The first measure is the **basic UHCI** **_,_** which captures the income gains from employing all potential workers. The basic utilization measure is the employment-to-working-age-population ratio, drawn from the ILO and the World Bank’s JOIN database. The basic UHCI has the advantage of simplicity, ease of construction and measurement. It is also available for a wider variety of countries and helps to fix concepts.

# (2) Utilization (basic measure) = Employment/population (working age)

Second, I produce the **full UHCI** which, in addition to the gains from higher employment rates, also takes account of the income gains from moving workers to jobs where they can better use their human capital to increase productivity (“better employment”). The full utilization measure also has the desirable property that it is measured relative to potential: countries with high levels of human capital are penalized more heavily if people are not in the types of jobs where their human capital can be used to increase productivity. I define “better employment” as nonagricultural employees plus employers, which excludes the lowest productivity jobs in developing countries where human capital could have less effect on productivity: subsistence own-account/family agriculture, non-farm selfemployment (which is often working in household microenterprises, as own-account workers or contributing family workers), and landless agricultural laborers.<sup>3</sup> This definition is not intended as a value judgment, but rather is based on the type of jobs that are relatively rare in low-income countries, but are common in high-income countries— suggesting they are associated with higher productivity (Merotto et al. 2018). The better employment rate (BER) is defined as the fraction of the working age population in better employment: (3) Better employment rate (BER) = (Non-agricultural wage employees+ employers)/Population (working age) The full UHCI is a weighted average of the HCI score for those in the better employment (who are as productive as their human capital allows), and the theoretical minimum HCI for the rest of the working age population. The theoretical minimum HCI ≈0.2 represents the relative productivity of “raw labor”, before it is boosted by human capital (see Box 1): (4) UHCI (full measure) = BER × H +(1-BER) × (minimum HCI) HH The full utilization rate is given by Equation 5 and is the full UHCI divided by the HCI. This means that the utilization rate is a weighted average of 1 (complete utilization for those in better employment), and reduced utilization rates for the rest of the working age population. The utilization rate for the rest of the working age population (1-BER) is the productivity of raw labor (HCI min) relative to potential productivity of those workers (HCI). While the full UHCI is my preferred measure because it is more comprehensive and realistic, it has the disadvantages of greater complexity, slightly reduced country coverage and taking a stand on the definition of better employment.

# (5) Utilization (full measure) = BER × 1 +(1-BER) × (minimum HCI)/HCI

Despite different methodologies, the basic and full measures produce broadly similar utilization rates and UHCI scores. They are both available for around 165 countries, and the average UHCI score is about 2/3 the size of the HCI (mechanically it will be lower). Utilization rates are roughly U-shaped in per capita income across countries, slightly declining with per capita income across low and middle income levels and the rising rapidly from middle to higher income levels. This feature of utilization rates implies that UHCIs are low in the poorest countries, where

> 3 This definition of “better employment” came out of discussions with Michael Weber and Kathleen Beegle, and I thank them for both their constructive criticisms of the basic measure and helpful suggestions for refinements.

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