Evidence for Inequality of Opportunities. A Cohort Analysis for Chile

Abstract

In this paper we estimate the impact of inequality of opportunity on inequality of income in the Chilean economy. We focus on the distribution of individual labor income. It is found that the share of overall inequality which is due to inequality of opportunities is relatively high in Chile, but the degree of overall inequality is lower than in other countries in the region. It is also found that fatherís education is the circumstance that contributes the most to inequality of income in Chile. This variable is likely to be highly correlated with parental household income, which is a key determinant in the formation of early human capital through its impact on nutrition, health and education. We also conduct a cohort analysis to study the impact of opportunities on labor income inequality in three groups of workers : those that are 25-34, 35-44 and 45-54 years old. We found that overall inequality increases with the age of the cohort and that the absolute contribution of opportunity in income inequality also increases with the age of the cohort. That the share of opportunity in income inequality is particularly low in the youngest cohort, may be associated to a more even playing Öeld resulting from the introduction of opportunity equalizing policies in the last decades. Further evidence for this latter hypothesis is provided by decomposing the change in inequality across cohorts based on changes on circumstance endowments and returns, based on the methodology introduced by Juhn, Murphy and Pierce (1994).