Media Briefings

MEASURING EQUALITY OF OPPORTUNITY: New evidence

  • Published Date: July 2018

A policy that improves equality in one generation, perhaps by providing education subsidies, may do little to nothing for the equality of the next generation. What’s more, depending on which notion of equality is adopted, the policy may even worsen it.

These are among the findings of research by Tim Lee and Ananth Seshadri, which constructs new ways to measure quantitatively several notions of equality of opportunity. Their study, published in the July 2018 issue of the Economic Journal, analyses an economic model in which successive generations of parents make decisions about their children’s education – and how that affects inequality and intergenerational mobility.

The results suggest that focusing all public subsidies on education can significantly increase average welfare and reduce inequality of lifetime earnings and wealth. But there is a moral dilemma around the impact on equality of opportunity: since rich parents invest more in their children, it may seem egalitarian to help children of poor parents achieve more education; yet rich parents may have become rich so as to invest more in their children, in which case it would be unfair to ignore their efforts.

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Mainstream economics typically emphasises efficiency over equity. One reason is because egalitarian notions can be subjective, and economists do not consider it their role to advocate how redistributive a society should be.

Notwithstanding, modern research does focus on what the effects of potential policies would be on quantitative measures of inequality (such as the Gini coefficient). By doing so, economists can evaluate whether certain redistributive policies can indeed achieve their stated goal, without passing any value judgment on the goal itself.

But such research is limited because there are several different notions of equality. The new study constructs ways to quantitatively measure several notions of ‘equality of opportunity’ discussed by philosophers, and shows that an increase in education subsidies can have conflicting effects depending on which notion of equality is considered.

This calls for greater vigilance from policy-makers when implementing redistributive policies: a policy that improves equality in one generation may do little to nothing for the equality of the next generation, and depending on which notion of equality is adopted, may even worsen it.

To arrive at such conclusions, the researchers employ a quantitative economic model in which parents invest in their children’s education, and adult children decide whether or not to attend college. Middle-aged children receive financial support from their now elderly parents, while beginning to invest in their own children’s education. This model is estimated to the degree of inequality and intergenerational mobility observed in the United States.

The driver of inequality in the model is genetic ability (how good children are at learning at school) and whether parents are financially constrained when investing in their children’s education. Because education is so important, the study finds that eliminating other sources of subsidies and focusing them all into education can increase average welfare by 28%, and decrease the Gini coefficient of lifetime earnings and wealth from 0.48 and 0.62 to 0.44 and 0.59, respectively.

But when considering how this affects equality of opportunity, there is a moral dilemma: since rich parents invest more in their children, at first glance it may seem egalitarian to help children of poor parents achieve more education. But rich parents may have become rich precisely to invest more in their children, in which case it would be unfair to ignore such parental efforts.

This distinction is important. If parental efforts should be rewarded, equality of opportunity is almost achieved: parental conditions determine only 2% of inequality in the children’s generation. And while raising education subsidies would have the undesirable effect of rewarding parents who didn’t care to invest in their children, the effect is minimal because the returns to their investment are small.

But if parental efforts should not be rewarded, parental conditions determine about half of children’s outcomes. Worse, even though equality of opportunity is so small, raising education subsidies barely help in the researchers’ benchmark scenario, reducing the role of parental conditions by only about two percentage points.

For a significant change, much more drastically progressive policies would be called for, such as not providing any subsidies for the rich (which would be akin to preventing them from having access to all forms of public education) and fully subsidising the poor (which would need to include not only schooling but education that takes place at home).

If simply raising education subsidies does not help, what can a government do to expand equality of opportunity? And should society reward the efforts made by parents specifically to promote their children’s welfare, even if it generates larger inequality in subsequent generations? More research and collaboration are needed among social scientists across all fields to answer such questions.

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Notes for editors: ‘Economic Policy and Equality of Opportunity’ by Sang Yoon (Tim) Lee and Ananth Seshadri is published in the July 2018 issue of the Economic Journal.

Sang Yoon (Tim) Lee is at the Toulouse School of Economics. Ananth Seshadri is at the University of Wisconsin-Madison.

For further information: contact Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh); Sang Yoon (Tim) Lee via email: sylee.tim@gmail.com; or Ananth Seshadri via email: aseshadr@ssc.wisc.edu