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  5.

  Inequality of Opportunity

  François Bourguignon

  This chapter discusses what is meant by inequality of opportunity (i.e., “ex ante inequality”), in the sense of how different circumstances involuntarily inherited or faced by individuals could affect their economic achievements later in life. This concept is also taken to include how fair the procedures are. The chapter presents the theoretical principles that can be used for measuring inequality of opportunity. Practical issues of measurement are illustrated through examples and stylized facts from the applied literature on inequality of opportunity and, in particular, on inter-generational economic mobility. The chapter summarizes the nature of the data needed to monitor the observable dimensions of inequality of opportunity and makes recommendations on the statistics that should be regularly produced for effectively monitoring them.

  François Bourguignon is Emeritus Professor at the Paris School of Economics. The author wishes to thank Angus Deaton, Martine Durand, Marco Mira D’Ercole, Joseph Stiglitz, other members of the High-Level Expert Group, and participants in seminars in Mexico City and the World Bank for their most helpful comments. The author also thanks the participants in the HLEG workshop on “Inequality of Opportunity” held in Paris, France, on January 14, 2015, hosted by the Gulbenkian Foundation and organized in collaboration with the OECD. The author retains full responsibility for any remaining error or inaccuracy. The opinions expressed and arguments employed in the contributions below are those of the author and do not necessarily reflect the official views of the OECD or of the governments of its member countries.

  Introduction

  Conceptually, economic inequality can be considered from two different angles. The ex post view looks at differences in individual economic results or “outcomes,” like economic well-being, living standards, earnings, income, etc. The ex ante view looks at the degree of difference between the circumstances involuntarily inherited or faced by individuals and affecting their economic achievements; this is also taken to include the procedural aspect of inequality—how fair the procedures are. The ex post view is referred to as “inequality of outcome,” with income inequality probably the most common example. The ex ante view is referred to as “inequality of opportunity.” B
oth types of inequality are clearly linked but in an asymmetric way. An increase in ex ante inequality will, all things being equal, increase ex post inequality. In the same way, inequality of outcome at a point of time or within a generation may affect inequality of opportunity in the future or in the next generation. However, a higher level of ex post inequality can also result from changes in people’s economic behavior, independently of circumstances, and in how the economic system transforms given individual circumstances into economic results.

  A marathon where runners don’t start from the same line provides a useful analogy. Ex post inequality would essentially be the distribution of the finishing times. Ex ante inequality would refer to the distance competitors have to run to reach the finish line. Ex post and ex ante inequality are not the same because competitors may not have expended the same effort during the race. The winner might well be the one who had the least distance to cover. But it may also be the one who had the most to run but had the strongest will to win and suffered the fewest setbacks.

  Focusing on one type of inequality or another may depend on the value judgment made on inequality. The most common value judgment behind concentrating on ex post inequality is “egalitarianism”; the one behind ex ante and procedural inequality is “fairness.” In the marathon race, egalitarian observers would simply like to minimize the gap between the performance of the winner and that of the loser, irrespective of the starting position of the runners. More liberal observers would insist on fairness and try to make the runners run the same distance, irrespective of the distribution of performances. Of course, doing so would most likely also reduce the differences between finishing times, so that in practice the two approaches to inequality are not necessarily opposed to each other.

  Another aspect of inequality of opportunity is that it may reduce the aggregate efficiency of an economy, or the average outcome, by weakening incentives. This effect, which has been emphasized and debated in the recent economic literature, is easily understood. In the inegalitarian race, the contestants who have the longest distance to run have little incentive to run fast, as they will likely be among the last over the finish line. But the same holds for people running the shortest distances, who know they will be among the first to finish even without making much effort. In other words, ex ante inequality has two important consequences: on the one hand, it generates more ex post inequality; on the other hand, it may reduce the aggregate performance of society. Thus, correcting inequality of opportunity may strengthen incentives—whereas correcting the inequality of outcomes is often held to do the opposite.

  Another difference between the two concepts of inequality is their measurement. Considerable knowledge has accumulated over the last 40 years or so on how to measure the inequality of scalar outcomes like earnings, income, or standard of living, and the value judgments behind these measures. Things are much less advanced for inequality of opportunity. Whereas statements like “there is less inequality in country A than in country B,” or “at time t than at time t-1” are easily understood and may be solidly grounded in data in the case of outcomes, they are difficult to substantiate in the case of inequality of opportunity.

  Defining inequality of opportunity, in the tradition of Dworkin (1981), Arneson, (1989) or Roemer (1998), as inequality in “the circumstances beyond the control of individuals,” the view taken in this chapter is that it will never be possible to observe differences among individuals across all the circumstances that may shape their economic success independently of their will. (The fact that personal “will” may itself be a “circumstance,” thus introducing a circularity into the definition of the inequality of opportunity, is discussed below.) Besides, what is not under the control of individuals, i.e., circumstances, and what is often referred to as “efforts,” may be extremely ambiguous. It should also be mentioned that circumstances and efforts may interact in producing some outcomes, thus making the distinction between them still more ambiguous. It follows that it is not possible to measure inequality of opportunity in the most general sense as we measure inequality of outcomes like earnings or income and compare it across space or time. However, this does not mean that it is not possible to measure some observable dimensions of inequality of opportunity and, most importantly, their impact on inequality of outcomes. This is actually what the inequality of opportunity literature does without always saying so. It is in this restricted sense that the expression will most often be used throughout this chapter.

  Analyzing how a person’s income depends on the education or income of their parents when that person was a child, on where they grew up, on gender, race, migration status, and so on informs us as to the role of specific circumstances—family characteristics, region of birth, or how the labor market discriminates across gender or race—in shaping the distribution of income. It matters for policy to know whether this role has increased or not, or that more inequality in the income of the present generation is likely to generate more inequality in future generations. Yet such analysis is essentially partial. On the one hand, nonobserved circumstances may counteract the effect of observed ones, so that concluding that there is more inequality of opportunity based on inter-generational earnings mobility may be misleading. On the other hand, measuring the influence of a given circumstance on outcomes does not say much about the channels through which this effect takes place and on the policies to correct it. Deeper analysis is needed for some specific policy to be recommended.

  The ambition of this chapter is essentially practical. It is not to contribute to the normative debate on the definition of inequality of opportunity in some absolute sense, or to the positive debate on its potential efficiency cost. It is rather concerned with the evaluation of the inequality specific to a given individual characteristic, duly considered as a circumstance; and, more importantly, to measure its contribution to the inequality of outcomes. The latter objective also applies to the case where several circumstances are considered simultaneously, as there are various ways of mapping the inequality of specific circumstances onto the inequality of given outcomes. In short, the chapter is rather brief on purely conceptual issues, on whether such and such a type of inequality is socially fair or unfair. The emphasis is on measurement issues and the practical use to be made of available measures.

  The chapter is organized into three sections. The first section addresses a few conceptual issues, in particular what is meant by inequality of opportunity, and discusses the theoretical principles that can be used for measuring it. Practical issues of measurement are taken up in the second section and illustrated through several examples and stylized facts from the burgeoning applied literature on inequality of opportunity, in particular on inter-generational economic mobility. The final section summarizes the nature of the data needed to monitor the observable dimensions of inequality of opportunity and makes recommendations on the statistics that should be regularly produced for effectively monitoring them.

  Conceptual Issues in Defining and Measuring Inequality of Opportunity

  This section first addresses the definition of opportunity as distinct from other factors that may contribute to the inequality of outcomes. It then discusses a few theoretical principles that may guide the measurement of inequality of opportunity.

  Opportunities and Economic Outcomes: Normative and Positive Issues

  Figure 5.1 summarizes the debate about the definition of inequality of opportunity as opposed to inequality of outcomes. The box on the left-hand side of the figure refers to factors beyond the control of an individual, called “circumstances,” and likely to affect how she or he will manage and perform in the economic sphere. Some of them are observable, like personal traits—gender, ethnicity, disabilities, place of birth—or parental background. Others, like genetic traits, parents’ social capital, or cultural values, generally are not. Together they form the basis for inequality of opportunity.

  The circle beneath the circumstance box stands for individual preferences, those presu
med to be independent from circumstances, thus representing some genetic origin or resulting from all sorts of life experiences, with no relationship with parental background. This assumption of course is quite debatable and will be discussed further below.

  Circumstances, preferences, and some key parameters from the economic sphere, like prices and wages, determine individual economic decisions in the box at the bottom of the figure—arrows (1), (2), and (6). To the extent that these decisions determine the contribution of the individual to the economic system, they are called “efforts.” A good example of this is the supply of labor, which may depend on the wealth of an individual, i.e., circumstances if inherited, the wage rate, taxes on labor income and, of course, preferences.

  Given the market mechanisms and the policies implemented in the economic sphere, and some randomness in those mechanisms, the individual contribution to the economic sphere results—arrows (3) and (4)—in some individual economic outcomes, be they earnings, income, consumption expenditures, etc. The key point, however, is that circumstances may also determine outcomes, together with individual decisions, through the economic sphere. This is the case, for instance, if some personal traits affect labor market rewards, as where there is discrimination according to gender, migrant status, ethnicity, or social origin. This direct influence of circumstances on outcomes through the economic sphere is represented by arrow (5), going from the circumstance box to the economic sphere. The corresponding inequality in outcomes has to do with what is often termed “procedural” inequality. Circumstances may also indirectly affect individual decisions by modifying the prices and wages faced by an individual—through arrow (6).

  Within this representation of the determinants of economic outcomes, the latter thus result directly from individual economic decisions, which result themselves from personal preferences and economic conditions, and indirectly from the way personal traits and parental influence may affect the rewards for a given effort in the economic sphere.