The World Bank has sounded a stark warning to developing economies: without urgent action to close widening gaps in health, education and workforce skills, countries risk losing more than half of their future labour income.
In a new report titled Building Human Capital Where It Matters: Homes, Neighborhoods and Workplaces, the World Bank Group estimates that low- and middle-income countries are forfeiting as much as 51 percent of potential lifetime earnings because too many people are not equipped with the nutrition, learning and skills needed to thrive in modern economies.
The findings come at a time when many developing nations have made progress in income growth and poverty reduction over the past 15 years. Yet beneath those gains, the report reveals troubling setbacks. Between 2010 and 2025, 86 out of 129 low- and middle-income countries recorded declines in at least one key human capital indicator nutrition, learning outcomes or skills development.
To better understand the depth of the problem, the World Bank launched an expanded Human Capital Index Plus (HCI+), which now tracks human capital development from birth to age 65. Unlike earlier versions, the updated index measures not only health and education outcomes but also what happens inside the labour market, including how gaps translate into lost lifetime earnings.
Mamta Murthi, Vice President for People at the World Bank, warned that the implications stretch far beyond individual workers. “The prosperity of low- and middle-income countries depends on their ability to build and protect human capital,” she said, noting that weak nutrition, poor learning and limited workforce skills restrict the kinds of jobs economies can create and sustain. She stressed that countries must look beyond schools and hospitals and invest more deliberately in homes, neighbourhoods and workplaces the environments where skills are shaped and productivity is determined.
The report underscores that disadvantages begin early. Skill gaps linked to family environments often emerge before children reach the age of five and persist through adolescence. Poor caregiving conditions were found to lower learning outcomes and heighten mental health risks. High rates of violent discipline in some settings further weaken children’s developmental prospects, suggesting that better parenting support and early childhood interventions could yield long-term gains.
Where a child grows up also matters significantly. Even when family income and parental education levels are similar, children raised in wealthier neighbourhoods can earn up to twice as much in adulthood as those from poorer areas. Exposure to pollution, crime and weak infrastructure undermines health, learning and long-term skills formation, reinforcing inequality across generations.
The labour market presents its own structural challenges. In many low- and middle-income countries, around 70 percent of workers are engaged in small-scale agriculture, informal self-employment or microenterprises. In these sectors, access to training and structured skills development is limited. The report notes that self-employed workers earn only half as much from each additional year of experience compared to wage workers, reducing incentives and opportunities for skill accumulation.
Gender and youth disparities further constrain economic potential. Roughly half of women in developing economies are outside the labour force, while about one in five young people are neither in education nor employment. The HCI+ shows that women’s human capital scores average 20 points lower than men’s, largely due to lower participation rates and poorer job quality.
Interestingly, the data also reveal that income levels alone do not determine performance. Some countries are doing significantly better than peers at similar income levels. Jamaica, Kenya, the Kyrgyz Republic and Vietnam were identified as strong performers, demonstrating that policy choices and institutional effectiveness matter as much as financial resources.
Norbert Schady, Chief Economist for People at the World Bank, argued that targeted policies could create a virtuous cycle of productivity and prosperity. By enabling individuals to build skills throughout their lives from early childhood to the workplace countries can raise productivity, increase wages and strengthen incentives for families and communities to invest in the next generation.
The report calls for expanded parenting and preschool programmes to support early learning, coordinated investments in disadvantaged neighbourhoods, reforms to encourage apprenticeships and on-the-job training, and stronger integration of public services across homes, communities and workplaces. It also urges governments to improve data systems to better track progress and design evidence-based policies.
The message is clear: human capital is not built in classrooms alone. It is shaped at home, reinforced in communities and refined in workplaces. For developing economies seeking sustainable growth, the cost of neglecting these foundations may be far greater than previously understood.
