Over the past decade, many countries have made important progress in improving human capital

THIS UPDATE AUGMENTS THE HCI TO REFLECT HOW WELL HUMAN CAPITAL IS USED
The HCI can be harnessed to track future human-capital losses and guide policies to limit them. The HCI
has this capability because it is a metric based on reasonably directly measured markers for key stages
of human capital in the growth trajectory of a child. However, the five components of the index do not
cover all the important aspects of the accumulation and productive use of human capital. When today’s
child becomes a future worker, in many countries 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, this report analyzes
two simple extensions of the HCI that adjust the HCI for labor market underutilization of human capital.
Both utilization-adjusted human capital indexes (UHCIs) can be calculated for more than 160 countries.
Both have the same simple form—the HCI multiplied by a utilization rate—and represent the long-run
income gains if a country moves to complete human capital and full utilization of that human capital.11
The UHCIs are meant to complement, not replace the HCI, given their different purposes.
The two UHCIs take different approaches to measuring utilization. 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 moving to 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, 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. 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.
11 Specifically, long run GDP per capita is 1/UHCI times higher in a world with complete human capital and complete utilization than
under the status quo. This is a generalization of the interpretation of the HCI. See Pennings (2020) for details.
THE HUMAN CAPITAL INDEX 2020 UPDATE: HUMAN CAPITAL IN THE TIME OF COVID-19 XIX