Inequality of Opportunities and Long Term Earnings Measures: Evidence for Chile

Abstract

In this paper we assess the sensitivity of measures of inequality of opportunity to long-term earnings data. We compare indicators using four and seven year earnings with indicators that use the most commonly available yearly and monthly earnings. We argue that four and seven year earnings are preferable since they are a more precise measure of permanent income and are less affected by short-term variability. We use data available for Chile and found that the use of seven and four year earnings produces a 25% higher share of inequality of opportunity compared to yearly and monthly earnings measures. We find that parental education contributes most to income inequality in Chile. Finally, we perform Monte Carlo simulations, finding that our results are robust to several income processes.