A New Approach to Human Capital: Crime Adjusted Human Capital Index on European Countries

Abstract Human capital is a one of the essential components in the economic growth and development. Also, the belief that education and health level, which are the main components of human capital, are main features of a happy and healthy society, is getting stronger. But there is a fact that crime is a destructive notion that affects a society’s human capital. In this context, this study aims to create an alternative social welfare measurement method that includes crime rates as a component to human capital on 35 European countries. In this regard, first, a general crime index was generated by using 13 different crime categories of the 35 European countries, and then this index was adapted to the Human Capital Index. As a result, the Crime-Adjusted Human Capital Index (CAHCI) was obtained. It was observed that the country rankings we obtained based on the CAHCI differ significantly from the rankings made based on the Human Capital Index. Significant number of countries, which ranks high in the Human Capital Index, ranks lower when crime rates are considered, indicates that the reliability of social welfare measures based on human capital should be questioned