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