A revised and updated version of this post is on the Globe and Mail website here. Thanks to all of the WCI commentators who helped me get my head around the HDI calculations.
For much of the 1990s, Canada topped the United Nations' Human Development Index (HDI). Newspaper headlines and politicians declared we were the best place in the world to live. This year, Canada slipped again in the HDI rankings, from 10th (tie) to 11th. What has happened? Why aren't we the best place in the world to live any more?
The HDI is "A composite index measuring average achievement in three basic dimensions of human development—a long and healthy life, knowledge and a decent standard of living." Its creators wanted to capture these achievements using indicators that were available for most of the world's countries, and could be measured with some degree of accuracy. "A long and healthy life" is measured by average life expectancy at birth, "knowledge" by years of education, and "life quality" using the natural log of per capita Gross National Income, adjusted for purchasing power parity.
Each one of these dimensions of life quality is normalized. Japan's life expectancy is the longest in the world. Every other country's score on the health index is based on how their life expectancy stacks up against Japan's (this year, according to the UN documentation, the target to meet was 83.57 years). Canada's 2012 life expectancy at birth was approximately 81.1 years, giving us a "health index" of approximately (81.1-20)/(83.57-20), which translates into a published score of 0.964.
The important thing to understand about the health index numbers is that they have little impact on the ranking of very high human development countries. As the picture below shows, there is a bit of movement in life expectancy. The US (in purple) has fallen behind, Australia and Ireland (in red and pink) have climbed up. However the high human development countries are all bunched together, and Canada (in blue) has consistently been in the middle of the pack. The US's relatively low life expectancy - 78.7 years - pulls its HDI score down a little, and Japan's outstanding performance pulls its HDI score up. However only a very small part of Canada's fall from #1 in the 1990s to #11 can be explained by looking at changes life expectancy. (For a table showing each country's health index over time click here, for a table showing the raw life expectancy numbers click here).
The "life quality" index is calculated in much the same way as the health index, but using the natural log of gross national income (GNI), instead of life expectancy. The life quality goalpost is $89,990.52 per capita, according to the HDI documentation, which is roughly the income level of Qatar according to the income figures here.
Log scales heavily discount changes in income at high income levels. Canada's 2012 GNI is $35,369, compared to $48,688 for the richest of the "very high human development" countries, Norway. The natural logs of these numbers are 10.47 (Canada) and 10.79 (Norway). Even though Norway's GNI is a third again as large as Canada's, when expressed as a proportion of the "goalpost", the difference in the two countries' "income indices" is just 0.047 - 0.866 for Canada as compared to 0.913 for Norway. (For a complete listing of the "income index" values, see here),
If it's not declining health that is causing Canada's HDI score to slip, and it's not declining incomes, perhaps the change is coming through the third element of the Human Development Index, "knowledge." The graph below shows that Canada has gone from being in the middle of the pack on the education index to towards the bottom of this select group of very high human development countries.
Why has our education score fallen? The education ranking is currently based on two factors: adults' average (mean) level of schooling, and the number of years of schooling children can expect to receive. Since the average education level of the adult population changes very slowly, movement in the education index is driven by the changes in the education patterns of children and youth. As the graph above shows, education levels have risen significantly in New Zealand, Ireland and Japan, while they have been stagnant in Canada. Why is that?
There are a couple of different possibilities. One is that, during the 1990s, Canada's economy was failing to create new jobs for young Canadians. People responded by staying in school, trying to get enough credentials to establish a toehold in the job market. In the 2000s, Canada was creating jobs, especially in sectors looking for employees with college diplomas rather than masters degrees, such as construction and resource extraction. So one explanation of the declining education numbers is that better work opportunities mean people are choosing work instead of school. Other possible contributing factors are rising university tuition levels, the end of grade 13 in Ontario, and boys' disenchantement with school. But whatever the reason, according to the Human Development Report data, the number of years of schooling a young Canadian can expect to receive has fallen from 16.7 in 1990 and 15.9 in 2000 to 15.1 years today (see here).
The fall in our relative education ranking has a major impact on our overall HDI score because there is so much variation in the education index. Unlike health, where all of the countries are bunched together, education scores are more spread out. This is where countries have an opportunity to gain or lose points, and move up or down the rankings.
I was going to call this post "The human development index is counter-cyclical", arguing that Canada's strong economy in the 2000s has caused post-secondary enrollment levels to fall, and this is behind the drop in our Human Development Index ranking. I changed the title in part because there are other factors contributing to the decline in the HDI ranking, and in part because of something only a very few super-observant readers will have noticed.
Looking at the figures above, it is clear that Canada was never number one on the health index, and never number one on the education index. We're not a super-rich country. So how did we ever achieve that number one spot?
Here are the overall Human Development Index numbers for the past 30 years, taken from the HDR web site. According to this graph, Canada (in light blue) was never number one. Even without factoring in sunshine, beaches, clean air and wide open spaces, Australia (in red) has always been a better place to live - in the sense of having a higher HDI score - than Canada (in light blue).
So what's the story behind those self-congratulatory newspaper headlines of the 1990s? Why were we ranked number one at the time?
Since the 1990s, the calculation of the Human Development Index has changed in two crucial ways. First, income is discounted less heavily, as Bill Watson explains in this old IRPP piece. This means there is more action coming from the income scores of very rich countries, boosting up the HDI scores of Norway and the United States.
In the 1990s the education index was based on adult literacy levels and the percentage of people participating in education. The very high human development countries all scored close to 100 percent on the adult literacy scale, so the rankings on the education index were almost entirely determined by the number of people enrolled in university relative to the young adult population - a measure on which Canada did very well. The literacy component of the education index has now been replaced by a measure of the average years of schooling of Canadian adults. A significant number of Canadians, especially those who are older, or who grew up in rural or remote areas, have relatively low levels of education. With the "knowledge" part of the Human Development Index calculated in this new way, Canada's overall human development score was never the best in the world.
Do these after the fact revisions of Canada's human development ranking call into question the whole HDI enterprise? No. Any uni-dimensional measure of a country's economic performance will be flawed. The purpose of the measure was not to come up with a definitive ranking of countries. The goal was to shift policy makers away from a narrow focus on GDP and growth, and towards a more general conception of well-being. It aimed to stimulate public discussion and awareness of what it means to have a good life, and the nature of economic development. Despite its limitations, the Human Development Report has succeeded in achieving these goals.