- What is human capital and why does it matter?
- What is the state of human capital in the world today?
- How is the World Bank Group prioritizing human capital development?
- What is the Human Capital Project expected to achieve?
- What does the Human Capital Index cover and why? How is it calculated?
- Why doesn’t the Human Capital Index cover all countries?
- What does the Human Capital Index show for girls and boys?
- How has the methodology for the Human Capital Index been reviewed?
- How does the Human Capital Index differ from UNDP’s Human Development Index?
- How does the Human Capital Index relate to the Sustainable Development Goals (SDGs)?
- Does the Human Capital Index capture all aspects of human capital?
- How can a country participate in the Human Capital Project?
Human capital consists of the knowledge, skills, and health that people 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.
Economic growth and development depend on both human capital and physical capital, and on the factors affecting productivity. Investments in these areas complement and reinforce each other. To be productive, a workforce needs physical capital, such as infrastructure, equipment, and a stable well-governed economy. In turn, a healthy, educated workforce can earn more and invest more in an economy’s physical capital.
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 sustain 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.
Despite unprecedented human development gains over the past 25 years, serious challenges remain, especially for developing countries.
- Nearly a quarter of young children are stunted (with low height for their age—a red flag indicator for the risk of physical and cognitive deficits).
- A learning crisis is holding many countries back. Data show that children acquire five fewer years of learning in some countries than in others, despite being in school the same length of time.
- Globally, half the world’s people cannot access essential health services, with many pushed into poverty each year by out-of-pocket health expenses.
- In the world’s poorest countries, four out of five poor people are not covered by a social safety net, leaving them extremely vulnerable.
- Over 300,000 children die every year from diarrhea linked to a lack of access to safe water and sanitation.
The first Human Capital Index (HCI), published by the World Bank Group in October 2018, 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. 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.
Human capital development is critical for countries at all income levels. While the poorest or most fragile countries face big hurdles to improving their health and education outcomes, even those with the world’s strongest human capital must stay focused on investing in their people if they want to remain successful and competitive in the global economy.
Human capital is at the center of our global strategy for development. 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.
The Human Capital Project is a global effort to accelerate more and better investments in people for greater equity and economic growth. The project is underway, with 63 countries (as of July 2019) at all income levels working with the World Bank Group on strategic approaches to transform their human capital outcomes. We are also scaling up human capital investments in Sub-Saharan Africa, where the needs are highest, and we have launched a country network to connect governments that are prioritizing human capital and to channel expertise where it is most needed.
We have been proud to support a wide range of human capital successes and foundational investments. Examples include big reductions of stunting in Peru, Malawi, and other countries; a well-functioning social safety net system in Ethiopia; education reforms that are improving students’ learning in Vietnam; and incentives that are bringing girls into secondary school in Bangladesh.
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 will be updated in updated within the next year to leverage new PISA results, include more countries, and upgrade some key components. Future versions of the index will assess distributional and subnational implications of the data and explore additional metrics. The World Bank Group will support countries’ efforts in joining international assessments (e.g. PISA) or bridging from national to international assessments.
- To complement the index and help countries take effective action, a robust measurement and research effort is underway. 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 reveals gaps between countries and spurs demand for investments in people. The Human Capital Project will help strengthen analytics and research on what promotes human capital development, for example, by scaling up Measuring Early Learning Quality and Outcomes surveys and the Service Delivery Indicators program.
- 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. As of July 2019, work is underway to help over 60 countries develop strategic approaches for better human capital outcomes. This effort will extend to more countries over time.
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.
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 complete her 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 30 percent below what they could have achieved 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 2018 Human Capital Index covers 157 World Bank Group member countries and their territories, as well as the West Bank and Gaza. Data are not reported for some member countries where we do not have active operational engagement. HCI scores cannot be calculated for 33 member countries that, as of August 2018, did not participate in any of the international testing programs on which harmonized learning outcomes are based.
Work is underway to expand country coverage in the next HCI update.
The HCI can be calculated separately for boys and girls for 126 of the 157 countries included in the index. Lack of sex-disaggregated school enrollment 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.
This first 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. 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 child care 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 must be addressed for all people to be able to reap the returns to human capital investment.
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.
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.
In its first iteration, the index focuses on the productivity of the next generation. There is scope for improvement and expansion over time. Going forward, the team will explore how other dimensions of human capital could be reflected in future iterations.
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.
All World Bank Group client countries can participate in the Human Capital Project as part of an accelerated, global effort to transform human capital outcomes. This complements our long-standing engagement with countries in the sectors that contribute to human development.
As of July 2019, 63 countries are participating in the Human Capital Project. Each of them has expressed a commitment to improve human capital outcomes and is expected to develop an integrated action plan.
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