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Roberta Gatti Chief Economist Human Development Practice Group World Bank 1. : PREVIEW i. What is the Human Capital Index ii. How is it built? iii. What is the data validation process?

2. THE HUMAN CAPITAL PROJECT THE HUMAN CAPITAL INDEX:

WHAT IS IT? ANNA’S STORY

If video doesn’t work, click on PLAY HUMAN CAPITAL INDEX:

THE C O N S T R U C T I O N THE CONSTRUCTION OF THE INDEX

1. Outcome-based → It does not “precook” any policy advice, it allows for country-specific solutions 2. Coverage → Trade-off between broad coverage (more than 150 countries included) and real data 3. Salience → Index is about future generations (nothing about “you and me”) but constituency of today are the world’s adults. 4. Coherence → Aggregation that would be seen as rigorous by the technical audience. 5. Ownership → Strong World Bank engagement with countries on Index. THE ENGINEERING BEHIND THE HUMAN CAPITAL INDEX

SURVIVAL SCHOOL HCI

Children who Contribution Contribution Productivity don’t survive of quality- of health (adult of a future don’t grow up to adjusted years of survival rate and worker become future school to stunting) to (relative to workers x productivity of x productivity of = benchmark of future workers future workers complete and full health) HUMAN CAPITAL OF AN INDIVIDUAL

• Based on standard measure of human capital per worker from development accounting literature:

흓풔풊+휸풛풊 풉풊 = 풆

where: – ℎ푖 is human capital of individual 𝑖 – 푠푖 is learning-adjusted years of school of individual 𝑖 – 푧푖 is latent health of individual 𝑖 (mapping to stunting, ASR, to come) – 휙, 훾 are “returns” to education and health HUMAN CAPITAL INDEX: DISTANCE TO THE FRONTIER

• For ease of interpretation express HCI relative to benchmark of complete education (푠∗) and full health (푝∗, 푧∗)

풑 ∗ 휸(풛 −풛∗) 푯푪푰 = × 풆흓(풔푵푮−풔 ) × 풆 푵푮 풑∗ • HCI measures expected productivity as a future worker of a kid born today relative to this benchmark, i.e. 0 < 퐻퐶퐼 ≤ 1 • As an example, for Kenya, an HCI of 0.52 means that a child born today is only going to be 50% as productive as a future worker as she could be with full health and complete education HUMAN CAPITAL INDEX: THE LAUNCH

The Index launched at the World Bank’s Annual Meetings in in October 2018 HUMAN CAPITAL INDEX: COVERAGE OF

157 COUNTRIESHuman Capital Index 1

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a Korea, Rep. m

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e Russian Federation B o t

Ukraine e

v i

6 t . , Islamic Rep.

a Kyrgyz Republic l

e IndonesiaLebanon

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v i

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4 SouthIraq . u SudanPakistan d Côte d'Ivoire

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2 . 6 8 10 12 Log Real GDP Per Capita at PPP LOOKING FORWARD: ANALYTICAL PERSPECTIVES THE SES-HCI Nearly one-third of the total variation in human capital consists of within-country differences across socioeconomic quintiles

Source: D’Souza, Gatti and Kraay (2019). SOCIO-ECONOMIC DISAGGREGATION: EXPECTED YEARS OF SCHOOL

Source: D’Souza, Gatti and Kraay (2019). ACCESS TO SCHOOL: AN UNFINISHED AGENDA

Source: Filmer (2019). INSIGHTS FROM THE SUBNATIONAL DISAGGREGATION OF THE HCI

Targeting using multiple methodologies most effective in reaching the vulnerable and typically marginalized.

Even in middle- income countries like , a disaggregation of the HCI along dimensions like rural/urban status can guide policy action INSIGHTS FROM THE SUBNATIONAL DISAGGREGATION OF THE HCI Combining measures of and a subnational HCI can improve targeting in Romania

Poverty Map Human Capital Index MEASURING THE UTILIZATION OF HUMAN CAPITAL The utilization of human capital differs widely across countries

Utilization (Employment Rates) and HCI 1

QAT RWAMDG LAO ISL YEM NPL .8 TGOZWE THA AREVNM CHE MOZUGA GHA MDA MACNZLSWENLD JPN NERMLI AGOBDIETHTZA PER SYC ESTNORDNKGBRCZEDEU KWT AUTCANAUS LBR BHRMLTLTULVARUS SVNFIN SGP CMRBEN MMRKHMPRY URYOMN HUN USAPRT HKG BFAMWISLB CHNBGRSVK KAZPOLCYPISR IRL PANIDN COLTTOMYS LUX FRA KOR TLS NIC ROUECU BEL CODGMB GTMVUT AZEARGMUS CHL ESP CIVGIN COG HNDDOMSLVKENJAMBRA MEXCRI HRV .6 MNG PHLKGZ ITA PNG BGDEGY GEOUKR BWA ARMLKASAU GRC SLE GABGUY TUV TUR PAK TCD LSOZMBSENNAM MKD SRB NGA AFG IND MARTJK ZAF HTI LBN MNE SDNCOMSWZ IRNBIH .4 KIRTUNDZA ALB MRT PSE SSD XKXJOR

IRQ

.2 Employment-to-Working Age RatioPopulation Age Employment-to-Working .2 .4 .6 .8 1 HCI Sources: HCI; WDI. Employment rate: JOIN/OECD/ILO Notes: Data for 156 Countries. Working age population is 15-64

Source: Pennings (forthcoming). HCI, HDI AND LEARNING POVERTY THE HCI AND THE THE HCI AND THE HUMAN DEVELOPMENT INDEX

Step Change Contribution to variance Correlation with the of difference in 퐻퐶퐼 and HDI after the step and 퐻퐷퐼 the HCI 1 Removing GNI per capita 0.163 0.925

2 Removing the education attainment of the working population 0.106 0.912 (EA) 3 Replacing with average of the three health 0.081 0.908 measures in HCI 4 Replace the measure of expected years of schooling (EYS) 0.261 0.927 used in the HDI with that used in the HCI 5 Replace the HCI (EYS) with the learning adjusted years of 0.252 0.987 schooling (LAYS) 6 Re-weighting 0.137 1 THE HCI AND LEARNING POVERTY

Why focus on reading at age 10? • Reading is a right and a crucial gateway to further schooling & learning

• Reading is the foundation upon which other skills (numeracy, science) are built

• Children who don’t read by late primary find it hard to catch-up & risk lagging behind

• Reading is highly correlated with other skills (e.g. math and science) & some key socio- emotional skills (e.g. self-regulation) GDP AND LEARNING POVERTY DATA • We pull the data directly from the sources: VALIDATION IGME, UIS, PISA, TIMSS, UN-Population PROCESS Division, WHO, JME etc…

• We distribute the data to country Task Team Leaders (TTLs), which are responsible for:

1. Filling the gaps in the data

2. Verifying that the numbers are accurate

3. Running internal consistency checks THE HUMAN CAPITAL PROJECT – NEW FRONTIERS HUMAN CAPITAL PROJECT NETWORK: 75 COUNTRIES CONFIRMED AS OF FEBRUARY 2020

Ireland

Hungary Kyrgyz Republic Tajikistan Morocco Iran Nepal Algeria Bahrain Arab Rep. of Saudi U.A.E. Bangladesh Dominican Rep. Arabia Cabo Verde Mali Lao PDR Niger Senegal Gambia Burkina Chad Faso Vietnam Nigeria Philippines Central Sierra Côte African Leone d'Ivoire Ghana Republic Sao Tome New Dem. Rep. Kenya & Principe Guinea Rep. of Congo Burundi HCI QUARTILES of Congo Peru Angola Malawi TOP

Paraguay SECOND THIRD

BOTTOM

NO DATA

YEAR 2: SHIFT TO ACCELERATION

Outcome Strengthening Systems and HC Regional Plan HCP Country Action Plan, Acceleration Operationalizing Tailored, Development and Diagnostic, Prioritization Evidence-Based Approaches Implementation Support and Implementation Support

Capacity Development & Momentum High-Level HC Global Focal HC Global WBG HCP HC Events Point Forum Network Knowledge Platform

Knowledge, Research, HCI HC Knowledge Country HC Policy and & Data Products Case Studies Operations Tracker

28 OUTCOME ACCELERATION: OPERATIONALIZATION

Outcome Acceleration Strengthening Systems and HC Regional Plan HCP Country Action Plan, Operationalizing Tailored, IllustrativeDevelopment Examples and Diagnostic, Prioritization Evidence-Based Approaches Implementation Support and Implementation Support • HC-centric DPOs/P4Rs – Rwanda, , Peru, Capacity Pakistan, Panama Development • High-impact operations across & Momentum High-Level PGsHC – GlobalEthiopia’s Focal WASH HC Global WBG HCP HC Events Point Forum Network Knowledge Platform • Flagship Initiatives – Gates Proposal (4 SSA and 2 SAR Knowledge, countries) Research, & HCI • PrivateHC Knowledge sector solutions withCountry IFC HC Policy and Data – Kenya,Products Nigeria Case Studies Operations Tracker

29 OUTCOME ACCELERATION: DIAGNOSTIC ACTIVITIES

Outcome Acceleration Strengthening Systems and HC Regional Plan HCP Country Action Plan, Operationalizing Tailored, IllustrativeDevelopment Examples and Diagnostic, Prioritization Evidence-Based Approaches Implementation Support and Implementation Support • HC-themed PEIRs – , Bangladesh, Nepal, Capacity Kenya, Nigeria, , Development Ethiopia & Momentum High-Level • HC Global Focal Tracker – El HC Global WBG HCP HC Events Salvador,Point Forum , PanamáNetwork Knowledge Platform • Service Delivery Indicators – Knowledge, , , Iraq, Chad Research, HCI •HCIntegrated Knowledge Service DeliveryCountry in HC Policy and & Data FCVProducts – Yemen Case Studies Operations Tracker

30 CAPACITY DEVELOPMENT & MOMENTUM PILLAR

Outcome Strengthening Systems and HC Regional Plan HCP Country Action Plan, Acceleration Operationalizing Tailored, Development and Diagnostic, Prioritization Evidence-Based Approaches Implementation Support and Implementation Support

Capacity Development & Momentum High-Level HC Global Focal HC Global WBG HCP HC Events Point Forum Network Knowledge Platform

Knowledge, Research, HCI HC Knowledge Country HC Policy and & Data Products Case Studies Operations Tracker

31 KNOWLEDGE, RESEARCH & DATA: KNOWLEDGE PRODUCTS Illustrative Examples Outcome • Service Delivery Indicators methodology Strengthening Systems and HC Regionalenhancements Plan HCP Country Action Plan, Acceleration Operationalizing Tailored, Development and Diagnostic, Prioritization Evidence-Based Approaches Implementation• Guiding Support questions forand HC Implementation-informed Support approaches across WBG engagements • Human Capital Roadmaps (theory of Capacity change) Development & Momentum High-Level HC Global Focal • ThematicHC research Global (e.g., jobs, fertility,WBG HCP HC Events Point Forum aging, NCDs)Network Knowledge Platform

Knowledge, Research, HCI HC Knowledge Country HC Policy and & Data Products Case Studies Operations Tracker

32 UPCOMING LEARNING OPPORTUNITIES

March 18th Knowledge Exchange webinar • Discuss the “Compass” guidance note for policy makers. The Compass helps to assess whether key policies and legal frameworks for human capital outcomes are in place; how mature they are; and whether they are being implemented well and yielding the expected intermediate results

April 16th Human Capital Ministerial Conclave • Convene Ministers of Finance & high-level officials from HCP countries to discuss evidence-based policy, including keynote speech by Nobel Laureate Abhijit Banerjee. In 2019 this event saw 40 Ministers and 250+ high-level participants.

September (tbc) Focal Point Conclave • Convene Human Capital Project Focal Points from Government for 2-3 days of learning, experience-sharing, and dialogue to support policy action. Includes study-tour in Indonesia.

33 PAST EVENTS

Government Cabinet Meetings Algeria, Armenia, Botswana, Ethiopia, Lesotho, Morocco, Tajikistan, Tanzania, Tunisia, Turkey, Ukraine (…)

Major Country-led Conferences , Bhutan, , Indonesia, Nepal, Pakistan (…)

Client Learning Global: The economic and social case for human capital investments [link] Nigeria: Sharing a whole-of-government vision for human capital [link] Peru: A new approach for an integrated delivery of early childhood development services [link] Morocco: Transforming a human capital initiative [link]

34 MAIN RESOURCES

Data https://www.worldbank.org/en/publication/human-capital#Viz

Key Reports https://www.worldbank.org/en/publication/human-capital#Reports

Accomplishments https://blogs.worldbank.org/voices/happy-birthday-human-capital-index-looking-back-and-moving- forward

35 THANK YOU!

www.worldbank.org/humancapital Appendix HUMAN CAPITAL INDEX: DISTANCE TO THE FRONTIER

• For ease of interpretation express HCI relative to benchmark of complete education (푠∗) and full health (푝∗, 푧∗)

풑 ퟒퟓퟓ ퟎ.ퟎퟑퟒ×ퟏퟗ.ퟐ× ퟎ∗.ퟕퟗ−ퟏ +ퟎ.ퟎퟑퟒ×ퟏퟎ.ퟐ× ퟎ.ퟕퟒ−ퟏ ퟎ. ퟗퟓ ퟎ.ퟎퟖ(ퟏퟎ.ퟕ× ∗−ퟏퟒ) ( 휸(풛푵푮−풛 ) ) 푯푪푰0.52 = × 풆 풆흓(풔푵푮−ퟔퟐퟓ풔 ) × 풆 풆 ퟐ 풑ퟏ∗ • HCI measures expected productivity as a future worker of a kid born today relative to this benchmark, i.e. 0 < 퐻퐶퐼 ≤ 1 • For Kenya, an HCI of 0.52 means that a child born today is only going to be 50% as productive as a future worker as she could be with full health and complete education CALIBRATING HEALTH → Higher Earnings PRODUCTIVITY Evidence on “return” to height Increased Adult 1cm↑ → 훾퐻 ~3.4% Height earnings ↑ Improvements in latent Better health lead to less stunting Health and higher adult survival – Less Stunting Estimate reduced- convert into effects on worker form relationship between ASR and productivity using micro- adult height in smaller econometric evidence Improved Adult set of countries Survival (ASR) where both are on the returns to height available, 훽퐻,퐴푆푅

39 CALIBRATING EDUCATION → PRODUCTIVITY

• Based on large micro-econometric literature estimating Mincerian regressions of on education that deliver return to education parameter 휙 • Additional year of (learning-adjusted) school raises worker productivity by ~8%

16 1 14 Gap of 5 Years 12 implies 40% 0.75 10 Education loss in 8 Component of HCI:

6 productivity Relative Productivity

0.5 YearsSchoolof 4 (0-1) 2

0 0.25 Productivity Relative to BenchmarktoProductivityRelative

0