Measuring Equality of OMeasuring Equality of Opportunitypportunity in in Latin America: a new agendaLatin America: a new agenda
Washington DCWashington DCJanuary, 2009January, 2009
Jaime SaavedraJaime Saavedra Poverty Reduction and Gender Group Poverty Reduction and Gender Group
Latin America and the Caribbean RegionLatin America and the Caribbean Region
BANCO MUNDIALBANCO MUNDIAL
Source: Povcalnet, World Bank
Albeit slowly, poverty in Latin America is falling...Albeit slowly, poverty in Latin America is falling...
30
40
50
60
1981 1987 1993 1999 2005
Year
Po
vert
y ra
te in
Lat
in A
mer
ica
(%)
40
45
50
55
60
1981 1987 1993 1999 2005
Year
Gin
i Co
effi
cien
t, L
atin
Am
eric
a
However inequality is still high However inequality is still high and persistent...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, 1999-2000; cited in Inglehart et al, 2004.
There are polarized positions about income There are polarized positions about income inequality in the world ….inequality in the world ….
0
5
10
15
20
1 2 3 4 5 6 7 8 9 10
Fre
qu
ency
(%
)
Inequality of Inequality of effortsefforts and own decisions and own decisions
Inequality of Inequality of opportunitiesopportunities
- Born Conditions/ circumstances:Born Conditions/ circumstances: place of birth, gender, place of birth, gender, ethnicity, the parents education and employment situation ethnicity, the parents education and employment situation influenced the adults income (and wellbeing).influenced the adults income (and wellbeing).
- But….empirically,But….empirically, are all these important?are all these important?
Behind the income inequality exists...Behind the income inequality exists...
0%
20%
40%
60%
80%
100%
Colombia Ecuador Guatemala México Panamá Perú
Per
cen
tag
e o
f to
tal i
neq
ual
ity
Inequality of opportunity Other reasons
The initial circumstances explains between 17% The initial circumstances explains between 17% and 40% of total inequality among adults and 40% of total inequality among adults (Ferreira et. al., 2008)(Ferreira et. al., 2008)
Inequality in per capita household consumptionInequality in per capita household consumption
The equality of opportunity The equality of opportunity principle and public policyprinciple and public policy
The birth place, gender, ethnicity, The birth place, gender, ethnicity, income and education of parents income and education of parents should not determine the persons should not determine the persons
wellbeingwellbeing
Many of the differencies in opportunities are Many of the differencies in opportunities are generated during childhood generated during childhood
And are carried out the whole life And are carried out the whole life
Continue during youth…. Continue during youth….
Different opportunities in the labor market, in access to Different opportunities in the labor market, in access to credits and justice credits and justice
¿Why do we need to continue ¿Why do we need to continue measuring opportunities ?measuring opportunities ?
Poverty and Inequality in outcomes today is at least Poverty and Inequality in outcomes today is at least partially a reflection of inequality in opportunity partially a reflection of inequality in opportunity
Public policies and societies can influence directly Public policies and societies can influence directly inequality in opportunity inequality in opportunity
Might be relatively easier to reach political consensus Might be relatively easier to reach political consensus around equalizing opportunities than equalizing income or around equalizing opportunities than equalizing income or wealthwealth
Need to work on monitoring instruments that can Need to work on monitoring instruments that can effectively influence and guide policy effectively influence and guide policy
Measuring opportunities:Measuring opportunities:Human Opportunity IndexHuman Opportunity Index
Here, we present an instrument to measure the Here, we present an instrument to measure the equality of opportunity focused on children that equality of opportunity focused on children that allows to assessallows to assess
How far is Latin America (and each How far is Latin America (and each country in particular) from the ideal of country in particular) from the ideal of equality of opportunityequality of opportunity
Monitor if public policies are equalizing Monitor if public policies are equalizing opportunitiesopportunities
It is a bottom-up approach, instead of the It is a bottom-up approach, instead of the top–down decomposition done for adultstop–down decomposition done for adults
Basic Opportunities Basic Opportunities
Access to an investment good or service Access to an investment good or service (information, schooling, credit, productive job) that (information, schooling, credit, productive job) that are critical for individual developmentare critical for individual development
Essential for poverty eradication. Virtually impossible Essential for poverty eradication. Virtually impossible to eradicate poverty without universal access. to eradicate poverty without universal access.
Universality is a valid social objectiveUniversality is a valid social objective
Human Opportunity IndexHuman 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
)1( DpO
Access to basic opportunities Access to basic opportunities O = P[I =1] = pO = P[I =1] = p
where I where I indicator of access to basis opportunities indicator of access to basis opportunities
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
Guatemala
Nicaragua
Brazil
El Salvador
Honduras
Dominican Republic
Paraguay
Costa Rica
Colombia
Panama
Venezuela, R.B.
Bolivia
Peru
Uruguay
Ecuador
Chile
Argentina
Jamaica
Mexico
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
BrasilNicaragua
GuatemalaPerú
ColombiaR. Dominicana
Costa Rica Ecuador
HondurasUruguay
ParaguayBolivia
PanamáVenezuela
El SalvadorChile
MéxicoArgentinaJamaica
Two Latin American children: Two Latin American children: Probability of completing 6th grade on timeProbability 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 In fact the probability of access may depend on circumstances (depend on circumstances (xx))
P[P[II=1/=1/xx]]
Circumstances Circumstances Set of exogenous characteristics for the Set of exogenous characteristics for the
individualsindividuals But do want them to have no influence But do want them to have no influence
on access to basic opportunitieson access to basic opportunities
Key questionsKey questions
Random assignment is preferable to Random assignment is preferable to assignments based on circumstances? assignments based on circumstances?
How should we measure the inequality How should we measure the inequality of access to basic opportunities across of access to basic opportunities across circumstance groups?circumstance groups?
How this inequality should be How this inequality should be incorporated in one index.incorporated in one index.
Defining the Inequality of Opportunity Defining the Inequality of Opportunity Index Index (D)
m
kkk pp
pD
12
1 Coverage access
Coverage rate for group k
Share of group k in total population
Interpretations of the Inequality of Opportunity Interpretations of the Inequality of Opportunity Index (D)Index (D)
1.1. The weighted average of the distance The weighted average of the distance between groups access and population between groups access and population accessaccess
2. Distance between the distributions of the population and opportunities
3. 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
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
circumstance
pro
bab
ility
of
com
ple
tin
g s
ixth
gra
de
on
tim
e
m
kkk ppDp
1
2
Relation between the probability of completing sixth grade on time and circumstances
1)1) The weighted average of the distance between The weighted average of the distance between groups access and population accessgroups 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
N
Nkk
2) 2) Average difference between population distribution and opportunities distribution
Total number of people
M
M kk
m
kkkD
12
1
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
N
Mp
m
kkk MMG
12
1
k
kk N
Mp
kk NpM
3) Share of the total number of opportunities that needs to be rearranged to ensure equality of opportunity
m
kkk MM
MM
GD
12
1
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)
)(1
)1()1( GMNM
G
N
MDpO
A few properties of the Opportunity Index (O)A few properties of the Opportunity Index (O)
pD 10
0
kp
O
10 pO
Computing the Opportunity Index Computing the Opportunity Index
l
jijj
l
jijj
i
xExp
xExp
p
10
10
ˆˆ1
ˆˆ
ˆ
l
jijj
lii
lii xxxIp
xxIpLn
10
1
1 ˆˆ],....,|1[1
],....,|1[
• First, estimate a logit model:
• Second, obtain the probabilities:
Where (I) 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.
n
iii ppw
pD
1
ˆˆˆ2
1ˆ
n
iii pwp
1
ˆ
• Third,estimate the Inequality of Opportunity Index (D):
Computing the Opportunity Index (O)Computing the Opportunity Index (O)
0 5 10 15 20 25 30
Chile
Argentina
Mexico
Venezuela, R.B.
Costa Rica
Uruguay
Dominican Republic
Jamaica
Paraguay
Brazil
Ecuador
Colombia
El Salvador
Guatemala
Panama
Peru
Bolivia
Nicaragua
Honduras
Inequality of Opportunity (D) index for electricity Inequality of Opportunity (D) index for electricity (c.2005)(c.2005)
Basic opportunities Basic opportunities includedincluded
-- EducationEducation Completing 6Completing 6thth grade on time grade on time School attendance, age 10-14School attendance, age 10-14
- Housing- Housing Drinkable waterDrinkable water Electricity Electricity SanitationSanitation
CircumstancesCircumstances
- - Gender of the childGender of the child- LocationLocation- Head of household Head of household
educationeducation- Percapita family incomePercapita family income- Number of children in the Number of children in the
householdhousehold- Family structure (both Family structure (both
parents present)parents present)
)ˆ1(ˆˆ DpO • Fourth ,estimate the Human Opportunity Index (O):
Results for Latin AmericaResults for Latin America
Human Opportunity Index Human Opportunity Index (HOI)(HOI)
0 10 20 30 40 50 60 70 80 90 100
NicaraguaGuatemalaHonduras
El SalvadorBolivia
PeruParaguayPanama
Rep. DominicanaBrazil
JamaicaColombiaEcuador
MexicoUruguay
Venezuela, R.B.Costa Rica
ArgentinaChile
Circa 2005 %
)ˆ1(ˆˆ DpO
0 0.5 1 1.5
Jamaica
Venezuela, R.B.
Panama
Chile
Nicaragua
Ecuador
Colombia
Costa Rica
Guatemala
Mexico
El Salvador
Brazil
Peru
Paraguay
Changes and decomposition of the Changes and decomposition of the Human Opportunity Index Human Opportunity Index
(circa 1995-2005)(circa 1995-2005)
Annual change in percentual points Annual change in percentual points
Decomposing changes in Inequality of OpportunityDecomposing changes in Inequality of Opportunity
Dpinicialfinal OO
iiiFp DpDp 11
• 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:
p D
iFFFD DpDp 11
The decomposition allows analyze the change in O in terms of changes in coverage or in inequality
-0.50 0.50 1.50
Paraguay
Jamaica
Chile
Rep. Dominicana
Perú
Venezuela
Guatemala
Panamá
Colombia
Ecuador
México
Costa Rica
El Salvador
Brasil
Honduras
Nicaragua
Change in HOI
Scale effect Distribution effect
-0.50 0.50 1.50 2.50
Jamaica
Panamá
Chile
Costa Rica
Venezuela
Ecuador
Honduras
Rep. Dominicana
Guatemala
Nicaragua
México
Brasil
El Salvador
Paraguay
Perú
Colombia
Change in HOI
Scale effect Distribution effect
¿Increase in coverage or reduction of inequality?
Changes in Human Opportunity Index Changes in Human Opportunity Index
Six grade on timeSix grade on time School enrolment rate (10 to 14 years)School enrolment rate (10 to 14 years)
Regional average =1.5Regional average =1.5Regional average =0.5Regional average =0.5
-0.50 0.50 1.50 2.50
Jamaica
El Salvador
Colombia
Panamá
Nicaragua
Venezuela
Ecuador
Paraguay
Brasil
México
Guatemala
Costa Rica
Chile
Perú
Change in HOI
Scale effect Distribution effect
-1.00 0.00 1.00 2.00 3.00
Jamaica
Venezuela
Nicaragua
Perú
Colombia
Brasil
Panamá
Chile
Ecuador
El Salvador
México
Guatemala
Costa Rica
Paraguay
Change in HOI
Scale effect Distribution effect
Acces to waterAcces to water Sanitation Sanitation
Regional average =0.87Regional average =0.87
Regional average =1.0Regional average =1.0
80
90
100
70 80 90 100
coverage, p (percent)
eq
ual
ity
of
op
po
rtu
nit
y, 1
–D (
per
cen
t)
O =70% O =80%
Jamaica 1996
Jamaica 2002
Brazil 1995
Brazil 2005
Changes in Human Opportunity IndexChanges in Human Opportunity Index
The relevant basic opportunities are adjusted The relevant basic opportunities are adjusted to the level of economic developmentto the level of economic development
Basic Opportunities in Chile Basic Opportunities in Chile
0
0.2
0.4
0.6
0.8
1
0.00 0.25 0.50 0.75 1.00
Coverage (p)
equ
alit
y o
f o
pp
ort
un
ity
(1-D
)
access to internet (14 years old)
access to computer (14 years)
sanitation
school assistance on time
6th grade on time
School assistance, age 10-14
electricity
O=40%
O=20%
0=80%
O= 5%
water
0 10 20 30 40 50 60 70 80 90 100
Piauí
Alagoas
Sergipe
Maranhão
Bahia
Pernambuco
Paraíba
Ceará
Rio de Janeiro
Rio Grande do Norte
Goiás
Mato Grosso
Minas Gerais
Mato Grosso do Sul
Distrito Federal
Espírito Santo
Rio Grande do Sul
Paraná
São Paulo
Santa Catarina
Human Opportunity Index (percent)
ChileBrazilGuatemala
IndiceIndice de de OportunidadesOportunidades de de completarcompletar 6to 6to gradogrado a a tiempotiempo (c. 2005)(c. 2005)
0 10 20 30 40 50 60 70 80 90 100
Piauí
Alagoas
Sergipe
Maranhão
Bahia
Pernambuco
Paraíba
Ceará
Rio de Janeiro
Rio Grande do Norte
Goiás
Mato Grosso
Minas Gerais
Mato Grosso do Sul
Distrito Federal
Espírito Santo
Rio Grande do Sul
Paraná
São Paulo
Santa Catarina
Human Opportunity Index (percent)
ChileBrazilGuatemala
IndiceIndice de de OportunidadesOportunidades de de completarcompletar 6to 6to gradogrado a a tiempotiempo (c. 2005)(c. 2005)
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 The Human Opportunity Index can vary inside a country
Uruguay
Opportunity Index of completing 6th grade on time
The dispersion in opportunities in some areas of The dispersion in opportunities in some areas of Paraguay is higher than in Chile or Guatemala Paraguay is higher than in Chile or Guatemala
IndiceIndice de Oportunidades para de Oportunidades para accessoaccesso a hogar con saneamiento a hogar con saneamiento entre nientre niñños hasta 16 aos hasta 16 añños (c.2005)os (c.2005)
0% 20% 40% 60% 80% 100%
San Pedro
Caaguazú
Itapúa
Resto del Pais
Alto Paraná
Asuncion
Central
PARAGUAY
GUATEMALA
BRASIL
ARGENTINA
CHILE
URUGUAY
Human Opportunity Index (percent)
IndiceIndice de Oportunidades para de Oportunidades para accessoaccesso a hogar con saneamiento a hogar con saneamiento entre nientre niñños hasta 16 aos hasta 16 añños (c.2005)os (c.2005)
0% 20% 40% 60% 80% 100%
San Pedro
Caaguazú
Itapúa
Resto del Pais
Alto Paraná
Asuncion
Central
PARAGUAY
GUATEMALA
BRASIL
ARGENTINA
CHILE
URUGUAY
Human Opportunity Index (percent)
ColombiaColombia
Opportunity Index for access to sanitation, children 16 years or less
Paraguay, 2005
Human Opportunity Index
Doing BusinessHuman Development
Index
1 Chile Chile Argentina2 Argentina México Chile3 Costa Rica Perú Uruguay4 Venezuela Jamaica Costa Rica5 Uruguay Panamá México6 México Colombia Panamá7 Ecuador El Salvador Brasil8 Colombia Nicaragua Venezuela9 Brasil Uruguay Colombia
10 R. Dominicana R. Dominicana R. Dominicana11 Panamá Paraguay Perú12 Jamaica Argentina Ecuador13 Paraguay Guatemala Paraguay14 Bolivia Costa Rica Jamaica15 Perú Honduras El Salvador16 El Salvador Brasil Nicaragua17 Guatemala Ecuador Honduras18 Honduras Bolivia Bolivia 19 Nicaragua Venezuela Guatemala
Inequality of Opportunity: a new approach Inequality of Opportunity: a new approach for public policy in Latin America for public policy in Latin America
1. More emphasis in early childhood (Institutional births,vaccination,nutrition)
2. More emphasis in early childhood educacion and quality of education indicators
3. Legal and institutional domensions (birth certificate, legal identity)
4. Access to Information technologies :
Thank YouThank You
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