A newly born Human Capital Index: One more?

All - Oct 24 2018

The Human Capital Project (HCP) is a framework launched by the World Bank (WB) to mobilize efforts to address gaps in human capital investments. 

Indeed, the World Bank considers that human capital is a central driver of sustainable growth and poverty reduction and that investments in human capital have become more important as the nature of work has evolved. The project is intended to raise awareness about the costs of inaction and make the case for investing in people through country engagement and analytical work.

The HCP is split into three components:

  •  
  • A program of measurement and research to inform policy action
  • A program of support for country strategies to accelerate investments in human capital
  • And… surprise, a cross-country metric: The Human Capital Index (HCI)

WEF and WB HCI: Tweedledum and Tweedledee?

 

To calculate this indicator, the WB HCI mainly focuses on the education part (skills and competences) of Human Capital but does not consider the health aspect. It aggregates survival rates (to 5 and 60 years old), quality (harmonized learning outcomes) and quantity of education (expected years of school before 18), and stunting prevalence. 

In comparison with the other Human Capital Index produced by the World Economic Forum, the WB’s is more forward-looking (potential future Human Capital) whereas WEF’s considers the current labor force situation (unemployment, economic complexity, available of skilled employees) and presents a snapshot of current global Human Capital. Consequently, we could consider them as complementary. Considering the above chart, it shows that Portugal has a current Human Capital below Norwegian’s (gap between WEF HCIs) but their potentials are equivalent (WB HCI).

Unfortunately, the WB HCI is too recent to perform any back tests to confirm the relationship between potentiality and actual increase of Human Capital.

The last indicator we could compare to the WB HCI is the Human Development Indicator (DHI) proposed by the United Nations. A basic statistic summarizes this relation: “Correlation = 0.94”. We could then wonder if new indexes are always relevant and whether existing ones are sufficient to capture various aspects.

 

Emeric Nicolas, Head of Data Science Dpt. - Sources: Beyond Ratings, WB, WEF, UN 

 

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