The first Human Development Report introduced a new way of measuring development by combining indicators of life expectancy, educational attainment and income into a composite human development index, the HDI. The breakthrough for the HDI was the creation of a single statistic which was to serve as a frame of reference for both social and economic development. The HDI sets a minimum and a maximum for each dimension, called goalposts, and then shows where each country stands in relation to these goalposts, expressed as a value between 0 and 1.
The education component of the HDI is now measured by mean of years of schooling for adults aged 25 years and expected years of schooling for children of school entering age. Mean years of schooling is estimated based on educational attainment data from censuses and surveys available in the UNESCO Institute for Statistics database and Barro and Lee (2010) methodology). Expected years of schooling estimates are based on enrolment by age at all levels of education and population of official school age for each level of education. Expected years of schooling is capped at 18 years. The indicators are normalized using a minimum value of zero and maximum values are set to the actual observed maximum value of mean years of schooling from the countries in the time series, 1980–2012, that is 13.3 years estimated for the United States in 2010. Expected years of schooling is maximized by its cap at 18 years. The education index is the geometric mean of two indices.
The life expectancy at birth component of the HDI is calculated using a minimum value of 20 years and maximum value of 83.57 years. This is the observed maximum value of the indicators from the countries in the time series, 1980–2012. Thus, the longevity component for a country where life expectancy birth is 55 years would be 0.551.
For the wealth component, the goalpost for minimum income is $100 (PPP) and the maximum is $87,478 (PPP), estimated for Qatar in 2012.
The decent standard of living component is measured by GNI per capita (PPP$) instead of GDP per capita (PPP$) The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.
The HDI facilitates instructive comparisons of the experiences within and between different countries.
The disaggregated HDI
One way the use of the human development index has been improved is through disaggregation. A country's overall index can conceal the fact that different groups within the country have very different levels of human development. Disaggregated HDIs are arrived at by using the data for the HDI components pertaining to each of the separate groups; treating each group as if it was a separate country. Such groups may be defined relative to income, geographical or administrative regions, urban/rural residence, gender and ethnicity. Using disaggregated HDIs at the national and sub-national levels helps highlight the significant disparities and gaps: among regions, between the sexes, between urban and rural areas and among ethnic groups. The analysis made possible by the use of the disaggregated HDIs should help guide policy and action to address gaps and inequalities.
Disparities may already be well known, but the HDI can reveal them even more starkly. Disaggregation by social group or region can also enable local community groups to press for more resources as well as to force accountability on local representatives, making the HDI a tool for participatory development.
Disaggregated HDIs have been used extensively for analysis since their inception.
Adjusting the HDI for inequalities
In 2010, the Inequality-adjusted HDI (IHDI) was introduced. The IHDI is the HDI adjusted for inequalities in the distribution of achievements in each of the three dimensions of the HDI (health, education and income). The IHDI will be equal to the HDI value when there is no inequality, but falls below the HDI value as inequality rises. The difference between the HDI and the IHDI represents the ‘loss’ in potential human development due to inequality and can be expressed as a percentage. In 2012 the IHDI was calculated for 132 countries and the results are telling. For example, United States suffers a loss of more than 12% when its HDI value is adjusted for inequalities and moves 13 places down in rank.
To reflect country-specific priorities and problems and to be more sensitive to a country's level of development, the HDI appearing in the global HDRs can be tailored so that additional components are included in the calculation. HDI adjustments should utilize the methods of weighting and normalization as the original HDI, making use of maximum and minimum values to create an index for the added component. In addition, indicator-specific weights can be tailored such that they reflect national policy priorities.
Additional adjustments to the HDI could involve expanding the breadth of existing component indices. For example, the life expectancy category could be adjusted to reflect under-five or maternal mortality rates; the income component could be adjusted to reflect unemployment, incidence of income poverty or the Gini-corrected mean national income; and finally the educational component can be adjusted to include the number of students enrolled in particularly important fields of study, such as the mathematics and sciences.
It is difficult to use the HDI to monitor changes in human development in the short-term because two of its components, namely life expectancy and mean years of schooling change slowly. To address this limitation, components that are more sensitive to short-term changes could used for national purposes, possibly under a different name. For example, the rate of employment, the percent of population with access to health services, or the daily caloric intake as a percentage of recommended intake could be used in place of the traditional indicators of the HDI.
Thus, the usefulness and versatility of the HDI as an analytical tool for HD at the national and sub-national levels would be enhanced if countries choose components that reflect their priorities and problems and are sensitive to their development levels, rather than rigidly using the three components presented in the HDI of the global HDRs.
As previously mentioned, when adjusting the HDI to reflect additional concerns, a commitment to data integrity and rigorous attention to statistical protocol should always be a concern of paramount importance.
Highlighting uneven development: comparing relative levels of HDI and per capita income
National wealth has the potential to expand people's choices. However, it may not. The manner in which countries spend their wealth, not the wealth itself, is decisive. Moreover, an excessive obsession with the creation of material wealth can obscure the ultimate objective of enriching human lives. In many instances, countries with higher average incomes have higher average life expectancies, lower rates of infant and child mortality and higher educational attainment and school enrollment, and consequently a higher human development index (HDI). But these associations are far from perfect. In inter-country comparisons, income variations tend to explain not much more than half the variation in life expectancy, or in infant and child mortality. And they explain an even smaller part of the differences in adult educational attainment.
Although there is a correlation between material wealth and human well-being, it breaks down in many societies. Many countries have high GNI per capita, but low human development indicators and vice versa, while some countries at similar levels of GNI per capita have vastly different levels of human development.
Given the imperfect nature of wealth as gauge of human development, the HDI offers a powerful alternative to GDP and GNI for measuring the relative socio-economic progress at national and sub-national levels. Comparing HDI and per capita income ranks of countries, regions or ethnic groups within countries highlights the relationship between their material wealth on the one hand and their human development on the other. A negative gap implies the potential of redirecting resources to Human Development.