The Threat of Inequality of Opportunity
IMF Blog, November 7, 2019
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Bibliographic details
- Authors: Shekhar Aiyar, Christian Ebeke
- Published: November 7, 2019
Overview
- Title: The Threat of Inequality of Opportunity
- Authors: Shekhar Aiyar, Christian Ebeke
- Publication type: Chart of the Week / blog page
- Date: November 7, 2019
- Related theme tags in source content: Income inequality
Data and measurement
- Data source: World Bank’s Global Database on Intergenerational Mobility.
- Key measure of inequality of opportunity: the correlation between fathers’ and sons’ incomes (higher correlation = less likely that someone will be better off than their parents = less equal distribution of opportunity = lower intergenerational mobility).
- Income inequality measure used: Gini coefficient (described as the widely-used Gini coefficient).
Key findings
- Inequality of opportunity acts as an “umpire” in the relationship between income inequality and long-term growth.
- When the sample of countries is split by intergenerational mobility:
- For countries with high mobility, there is little discernible relationship between real GDP per capita growth and income inequality (Gini coefficient).
- For countries with low mobility, the relationship between real GDP per capita growth and income inequality (Gini coefficient) is strongly negative.
- Conclusion drawn: Inequality of opportunity is central to explaining the relationship between inequality and growth.
Mechanisms linking inequality of opportunity and persistent inequality
- Higher inequality of opportunity tends to persist under:
- Unequal access to education.
- Labor markets segregated into insiders and outsiders.
- Financial markets that favor the better-off.
- Persistent inequality of opportunity entrenching income inequality limits potential and prospects of low-income earners and stymies long-term growth.
Policy recommendations
- Governments need policies to:
- Widen access to high quality early education.
- Reduce labor market duality and structural unemployment.
- Broaden the sources of finance available to new entrepreneurs.
- Rationale: Leveling the playing field would not only promote social justice, but also enhance growth according to the evidence in the authors’ paper.
The Threat of Inequality of Opportunity — Shekhar Aiyar, Christian Ebeke; November 7, 2019.
