Human Capital Index – What is it, definition and concept | 2022

The Human Capital Index is an indicator that compares the most relevant elements of human capital between different countries.

It also allows a comparison to be made between the levels of human capital among the different countries that are included in the ranking. This, by applying the same methodology and adaptations for measurement.

The World Bank Human Capital Index

This index measures the level of human capital that a child at birth can reach after 18 years. Health and good education are the fundamental factors of the logic of this indicator. Therefore, it is made up of the following components:

  • Survival: It is measured through the mortality rate. It is part of the index because the effect of infant mortality must be collected before starting the process of accumulation of human capital.
  • School: It is evaluated with the years of schooling and international student achievement tests. Both indicators are intended to represent the quality and quantity of education that a young person receives up to the age of 18.
  • Health: It is calculated with the rate of survival of adults and healthy growth of children under 5 years of age. With these variables, we seek to capture the expected development of young people in the environment in which they operate. For example, no growth retardation and non-fatal outcomes.

This indicator ranges between 0 and 1. 0 being the total absence of human capital and 1 the maximum potential to be achieved. Thus, let us suppose that the indicator for Spain is 0.5. This means that a child born today will be only half as productive as if he had enjoyed education and full health. This, in case the conditions of the moment persist for the future.

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World Economic Forum Human Capital Index

Another institution that measures human capital is the World Economic Forum. In this case, it is measured by capturing the complexity of education and the dynamics of the workforce. Therefore, the fundamental pillars of the indicator are education and employment, separated into pillars of different age ranges.

  • Learning: It is calculated with school enrollment, literacy rate, Forum surveys and rate of young people who have completed their education. In this case, the aim is to collect both the number of people who attend school and the quality of education.
  • Employment: This is measured with variables such as labor force participation rate, employment rate, and underemployment. Forum survey results, gender gap, and occupancy in highly skilled positions are also used. In this case, they have another series of variables that try to capture the most relevant aspects of employment and its quality.

Importance of the index

The Human Capital Index allows evaluating the management of policy makers. These measurements allow us to observe a broad panorama of the challenges in indicators such as the quality of education, health and employment.

This has made it possible to reach conclusions such as that significant enrollment does not necessarily translate into quality of learning. The effect on the growth of educational and labor gender gaps. The relationship between learning and economic growth and the interconnection between countries thanks to globalization.

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