score for any country covered by the index.
All the data used to measure the HCI are publicly available and directly and consistently measured across countries.
Component 1: Survival. Survival to age 5 is measured using under-5 mortality rates retrieved from the UN Interagency Group for Child Mortality Estimates.
Component 2: School. Expected years of school is measured using pre-primary, primary, lower-secondary and upper-secondary enrollment rates retrieved from the UNESCO Institute for Statistics (UIS). Data on harmonized test scores comes from the Global Database on Education Quality (Patrinos and Angrist, 2018), reflecting research at the World Bank to harmonize test scores from major international student achievement testing programs.
Component 3: Health. Adult survival is calculated using mortality rates for 15-60-year-olds are retrieved from the United Nations Population Division (UNPD) World Population Prospects. Since, the UNPD does not individually report adult mortality rates for countries with less than 90,000 inhabitants, these data are supplemented with adult mortality rates from the Global Burden of Disease (GBD) project, managed by the Institute of Health Metrics and Evaluation (IHME) and the World Health Organization (WHO) for smaller countries. Healthy growth in children under five is measured using stunting rates are retrieved from the UNICEF-WHO-World Bank Joint Malnutrition Estimates (JME).
The data used in HCI calculations undergo an extensive Bank-wide data review process. Data are shared with World Bank country teams who verify data with education and health experts within the World Bank as well as government counterparts from relevant line ministries. This process of data quality assurance is particularly important for enrollment rates, where data might be missing or outdated for certain countries in the UIS database. In this scenario, the HCI updates enrollment rates using more recent and/or consistent data from a country’s education information management system (EMIS), education census, or nationally representative survey data. The data review allows the HCI to incorporate stunting rates from nationally representative surveys that have recently become available but have not yet been incorporated in the JME database.
Detailed notes on data sources for all countries covered in the HCI are reported in HCI Country Data files on the Human Capital Project website and are also available for download as metadata on the World Bank’s DataBank website.
The harmonized test scores used to measure the quality of schooling across countries are based on a large-scale effort to harmonize international student achievement tests from several multicountry testing programs to produce the Global Dataset on Education Quality (Patrinos and Angrist, 2018). The dataset harmonizes scores from three major international testing programs—the Trends in International Mathematics and Science Study (TIMSS) program, the Progress in International Reading Literacy Study (PIRLS), and the Programme for International Student Assessment (PISA)—as well as three major regional testing programs—the Southern and Eastern Africa Consortium for Monitoring Educational Quality (SACMEQ), the Program for the Analysis of Education Systems (PASEC), the Latin American Laboratory for Assessment of the Quality of Education (LLECE), and the Pacific Island Learning and Numeracy Assessment (PILNA). It also incorporates Early Grade Reading Assessments (EGRAs) coordinated by the United States Agency for International Development.
The harmonization methodology relies on the production of an “exchange rate” between international student achievement tests and their regional counterparts, which can then be used to place tests on a common scale. Test scores are converted into TIMSS units as the numeraire, corresponding roughly to a mean of 500 and a standard deviation across students of 100 points. The exchange rate is based on the ratio of average country scores in each program to the corresponding country scores in the numeraire testing program for the set of countries participating in both the numeraire and the other testing program. For example, consider the set of countries that participate in both the PISA and the TIMSS assessments. The ratio of average PISA scores to average TIMSS scores for this set of countries provides a conversion factor for PISA into TIMSS scores that can then be used to convert the PISA scores of all countries into TIMSS scores. The exchange rate is calculated pooling all overlapping observations between 2000 and 2017 and is therefore constant over time. This ensures that within-country fluctuations in harmonized test scores over time for a given testing program reflect only changes in the test scores themselves and not changes in the conversion factor between tests.
The HCI methodology is discussed in a Human Capital Project booklet that can be downloaded here. The methodology was ﬁrst presented in the World Development Report 2019: The Changing Nature of Work, which also focuses on skills needed for those entering the labor market, a crucial aspect of human capital.
Some of the analytical underpinnings of the index are also presented in the World Development Report 2018: Learning to Realize Education’s Promise, which highlighted the learning crisis. Both reports involved extensive, global review from a wide range of stakeholders.
Research has also entailed close collaboration with David Weil, a professor and leading expert on development accounting with Brown University.
The HCI does not report rankings but rather focuses on its meaningful measurement of future worker productivity as a means to benchmark cross-country comparisons. Because the HCI is measured in terms of the productivity of the next generation of workers relative to the benchmark of complete education and full health, the units of the index have a natural interpretation: a value of 0.50 for a country means that the productivity as a future worker of a child born in a given year in that country is only half of what it could be under the benchmark. Rankings place an inordinately large focus on the fact that a country with an HCI of 0.51 (such as Fiji) is ahead of a country with an HCI of 0.50 (such as Morocco). But this interpretation misses the more critical issue, which is that in both Fiji and Morocco, children born today will grow up with half their human capital potential unfulfilled. This is vastly more important than whether one country is “ahead of” another.
Rankings also artificially inflate small differences in scores, while suppressing information on the absolute gains and losses countries have made on the HCI. For example, there are eight countries clustered between HCI scores of 0.60 and 0.61, so if one of those countries at 0.60 improves by just 0.01, it would move up eight places in the ranking. By contrast, there are just two countries between 0.70 and 0.71, and so if one of those two countries were to improve its score by 0.01, it would only move up one rank.
Changes in components of the HCI—measured at the level of outcomes—do not materialize quickly. Annual changes in these components tend to be quite small and/or reflect data availability and measurement issues rather than true changes in human capital outcomes.
Data on the components of the HCI are also updated at different frequencies. Administrative data on child survival to age 5 and the enrollment data that underlie the expected years of school measure are updated annually. Adult survival rates are updated every two years and stunting rates come from surveys that are available roughly every 3-5 years. Test score data are more infrequent and testing programs follow different schedules. There is limited arrival of new data in years where there is no update of a major testing program such as PISA, TIMSS, or PIRLS.
In order to capture meaningful changes in levels of human capital across countries, the HCI will be updated on a two-year cycle. The first iteration of the index was launched in 2018 for 154 countries. The next release in 2020 expanded HCI coverage to 174 countries and provided a snapshot of the state of human capital before COVID-19 and a baseline to track the pandemic’s impacts on human capital.
The 2018 Human Capital Index covered 156 World Bank Group member countries and their territories, as well as the West Bank and Gaza. The HCI 2020 covers 174 economies, representing over 98% of the world’s population.
The HCI brings together measures of different dimensions of human capital: health (child survival, stunting, and adult survival rates) as well as the quantity and quality of schooling (expected years of school and learning outcomes). Out of these five components, learning outcomes are the most challenging data to gather due to limited country participation in international or regional student achievement testing programs. Participation in one of the major international or regional learning assessments is a prerequisite and is the main bottleneck to calculating the Human Capital Index for some countries.
The 2020 update of the HCI incorporates the most recent available data to report HCI scores for 174 countries, adding 17 new countries to the index relative to the 2018 edition. The 2020 update uses new and expanded data for each of the HCI components, available as of March 2020. As in 2018, data were obtained from official sources and underwent a careful process of review and vetting. Given the timing of data collection, this update can serve as a benchmark of the levels of human capital accumulation that existed immediately prior to the onset of the COVID-19 pandemic.
Globally, the HCI 2020 shows that, before the pandemic struck, a child could expect to attain an average of 56 percent of her potential productivity as a future worker. This global average masks considerable variation across regions and economies. For instance, a child born in a low-income country could expect to be 37 percent as productive as if she had full education and full health. For a child born in a high-income country, this figure is 70 percent.
Like all cross-country benchmarking exercises the HCI has limitations.
Components of the HCI such as stunting and test scores are measured only infrequently in some countries, and not at all in others. Other components, like child and adult survival rates, are imprecisely estimated in countries where vital registries are incomplete or non-existent. Data on enrollment rates needed to estimate expected years of school often have many gaps and are reported with significant lags. As a result, the HCI for a country may rely on measures that are somewhat dated that do not reflect the most up-to-date state of human capital in a country.
The test score harmonization exercise draws on test scores that come from different international testing programs and converts these into common units. However, the age of test takers and the subjects covered vary across testing programs. As a result, harmonized scores may reflect differences in sampling and cohorts participating in tests (Liu and Steiner-Khamsi 2020). Moreover, test scores may not accurately reflect the quality of the whole education system in a country to the extent that tests-takers are not representative of the population of all students. Reliable measures of the quality of tertiary education do not yet exist, despite the importance of higher education for human capital in a rapidly changing world. The index also does not explicitly capture other important aspect of human capital, such as noncognitive skills, although they may contribute directly and indirectly to human capital formation (see, for example, Lundberg 2018).
One objective of the HCI is to call attention to these data shortcomings and to galvanize action to remedy them. Improving data will take time. In the interim, and recognizing these limitations, the HCI should be interpreted with caution. The HCI provides rough estimates of how current education and health will shape the productivity of future workers and not a finely graduated measure of small differences between countries.
II. HCI Analysis
The HCI was ﬁrst launched at Annual Meetings of the World Bank Group in October 2018, and the methodology used in 2018 remains the same used in the update released in September 2020.
The 2020 update provided more recent data for all the components of the index, expanded the coverage of the index to more countries, provided additional gender disaggregation, and allowed the measurement of progress in human capital over time by comparing 2020 HCI data against past HCI data.
Importantly, the 2020 update of the global HCI serves as a “snapshot” of human capital right up to the COVID-19 pandemic.
In addition to the global update that measures country-level data, HCI data have been further analyzed (disaggregated) i) sub-nationally as well as ii) by socioeconomic status. More information on these exercises can be found in: “Insights from Disaggregating the Human Capital Index”.
Subnational disaggregation of the HCI data has been done for over 20 countries and can be calculated at any subnational level with relevant representative data.
For the socioeconomically disaggregated HCI (SES-HCI), Policy Research Working Paper 9020 by D’Souza, Gatti, and Kraay is the original paper describing the full methodology. SES-HCI data is currently available for over 50 countries (mostly low-middle-income and upper-middle-income countries).
Sex disaggregation is strengthened in the 2020 HCI. In the 2020 version, the HCI can be calculated separately for boys and girls for 153 of the 174 countries included in the index, compared with 126 of 157 countries in the 2018 index. In addition, the 2020 HCI calculates HCI for the year 2010 and the HCI can be calculated separately for boys and girls for 90 of the 103 countries included in the 2010 index.
Lack of sex-disaggregated test score data prevents this in the remaining countries. A disproportionate share of these are low-income countries, emphasizing the need to continue to invest in better data systems.
Many countries have made progress in reducing diﬀerences between girls’ and boys’ human capital outcomes. In most countries, the distance to the human capital frontier for children overall is much larger than the remaining gaps between boys and girls. In education, girls in middle- and high-income countries have largely caught up with or even passed boys in enrollment and learning. And in some dimensions of the index related to health, most countries show a slight advantage for girls over boys.
The 2020 edition of the HCI is limited in scope and does not capture some important diﬀerences between girls’ and boys’ human capital outcomes. It does not, for example, measure the prevalence of sex-selective abortion and missing girls. It relies on broad proxies for the disease environment, which by themselves say little about how gender roles and relations between males and females shape that environment. Girls continue to face greater challenges in dimensions not captured by the HCI. Child marriage, household responsibilities, teenage pregnancies, and gender-based violence in schools pose challenges in keeping girls enrolled, especially in low-income settings.
While girls’ enrollment has increased, attendance and completion remain a challenge—especially at the secondary level—for both girls and boys. When girls grow up and enter the labor market, they face additional challenges in realizing the returns to their human capital. These include occupational sex segregation, lack of childcare and adequate leave policies, sexual harassment and unsafe transportation, diﬀerential constraints in access to ﬁnance and markets, and legal/regulatory barriers that hinder women’s ability to start and grow ﬁrms.
These constraints need to be addressed for all people to be able to reap the returns to human capital investment. The newly developed utilization-adjusted HCI (UHCI) proposes an adjustment to the HCI that captures the differential labor market participation rates of men and women, which show that a larger proportion of female human capital is left unutilized due to lower employment and labor force participation rates in many countries.
COVID-19 is placing countries’ hard-won human capital gains at risk. A lesson from past pandemics and crises is that their effects are not only felt by those directly impacted, but often ripple across populations and, in many cases, across generations.
The HCI methodology can be used to quantify some of the potential impacts of COVID-19 on the future human capital of children and youth. For young children—those born during the pandemic or who are currently under the age of five—disruptions to health systems, reduced access to care, and family income losses will materialize as increased child mortality, malnutrition, and stunting. Because stunting and educational outcomes are closely intertwined, the pandemic risks durably setting back children’s learning outcomes later in life. According to early HCI-based simulations, in low-income countries, young children can expect their human capital to be about 1 percent lower than it would have been in the absence of COVID-19.
At the height of the pandemic, close to 1.6 billion children worldwide were out of school. For most children of school age, the pandemic meant that formal teaching and learning was no longer happening face to face. Since the ability to offer and access distance learning options differs across countries, and even within countries, considerable losses in schooling and learning can be anticipated. The income shocks associated with COVID-19 will also force many children to drop out of school. Putting these effects together suggests that the pandemic could reduce global average learning-adjusted years of school by half a year, from 7.8 to 7.3 years. Translated into the terms of the HCI itself, this loss means a drop of almost 4.5 percent in the HCI of the current cohort of children. For a country with an HCI of 0.50, this signifies a drop of 0.025 HCI points, a reduction of the same order of magnitude as the HCI increase that many countries have achieved over the past decade.
Without a strong policy response now, the pandemic’s negative human capital effects will likely continue to reduce countries’ productivity and growth prospects for decades. In 20 years, roughly 46 percent of the workforce in a typical country (people aged 20 to 65 years) will be composed of individuals who were either in school or under the age of five during the COVID-19 pandemic. A typical country at that time could still show a loss in its HCI of almost 1 full HCI point (0.01) due to COVID-19. That is, even as a temporary shock, the COVID-19 pandemic could still leave current cohorts of children behind for the rest of their lives.
In many countries, when today’s child becomes a future worker, she may not be able to find a job, and even if she can, it might not be a job where she can fully use her skills and cognitive abilities to increase her productivity. In these cases, her human capital can be considered underutilized. Recognizing the importance of this pattern both for individual people and for policy, the Utilization-Adjusted Human Capital Index (UHCI) adjusts the HCI for labor market underutilization of human capital. It can be calculated for more than 160 countries (Pennings 2020).
The UHCI can be measured in two ways. In the “basic UHCI”, utilization is measured as the fraction of the working-age population that is employed. While this measure is simple and intuitive, it is not able to capture the fact that a large share of employment in developing countries is in jobs where workers may not be able to fully use their human capital to increase their productivity. The “full UHCI” adjusts for this by introducing the concept of “better employment”—defined as non-agricultural employees, plus employers—which are the types of jobs that are common in high-productivity countries.
The full utilization rate depends on the fraction of a country’s working-age population in “better employment”. Countries with higher HCI scores also face larger utilization penalties if they show low rates of better employment, as they have more human capital to underutilize.
While the different methodologies produce different scores for some individual countries, the basic and full measures yield broadly similar utilization rates across country-income groups and regions, and in general. Utilization rates average around 0.6, but they follow U-shaped curves when plotted against per capita income across countries, being lowest over a wider range of lower-middle-income countries. The analysis of underutilization suggests that in a world with complete human capital and complete utilization of that human capital, long-run per capita incomes could almost triple.
Both UHCIs reveal starkly different gender gaps from those calculated using the HCI. While the HCI is roughly equal for boys and girls, with a slight advantage for girls on average, UHCIs are lower for females than males in nearly all countries, driven by lower utilization rates. Basic utilization (employment) rates are 20 percentage points lower for women than men in general, and with a gap of more than 40 percentage points in the Middle East and North Africa and South Asia regions. Female employment rates follow strongly U-shaped curves when plotted against countries’ levels of income, whereas male employment rates are much flatter, and with less dispersion across countries. The gender gap is also present in the full utilization rate, though it is smaller. These results suggest that, while gender gaps in human capital in childhood and adolescence have closed in the last two decades (especially for education), major challenges remain to translate these gains into opportunities for women.
UNDP’s pioneering Human Development Index is a summary measure of average achievement along key dimensions of human development—a long and healthy life, being knowledgeable, and having a decent standard of living.
While both indices spotlight human capabilities as central to national development, the Human Capital Index also strengthens the economic case for investing in people. The two are highly complementary but diﬀer in the way they are formulated.
The Human Capital Index links selected human capital outcomes with productivity and income levels. It is a forward-looking measure of how current health and education outcomes (including a new measure of learning-adjusted years of school) will shape productivity for the next generation of workers.
The components of the index (survival, schooling, and health) have direct links with at least three of the global goals that countries around the world have set to achieve by 2030.
Survival to Age 5: By including under-5 mortality, the index links to SDG target 3.2—to reduce neonatal mortality to 12 per 1,000 live births or lower and under-5 mortality to 25 per 1,000 live births or lower.
Learning-Adjusted Years of School: The index introduces this innovative measurement of learning, which supports SDG 4.1—to ensure, among other things, the completion of equitable and good-quality primary and secondary education. By tracking changes in the expected years of quality-adjusted education, countries will be able to monitor their achievement toward this education target.
Health: The index includes the adult survival rate and the prevalence of childhood stunting. The adult survival rate represents the probability that a 15-year-old will survive to age 60. To improve this indicator, countries will have to work on reducing causes of premature mortality, which will also help achieve SDG target 3.4. Prevalence of stunting among children under 5 is one of the key indicators for achievement of SDG target 2.2, which aims to end all forms of malnutrition by 2030.
The index aims to draw attention to a wide range of actions across multiple sectors that can build human capital and accelerate progress towards the SDGs.
Everything captured by the HCI is important, but not everything that is important for human capital development is captured by the HCI. There is scope for improvement and expansion over time.
Beginning in October 2020, the HCI country briefs include a range of carefully selected complementary indicators that present the HCI in a broader regional and country human capital perspective.
For human capital, as in all areas of development data, the World Bank Group is engaging closely with member countries to help build capacity and improve data quality.
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Last Updated: Oct 08, 2021