Human Capital Deficits Cutting Future Earnings Across Developing Economies — World Bank

 

Deficits in health, education and workforce skills are eroding the economic prospects of low- and middle-income countries, costing them an estimated 51 percent of future labour earnings, according to a new report by the World Bank Group.

The findings raise concerns about long-term productivity and job creation, even as incomes have risen and poverty has declined over the past 15 years. The report shows that two-thirds of developing economies recorded declines in nutrition, learning outcomes or workforce skills between 2010 and 2025.

Widespread Decline in Human Capital

Titled Building Human Capital Where It Matters: Homes, Neighborhoods and Workplaces, the report finds that 86 out of 129 low- and middle-income countries experienced deterioration in at least one core human capital indicator over the period.

The study argues that traditional investments centred mainly on schools and health facilities are no longer sufficient, calling for broader interventions that address the environments where people live, grow and work.

Homes: Early Gaps That Persist for Life

According to the report, skill gaps linked to family circumstances emerge before age five well before most children in developing countries start school and remain largely unchanged into adolescence.

Poor care environments, including high levels of violent discipline at home, are associated with lower learning outcomes and higher rates of depression. The findings suggest that higher household income alone does not offset the long-term effects of weak early childhood care.

Neighbourhoods: Opportunity Shaped by Location

The report finds that neighbourhood conditions significantly influence life outcomes. Children raised in wealthier neighbourhoods earn up to twice as much as those from poorer areas, even when their parents have similar income and education levels.

Exposure to pollution, crime and weak infrastructure directly affects health, learning and skills development, reinforcing inequality beyond access to schools and clinics.

Workplaces: Informality Limits Skills Growth

Workplace conditions are also constraining human capital accumulation. In low- and middle-income countries, self-employed workers earn only about half as much per year of experience as wage workers.

Yet about 70 percent of workers are engaged in small-scale agriculture, informal self-employment or micro firms that provide limited formal training or on-the-job learning. Gender and youth participation gaps further reduce skill accumulation, with around half of women outside the labour force and about 20 percent of young people neither studying nor working.

New Human Capital Index Exposes Sharp Gaps

The World Bank launched an expanded Human Capital Index Plus (HCI+) alongside the report, tracking human capital accumulation from birth to age 65 and measuring how gaps translate into lost lifetime earnings.

The index shows that countries with similar income levels can have sharply different human capital outcomes, highlighting the role of policy choices. High performers relative to income include Jamaica, Kenya, the Kyrgyz Republic and Vietnam.

The HCI+ also reveals persistent gender disparities, with female-only scores about 20 points lower than male scores, largely due to differences in labour market participation and job quality.

Call for Broader, Integrated Investments

“The prosperity of low- and middle-income countries depends on their ability to build and protect human capital,” said Mamta Murthi, Vice President for People at the World Bank Group, warning that weak nutrition, learning and skills threaten future productivity.

Norbert Schady said targeted policies across homes, neighbourhoods and workplaces could create a “virtuous cycle” of higher productivity, rising wages and stronger investment in future generations.

Policy Recommendations

The report recommends:

• Expanding parenting and preschool programmes to strengthen early learning.

• Targeting struggling neighbourhoods through coordinated government action.

• Reforming labour markets to support apprenticeships, childcare and on-the-job learning.

• Integrating public services across homes, communities and workplaces, supported by stronger data systems.

The World Bank argues that without these reforms, developing economies risk entrenching inequality and sacrificing long-term growth potential.