Designing the Inequality-Adjusted Human Development Index (IHDI)

As a measure of wellbeing, national income misses variations in the things income can and cannot buy. It also misses variations in people’s claim on that aggregate income. The Human Development Index attempts to address the first weakness by incorporating two additional dimensions, health and education, into its informational bases. However, the second weakness, inequality, is ignored by the traditional HDI. In practical terms this means that any two countries having the same mean achievements will have the same HDI values even if they have very different distributions of achievements. This calls into question the accuracy of the HDI as a reflection of people’s actual achievements. This paper proposes a method for adjusting the HDI to reflect the distribution of human development achievements across the population, and across dimensions. We begin with a discussion of the proposed indices in an idealized setting where variables and their scales have been identified and the data are available. We then address the practical issues that must be addressed when applying these methods to real data. The final section presents and evaluates another related approach.