World Bank Warns Human Capital Deficits Cost Developing Countries Over Half of Future Earnings

Low- and middle-income countries are losing an estimated 51 percent of their future labor earnings because of persistent gaps in health, education, and workforce skills, according to a major new World Bank Group report released today.

Despite rising incomes and declining poverty over the past 15 years, the report finds that progress in human capital development has stalled — and in many cases reversed — across much of the developing world.

The findings raise urgent concerns about future labor productivity, job creation, and long-term economic resilience.

New Report Shows Widespread Declines in Nutrition, Learning and Skills

The report, Building Human Capital Where It Matters: Homes, Neighborhoods and Workplaces, reveals that 86 of 129 low- and middle-income countries experienced declines in at least one key area — nutrition, learning outcomes, or workforce skill development — between 2010 and 2025.

The World Bank warns that without a major shift in strategy, these deficits will continue to undermine economic growth and trap millions in low-quality employment.

"The prosperity of low- and middle-income countries depends on their ability to build and protect human capital," said Mamta Murthi, World Bank Group Vice President for People.

"Right now, we see that many countries are struggling to improve nutrition, learning, and skills… which raises concerns about labor productivity and the types of jobs their economies can sustain in the future."

Human Capital Investments Must Go Beyond Schools and Hospitals

The report calls for a new approach that expands investments beyond traditional sectors such as education and health ministries.

Instead, it urges governments to focus on the real-life environments where human capital is shaped:

• Homes

• Neighborhoods

• Workplaces

"Broadening investments… can activate these settings that shape people's lives and increase overall human capital accumulation," Murthi said.

Homes: Skill Gaps Begin Before School

One of the report's most striking findings is that inequality in learning begins long before children ever enter a classroom.

Skill gaps linked to family circumstances emerge before age five and remain largely constant through adolescence.

The report highlights that:

• Income alone does not offset poor care environments

• Harmful home conditions reduce test scores

• Poor care increases depression and emotional distress

• Violent discipline remains widespread

The World Bank says parenting support and early childhood programs are critical to reversing these trends.

Neighborhoods: Where Children Grow Up Shapes Lifetime Earnings

The report also underscores the powerful influence of neighborhoods on economic opportunity.

New evidence shows that children raised in wealthier neighborhoods earn twice as much as those from poorer communities — even when parents have similar income and education.

Neighborhood effects extend beyond access to clinics and schools, with major impacts from:

• Pollution exposure

• Crime and insecurity

• Weak infrastructure

• Limited social opportunity

Workplaces: Most Workers Lack Training and Skill Growth

Human capital development does not end with schooling — yet the report finds workplace learning is severely constrained in developing economies.

In low- and middle-income countries:

• Self-employed workers earn only half as much per year of experience compared with wage workers

• 70 percent of workers are in small-scale agriculture, micro firms, or low-quality self-employment

• These jobs provide little formal training or skill-building

Labor market exclusion further limits progress:

• Around 50 percent of women are out of the labor force

• Roughly 20 percent of youth are neither studying nor working

These gaps reduce lifetime productivity and national growth potential.

Launch of New Human Capital Index Plus (HCI+)

Alongside the report, the World Bank launched an expanded new metric: the Human Capital Index Plus (HCI+).

For the first time, HCI+ tracks human capital accumulation from birth through age 65 and quantifies how gaps translate into lost lifetime earnings.

Key findings from HCI+ data include:

• Countries with similar income levels can have dramatically different human capital outcomes

• High performers relative to income include Jamaica, Kenya, Kyrgyz Republic, and Vietnam

• Gender gaps are severe: female scores are 20 points lower than male scores

• The gap is largely driven by labor market participation and job quality differences

Building a "Virtuous Cycle" of Skills and Growth

Norbert Schady, World Bank Group Chief Economist for People, said better policies across life settings can trigger a cycle of rising productivity and investment.

"By enabling more people to build skills throughout life, countries can spark a 'virtuous cycle' — where rising productivity leads to higher wages and greater incentives… to invest in the next generation," Schady said.

Key Recommendations

The report urges governments and partners to adopt integrated, setting-based reforms, including:

• Parenting and preschool programs to strengthen early learning

• Targeting disadvantaged neighborhoods with cross-government collaboration

• Labor market reforms to expand apprenticeships, childcare, and workplace learning

• Better integration of services across homes, communities, and employment

• An ambitious data agenda to track progress over time

A Critical Warning for the Future Workforce

The World Bank's message is clear: without urgent action to strengthen human capital where people actually live and work, developing economies risk losing more than half their future earnings potential — limiting prosperity for generations.