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Purpose – This chapter aims at proposing a methodology for evaluating long-term income distributions according to the equality of opportunity principle.Approach – We refer…
Purpose – This chapter aims at proposing a methodology for evaluating long-term income distributions according to the equality of opportunity principle.
Approach – We refer to the concept that there is equality of opportunity if the value of the set of opportunities is the same for all individuals, regardless of their circumstances. This approach partitions the population into types, that is, groups of individuals with the same set of circumstances. The type-specific outcome distribution is interpreted as the opportunity set of individuals with the same circumstances. We propose partial and complete rankings on long-term type-specific distributions. Accordingly, these rankings capture inequality between types, and are neutral to inequality within types.
Findings – We show the relationship between long-run and short-run inequality of opportunity and that this relationship can be interpreted in terms of intragenerational mobility. We also show that mobility can act as an equalizer of opportunities when the accounting period is extended.
Originality – The contribution of this work is twofold. First, we develop a decomposition of some measures of long-term inequality of opportunity into measures of short-term inequality of opportunity, applied to distributions, which neutralize the effect of effort on individual income, and may be employed to explain eventual differences arising from an analysis based on the intertemporal context. Second, we propose an index to measure intragenerational mobility and show how it can be interpreted as long-term EOp. Our measure captures only that part of reranking due to the equalization of opportunities over time.
Individuals are completely responsible for their outcomes (income, utility, health and so on) and, therefore, total inequality is due to individual responsible choices. This view has been challenged by philosophers and economists for the last three decades since the magnum opus by John Rawls (1971). These authors have argued that individuals are only responsible for their own efforts, and, therefore, people should be compensated for a variety of circumstances beyond their control. The meritocracy approach rejects the existence of circumstances and, in accordance with this, considers that total inequality is due to inequality of effort. On the contrary, the equality of opportunity approach recognizes the existence of factors that affect individuals and over which they have no control. For the former approach, the relevant equilizandum is individual freedom of access to education, positions and jobs. For the latter approach, the relevant equilizandum is the set of available opportunities to acquire those attributes required to compete for a position or job.