Measuring Equality of Opportunity in Latin America: a new agenda Washington DC January, 2009 Jaime Saavedra Poverty Reduction and Gender Group Latin America and the Caribbean Region BANCO MUNDIAL

Source: Povcalnet, World Bank Albeit slowly, poverty in Latin America is falling... Albeit slowly, poverty in Latin America is falling... However inequality is still high and persistent...

1 = “Incomes should be made more equal" 10 = “We need more income differences as incentive to individual effort" Source: World Values Survey; conducted by Inter-univerisity Consortium of Political and Social Research, University of Michigan, ; cited in Inglehart et al, There are polarized positions about income inequality in the world …. There are polarized positions about income inequality in the world ….

 Inequality of efforts and own decisions  Inequality of opportunities -Born Conditions/ circumstances: place of birth, gender, ethnicity, the parents education and employment situation influenced the adults income (and wellbeing). -But….empirically, are all these important? Behind the income inequality exists...

The initial circumstances explains between 17% and 40% of total inequality among adults (Ferreira et. al., 2008) The initial circumstances explains between 17% and 40% of total inequality among adults (Ferreira et. al., 2008) Inequality in per capita household consumption

The equality of opportunity principle and public policy The birth place, gender, ethnicity, income and education of parents should not determine the persons wellbeing

Many of the differencies in opportunities are generated during childhood And are carried out the whole life Continue during youth…. Different opportunities in the labor market, in access to credits and justice

¿Why do we need to continue measuring opportunities ?  Poverty and Inequality in outcomes today is at least partially a reflection of inequality in opportunity  Public policies and societies can influence directly inequality in opportunity  Might be relatively easier to reach political consensus around equalizing opportunities than equalizing income or wealth  Need to work on monitoring instruments that can effectively influence and guide policy

Measuring opportunities: Human Opportunity Index

Here, we present an instrument to measure the equality of opportunity focused on children that allows to assess  How far is Latin America (and each country in particular) from the ideal of equality of opportunity  Monitor if public policies are equalizing opportunities  It is a bottom-up approach, instead of the top–down decomposition done for adults

Basic Opportunities  Access to an investment good or service (information, schooling, credit, productive job) that are critical for individual development  Essential for poverty eradication. Virtually impossible to eradicate poverty without universal access.  Universality is a valid social objective

Human Opportunity Index Where,  Average access ( p )  Inequality of Opportunity Index ( D ) Coverage rate of a basic opportunity, discounted by the inequality in the allocation of opportunities

Access to basic opportunities O = P[I =1] = p where I  indicator of access to basis opportunities

Two Latin American children: Probability of completing 6th grade on time Child with 4 siblings in single- parent rural household, household head without formal education and per capita income of 1 US$ (PPP) Child with 1 sibling, in urban two- parent household, household head with secondary education and per capita income of 25 US$ (PPP)

In fact the probability of access may depend on circumstances (x) P[I=1/x] Circumstances  Set of exogenous characteristics for the individuals  But do want them to have no influence on access to basic opportunities

Key questions  Random assignment is preferable to assignments based on circumstances?  How should we measure the inequality of access to basic opportunities across circumstance groups?  How this inequality should be incorporated in one index.

Defining the Inequality of Opportunity Index Defining the Inequality of Opportunity Index (D) Coverage access Coverage rate for group k Share of group k in total population

Interpretations of the Inequality of Opportunity Index (D) 1. The weighted average of the distance between groups access and population access Distance between the distributions of the population and opportunities Share of the total number of opportunities that needs to be rearranged to ensure equality of opportunity

Relation between the probability of completing sixth grade on time and circumstances 1) The weighted average of the distance between groups access and population access 1) The weighted average of the distance between groups access and population access

Number of people having access to an opportunity Number of people having access to the opportunity in group k Total number of people in group k Distance between the distributions of the population and opportunities 2) 2) Average difference between population distribution and opportunities distribution Total number of people

Number of people having access to an opportunity Total number of people Number of people having access to the opportunity in group k Total number of people in group k Number of people in group k that would have access to the opportunity if equality of opportunity prevails Number of opportunities that needs to the rearrange to ensure equality of opportunity 3) Share of the total number of opportunities that needs to be rearranged to ensure equality of opportunity

The Human Opportunity Index (O) can be interpreted as the proportion of the opportunities - needed for universal access (N) - that are available (M) - and properly allocated (M-G)

A few properties of the Opportunity Index (O)

Computing the Opportunity Index First, estimate a logit model: Second, obtain the probabilities: I) Where (I) are indicators such as access to water and sanitation, completing 6 th grade on time and school attendance, (x) are circumstances such as gender, ethnicity, parents income, area, etc.

Third,estimate the Inequality of Opportunity Index (D): Computing the Opportunity Index (O)

Inequality of Opportunity (D) index for electricity (c.2005)

Basic opportunities included -Education Completing 6 th grade on time Completing 6 th grade on time School attendance, age School attendance, age Housing Drinkable water Drinkable water Electricity Electricity Sanitation SanitationCircumstances - Gender of the child - Location - Head of household education - Percapita family income - Number of children in the household - Family structure (both parents present) Fourth,estimate the Human Opportunity Index (O):

Results for Latin America

Human Opportunity Index (HOI)

Changes and decomposition of the Human Opportunity Index (circa ) Annual change in percentual points

Decomposing changes in Inequality of Opportunity The HOI (O) can be decomposed into a scale effect and a distributional effect: where the scale effect and the distributional effect are defined as follow: The decomposition allows analyze the change in O in terms of changes in coverage or in inequality

¿Increase in coverage or reduction of inequality? Changes in Human Opportunity Index Six grade on time School enrolment rate (10 to 14 years) Regional average =1.5 Regional average =0.5

Acces to water Sanitation Regional average =0.87 Regional average =1.0

Changes in Human Opportunity Index

The relevant basic opportunities are adjusted to the level of economic development Basic Opportunities in Chile

No state in Brazil has an Opportunity Index similar to Chile. Several states have an index inferior to Guatemala The Human Opportunity Index can vary inside a country Uruguay Opportunity Index of completing 6 th grade on time

The dispersion in opportunities in some areas of Paraguay is higher than in Chile or Guatemala Colombia Opportunity Index for access to sanitation, children 16 years or less Paraguay, 2005

Inequality of Opportunity: a new approach for public policy in Latin America More emphasis in early childhood (Institutional births,vaccination,nutrition) More emphasis in early childhood educacion and quality of education indicators Legal and institutional domensions (birth certificate, legal identity) Access to Information technologies :

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