channels of inequality of opportunity: the role of ... of inequality of opportunity: the role of...

Channels of inequality of opportunity: The role ofeducation and occupation in Europe

Juan Cesar PalominoGustavo Marrero

Juan Gabriel Rodrıguez

Universidad Complutense de MadridUniversidad de La Laguna

34th IARIW ConferenceDresden, August 21-27, 2016

Motivation

What are the channels of inequality of opportunity in Europe?

Palomino/Marrero/Rodrıguez (UCM/ULL) Channels of inequality of opportunity IARIW 2016 Dresden 2 / 20

Outline

1 Introduction

2 Methodology

3 Data

4 Results

5 Conclusion


IntroductionBackground

Inequality in income due to circumstances considered unfair ((Rawls(1971), Sen (1980), Roemer (1993), Fleurbaey (2008)) → Publicintervention should help to level the playing field (Roemer et al.(2003))

Literature has endeavoured in better measuring IO (Lefranc et al.(2008); Checchi and Peragine (2010); Ferreira and Gignoux (2011);Marrero and Rodrıguez (2012)).

Different approaches (ex-ante and ex-post)Cross-country comparisons

Not much research about the links between circumstances andincome → necessary for public intervention

Insufficient dataNo methodological approach


IntroductionContribution

New method to disentangle IO in its principal mediating factors(education and occupation), based on the ex-ante approach and theMLD index, arriving at:

1 = IOREDU + IOR

OCC + IOROTH (1)

Level of education → Up to 30% of IO in some European countries

Occupational category → 1% to 8% of IO depending on the country

Illustrative cross-country correlation analysis between the channelingrole of education and the expansion of higher education


MethodologyThe ex-ante IO approach

There is ex-ante equality of opportunity if all types (groups of peoplesharing the same circumstances) face the same set of opportunitiesand have the same mean income: yti = ymi , ∀t,m

Inequality of opportunity is then measured as inequality betweentypes’ means (or parametric estimates)


MethodologyDecomposition of the MLD inequality index

The Theil-0 index (Mean Logarithmic Deviation)[IMLD(y) =

1n

∑ni=1 ln(

yyi)] is additively decomposable in between

and within components [Bourguignon (1979); Shorrocks (1980);Foster and Shneyerov (2000); Jenkins (1995)]:

IMLD(y) =

T∑t=1

pt ln(y

yt)︸︷︷︸

Between→IO

+

T∑t=1

ptIMLD(yt)︸︷︷︸

Within

(2)

Alternatively, the decomposition can be done parametrically [Ferreiraand Gignoux (2011), Checchi and Peragine (2010)] using thesmoothed distribution µ and the standardized distribution φ:

IMLD(y) = IMLD(µ)︸︷︷︸Beetween→IO

+ IMLD(φ)︸︷︷︸Within

(3)


MethodologyObtaining the ’smoothed’ distribution

We condition income to circumstances and assume a log-linearrelationship [Ferreira and Gignoux (2011)]:

ln yi = Ciψ + εi (4)

ψ estimates are used to get a smoothed distribution in which allindividuals belonging to the same type have the same expectedincome:

µi = exp[Ciψ] = E(yi | Ci) = yiC (5)

Inequality of this distribution is the inequality of opportunity

IMLD(µi) = IO (6)


MethodologyIO channels: Education

Circumstances do not directly convert into future income → theremust exist a set Z of intermediate variables, which are related toindividual circumstances and affect the income of the individual. The’smoothed’ distribution can be expressed as: yCi = f(Zi, νi).

A possible candidate is the level of education Ei, so that Zi = Ei.We can do a parametric estimation of E(yCi | Ei) to measure thatrelation:

ln yCi = Eiη + νi →

{yC,EDUi = exp[Eiη]

yiC,EDU = exp[νi]

(7)

IMLD(yC)︸︷︷︸

IO

= IMLD(yC,EDU )︸︷︷︸

IOEDU

+ IMLD(yC,EDU )︸︷︷︸

IOEDU

(8)


MethodologyIO channels: Occupation

yC,EDU is the part of yC not associated with education.

But, is that part of the smoothed income associated with othermediating variables, such as occupation? We can estimate thatassociation with:

ln yC,EDUi = Oiκ+ ξi →

{yC,OCCi = exp[Oiκ]

yiC,OCC = exp[ξi]

= yiC,OTH (9)

IMLD(yC,EDU )︸︷︷︸

IOEDU

= IMLD(yC,OCC)︸︷︷︸

IOOCC

+ IMLD(yC,OCC)︸︷︷︸

IOOTH

(10)


MethodologyDisentangling IO

Decomposing the smoothed distribution.

µi = Ciψi︸︷︷︸ln yCi

= Eiη︸︷︷︸ln yC,EDU

i

+ νi︸︷︷︸Oiκ︸︷︷︸

ln yC,OCCi

+ ξi︸︷︷︸ln y

C,OTHi

(11)

Decomposing IO

IMLD(yCi )︸︷︷︸

IO

= IMLD(yC,EDUi )︸︷︷︸

IOEDU

+ IMLD(yC,OCCi )︸︷︷︸

IOOCC

+ IMLD(yC,OTHi )︸︷︷︸

IOOTH

(12)

Obtaining the IO shares (dividing byIMLD(yCi ) = IO):

1 = IOREDU + IOR

OCC + IOROTH (13)


DataDatabase

EU-SILC framework

2005 and 2011 intergenerational transmission of advantage modules(data from 2004 and 2010)26 european countries in both wavesAdvantage: equivalent household income (household heads aged 30-50)

Circumstances

Parental education (4 levels; father and mother), parental occupation(11 one-digit categories; father), gender, inmmigration status (national,other-EU, non-EU), financial difficulties percieved during household (5levels).

Channels of transmission

Education (6 ISCED levels)Occupation (11 ISCO-88 categories)


ResultsInequality of opportunity

Nordic countriesat the bottom(except Iceland2010)

EL, LU and PTat the top (2010)

No clear patternovertime (EL,BE, IS, SKincrease; PT, PL,LT and LVdecrease)

In general, in linewith Marrero andRodrıguez (2012)and Brzezinski(2015)

AT

BE

CY

CZ

DE

DK

EE

EL

ES

FI

FR

HUIE

IS

IT LT

LU

LV

NL

NO

PL

PT

SE

SISK

UK

0.00

0.01

0.02

0.03

0.04

0.05

0.00 0.01 0.02 0.03 0.04 0.05Inequality of Opportunity 2004

Ineq

ualit

y of

Opp

ortu

nity

201

0

Region

Central

Eastern

Mediterranean

Nordic


ResultsThe educational channel

Between 8 and30% of IO

PT and LU at thetop

Nordic countriesat the bottom(except NO)

No clear overtimetrend (EL, LU,DE, NO increase;SE, FI, ISdecrease)

AT

BECY

CZ

DE

DK

EE

EL

ES

FI

FR

HU

IE

IS

IT

LT

LU

LV

NL

NO

PL

PT

SE

SISK

UK

0%

10%

20%

30%

40%

0% 10% 20% 30% 40%Share of IO transmitted by Education 2004

Sha

re o

f IO

tran

smitt

ed b

y E

duca

tion

2010

Region

Central

Eastern

Mediterranean

Nordic


ResultsThe occupational channel

Between 1 and8% of IO (1-5%in mostcountries)

CY and AT atthe top

No geographicalpattern

No clear overtimetrend (CY, ATincrease; NO,DE, HU, IEdecrease)

AT

BE

CY

CZ

DE

DK

EE

EL

ES

FIFR

HU

IEIS

ITLT

LU

LVNL

NO

PL

PT

SE

SI

SK

UK

0.0%

2.5%

5.0%

7.5%

0.0% 2.5% 5.0% 7.5%Share of IO transmitted by Occupation 2004

Sha

re o

f IO

tran

smitt

ed b

y O

ccup

atio

n 20

10

Region

Central

Eastern

Mediterranean

Nordic


ResultsThe educational channel and the extension of highereducation (I)

High negativecorrelationbetween theshare of thepopulation withhigher educationand the share ofIO channeledthrougheducation

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AT BE

CY

CZ

DEDKEE

EL

ES

FI

FR

HU

IE

IS

IT

LT

LU

LVNL

NO

PL

PT

SE

SI

SK

UK

AT

BECY

CZ

DEDK

EE

EL

ES

FI

FR

HU

IE

IS

IT

LT

LU

LV

NL NO

PL

PT

SE

SISK

UK

y = 0.27 − 0.42 ⋅ x, r2 = 0.342

0%

10%

20%

30%

40%

0% 20%

40%

60%

Share of Sample with High Education

Sha

re o

f IO

tran

smitt

ed th

roug

h E

duca

tion

Wave

●

●

2004

2010


ResultsThe educational channel and the extension of highereducation (II)

High positivecorrelationbetween theshare of thepopulation withlower educationand the share ofIO channeledthrougheducation

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AT

BE

CY

CZ

DEDKEE

EL

ES

FI

FR

HU

IE

IS

IT

LT

LU

LV NL

NO

PL

PT

SE

SI

SKUK

ATBE

CY

CZ

DE

DK

EE

EL

ES

FI

FR

HU

IE

IS

IT

LT

LU

LV

NLNO

PL

PT

SE

SI

SK UK

y = 0.075 + 0.36 ⋅ x, r2 = 0.475

0%

10%

20%

30%

40%

0% 20%

40%

60%

Share of Sample with Low Education

Sha

re o

f IO

tran

smitt

ed th

roug

h E

duca

tion

Wave

●

●

2004

2010


Concluding remarks

A new strategy to disentangle IO channels

Importance of the educational and occupational channels

The educational channel and the expansion of education

Prospective research:

What could explain the remaining share of IO?

Apply this strategy to new mediators and other measures of IO whendata is available


Thanks!

Juan C. Palomino([email protected])

Gustavo A. Marrero([email protected])

Juan G. Rodrıguez([email protected])


Channels of inequality of opportunity: The role ofeducation and occupation in Europe

Juan Cesar PalominoGustavo Marrero

Juan Gabriel Rodrıguez

Universidad Complutense de MadridUniversidad de La Laguna

34th IARIW ConferenceDresden, August 21-27, 2016

References I

Bourguignon, F. (1979). Decomposable income inequality measures.Econometrica: Journal of the Econometric Society , 901–920.

Brzezinski, M. (2015). Inequality of opportunity in Europe before and after theGreat Recession. University of Warsaw - Working Papers No.2/2015 (150).

Checchi, D. and V. Peragine (2010). Inequality of opportunity in Italy. TheJournal of Economic Inequality 8(4), 429–450.

Ferreira, F. H. and J. Gignoux (2011). The measurement of inequality ofopportunity: Theory and an application to Latin America. Review of Incomeand Wealth 57(4), 622–657.

Fleurbaey, M. (2008). Fairness, responsibility, and welfare. Oxford UniversityPress.

Foster, J. E. and A. A. Shneyerov (2000). Path independent inequality measures.Journal of Economic Theory 91(2), 199–222.

Jenkins, S. P. (1995). Accounting for inequality trends: decomposition analysesfor the UK, 1971-86. Economica, 29–63.


References II

Lefranc, A., N. Pistolesi, and A. Trannoy (2008). Inequality of opportunities vs.inequality of outcomes: Are western societies all alike? Review of Income andWealth 54(4), 513–546.

Marrero, G. A. and J. G. Rodrıguez (2012). Inequality of opportunity in Europe.Review of Income and Wealth 58(4), 597–621.

Rawls, J. (1971). A Theory of Justice. Cambridge, Ma: Harvard University Press.

Roemer, J. E. (1993). A pragmatic approach to responsibility for the egalitarianplanner. Philosophy Public Affairs (20), 146–166.

Roemer, J. E., R. Aaberge, U. Colombino, J. Fritzell, S. P. Jenkins, A. Lefranc,I. Marx, M. Page, E. Pommer, J. Ruiz-Castillo, et al. (2003). To what extentdo fiscal regimes equalize opportunities for income acquisition among citizens?Journal of Public Economics 87(3), 539–565.

Sen, A. (1980). Equality of what?, Volume 1. Tanner Lectures on Human Values.

Shorrocks, A. F. (1980). The class of additively decomposable inequalitymeasures. Econometrica: Journal of the Econometric Society , 613–625.


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