WHAT IS HUMAN CAPITAL INDEX

WHAT IS HUMAN CAPITAL INDEX

The Human Capital Index is a new measure for capturing and tracking the state of human capital development around the world. It has three key features. First, the Index measures a broader set of indicators than the traditional definitions of human capital. Human capital is not a one–dimensional concept, but means different things to different stakeholders. In the business world, human capital is the economic value of an employee’s set of skills. To the policy maker, human capital is the capacity of the population to drive economic growth. Traditionally, human capital has been viewed as a function of education and experience, the latter reflecting both training and learning by doing. But in recent years, health (including physical capacities, cognitive function and mental health) has come to be seen as a fundamental component of human capital. Additionally, the value of human capital is critically determined by the physical, social and economic context of a society, because that context determines how particular attributes a person possesses may be rewarded. The Index is thus based on four pillars: three core determinants of human capital (education, health and employment) plus those factors that allow these three core determinants to translate into greater returns. Second, the Index takes a long–term approach to human capital. In addition to providing a snapshot of the state of a country’s human capital today through measures that reflect the results of a country’s past practices, it includes indicators resulting from practices and policy decisions impacting the children of today and which will shape the future workforce. Long–term thinking around human capital often does not fit political cycles or business investment horizons; but lack of such long term planning can perpetuate continued wasted potential in a country’s population and losses for a nation’s growth and productivity. The Index seeks to develop a stronger consciousness around the need for such planning. Third, the Index aims to take into account the individual life course. For example, the WHO states that A nation’s human capital endowment—the skills and capacities that reside in people and that are put to productive use—can be a more important determinant of its long term economic success than virtually any other resource. This resource must be invested in and leveraged efficiently in order for it to generate returns, for the individuals involved as well as an economy as a whole. Additionally, despite high unemployment in many countries, the global economy is entering an era of talent scarcity that, if left unaddressed, will hinder economic growth worldwide. Understanding and addressing challenges related to human capital is thus fundamental to short term stability as well as the long term growth, prosperity and competitiveness of nations. The Human Capital Index explores the contributors and inhibitors to the development and deployment of a healthy, educated and productive labour force, and has generated the information contained in this Report. The Index provides country rankings that allow for effective comparisons across regions and income groups. The methodology and quantitative analysis behind the rankings are intended to serve as a basis for designing effective measures for workforce planning. While the rankings are designed to create greater awareness among a global audience, the Index also seeks to serve as a basis for dialogue and action by leaders at the World Economic Forum to increase public–private collaboration on developing human capital. The Human Capital Report “early childhood is the most important phase for overall development throughout the lifespan,” elaborating that “many challenges faced by adults, such as mental health issues, obesity, heart disease, criminality, and poor literacy and numeracy, can be traced back to early childhood.” The Index thus includes measures indicating quality of early childhood. Furthermore, the Index captures the extent to which investments made in earlier years in health and education are being realised in the working age population through lifelong learning and training. Finally, at the other end of the continuum, the Index takes into account the health and productivity of the older population. As a vital support to the Index, the Country Profiles included in this Report contain a wide variety of contextual factors. In particular, the Profiles call attention to population dynamics, such as youth bulges, ageing populations and shrinking workforces, which, in the context of limited resources, point to critical areas for urgent– and longer– term investments. The four pillars of the Index are: • The Education pillar contains indicators relating to quantitative and qualitative aspects of education across primary, secondary and tertiary levels and contains information on both the present workforce as well as the future workforce. • The Health and Wellness pillar contains indicators relating to a population’s physical and mental well– being, from childhood to adulthood. • The Workforce and Employment pillar is designed to quantify the experience, talent, knowledge and training in a country’s working–age population. • The Enabling Environment pillar captures the legal framework, infrastructure and other factors that enable returns on human capital. The Index contains 51 indicators in total, spread across the four pillars, with 12 indicators in the Education pillar, 14 in the Health and Wellness pillar, 16 in the Workforce and Employment pillar and nine in the Enabling Environment pillar. The values for each of the indicators come from publicly available data produced by international organizations such as the World Health Organization (WHO), the United Nations Educational Scientific and Cultural Organization (UNESCO) and the International Labour Organization (ILO). In addition to hard data, the Index uses qualitative survey data from the World Economic Forum’s Executive Opinion Survey and Gallup’s wellness perception survey data.

To standardize the dataWEF used the z–score statistic as it preserves the distribution of the data, a feature most relevant for a comparative international composite index. Z–scores are expressed as standard deviations from the mean. The mean is zero and has a standard deviation of one. This means that all data points above the mean are expressed as positive scores and all data below the mean are expressed as negative scores. The z–scores methodology is based on an assumption of the normal distribution. A standard deviation of plus (minus) 1 represents the area 34.13% above (below) the mean (zero) and a standard deviation of plus (minus) 2 represents the area 47.72% above (below) the mean. The z–score of a data point indicates the number of standard deviations above or below the mean. So a z–score of –2 is exactly two standard deviations, or 47.72%, below the mean. The z–score approach is a widely used way of converting raw data that is expressed in differing formats into a common metric (standardizing).

Globally, Finland tops the rankings of the Human Capital Index in 2015, scoring 86% out of a possible 100. Norway (2), Switzerland (3), Canada (4) and Japan (5) make up the rest of the top five. They are among a group of only 14 nations that have crossed the 80% threshold.
In addition to the 14 countries that have reached 80% human capital optimization, 38 countries score between 70% and 80%. A further 40 countries score between 60% and 70%, while 23 countries score between 50% and 60% and nine countries remain below 50%.

The Human Capital Index reveals several trends and challenges in the current education, skills and jobs agenda and the future outlook for major economies. These developments imply that we need to rethink how the world’s human capital endowment is invested in and leveraged for social and economic prosperity and the well-being of all. Similar to all global challenges in which our existing systems, structures and formal institutions no longer suffice, the world needs a new level of global cooperation on education, skills and jobs. Governments, business leaders, educational institutions and individuals must each understand the magnitude of the change underway and fundamentally rethink the global talent value chain. In order to be proactive in our response to both the current predicaments and a highly uncertain future, we must re-think what it means to learn, what it means to work and what is the role of various stakeholders in ensuring that people are able to fulfil their potential.

In the Table below, we can compare the indices among some of the top  countries.