Abstract
We show that measures of inequality of opportunity fully consistent with Roemer (1998)’s inequality of opportunity theory can be straightforwardly estimated adopting a machine learning approach. Following Roemer, inequality of opportunity is generally defined as inequality between individuals exerting the same degree of effort but characterized by different exogenous circumstances. Due to difficulties of measuring effort, most empirical contributions so far identified groups of individuals sharing same circumstances, and then measured inequality of opportunity as between-group inequality, without considering the effort exerted. Our approach uses regression trees to identify groups of individuals characterized by identical circumstances, and a polynomial approximation to estimate the degree of effort exerted. To apply our method, we take advantage of information contained in 25 waves of the German Socio-Economic Panel. We show that in Germany inequality of opportunity declined immediately after the reunification, surged in the first decade of the century, and slightly declined again after 2010. The level of estimated unequal opportunity is today just above the level recorded in 1992.
Highlights
The ideal of equality of opportunity has fascinated mankind for centuries
At the top of the distribution we always find individuals who resided in West Germany before the fall of the Berlin Wall, whose parents had a high occupational position, and whose mothers had a high educational degree, whereas East Germans with low educated parents persistently qualify at the lowest end
Past studies report a rise in net income inequality in Germany in the 1990s until 2005/2006 and a subsequent stagnation characterized by small ups and downs (e.g. Biewen and Juhasz, 2012; Biewen et al, 2019; Jessen, 2019; Peichl et al, 2012)
Summary
The ideal of equality of opportunity has fascinated mankind for centuries. Its popularity among people from both sides of the political spectrum probably derives from the fact that it encompasses and balances two aspects: equality of outcomes and freedom of choice. Recent contributions have proposed approaches to improve the empirical specification of the underlying models, finding consistent econometric methods to identify the relevant circumstances, and eventually estimate IOP Within this literature, Li Donni et al (2015) and Brunori et al (2018) propose data-driven approaches to identify Roemerian types (i.e., sets of individuals characterized by identical circumstances). Despite a substantial change in the structure of opportunities over time, having being located in the Eastern or Western part of Germany in 1989 is, more than two decades after reunification, constantly a significant circumstance defining the subdivision in types over the course of time
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