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Published in: Social Choice and Welfare 4/2019

23-11-2018 | Original Paper

Upward and downward bias when measuring inequality of opportunity

Authors: Paolo Brunori, Vito Peragine, Laura Serlenga

Published in: Social Choice and Welfare | Issue 4/2019

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Abstract

Estimates of the level of inequality of opportunity have traditionally been proposed as lower bounds due to the downward bias resulting from the partial observability of circumstances that affect individual outcome. We show that such estimates may also suffer from upward bias as a consequence of sampling variance. The magnitude of the latter distortion depends on both the empirical strategy used and the observed sample. We suggest that, although neglected in empirical contributions, the upward bias may be significant and challenge the interpretation of inequality of opportunity estimates as lower bounds. We propose a simple criterion to select the best specification that balances the two sources of bias. Our method is based on cross-validation and can easily be implemented with survey data. To show how this method can improve the reliability of inequality of opportunity measurement, we provide an empirical illustration based on income data from 31 European countries. Our evidence shows that estimates of inequality of opportunity are sensitive to model selection. Alternative specifications lead to significant differences in the absolute level of inequality of opportunity and to the re-ranking of a number of countries, which confirms the need for an objective criterion to select the best econometric model when measuring inequality of opportunity.

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Appendix
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Footnotes
1
Other well-established approaches can be used to measure IOp. Approaches differ in how they define the principle of equal opportunity and in the way the counterfactual distribution is constructed (Roemer 1998; Lefranc et al. 2009; Fleurbaey and Schokkaert 2009; Checchi and Peragine 2010). However, because the construction of these alternative counterfactual distributions generally requires the observation or identification of effort (an extremely difficult variable to measure), they are less frequently adopted in the empirical literature.
 
2
In principle, if cardinal circumstances are observed, regressors might be non-categorical. However, to the best of our knowledge in the empirical literature, this is never the case. Even if cardinal measures are available, i.e. parental income, authors tend to use categorical regressors for the quantiles of the continuous distribution (see, for example, Björklund et al. 2012).
 
3
Analogously to the Mincer equation, a log-linear specification is preferred by the majority of the authors. (Ferreira and Gignoux 2011)
 
4
Or, if adopting a parametric approach, regression with a larger number of controls and fewer degrees of freedom.
 
5
Note also that the approach proposed by Li Donni et al. (2015), although not explicitly discussed by the authors, represents a possible strategy to address this issue. They define Roemerian types using latent class analysis. That is, they assume that observable circumstances are manifestations of an unobservable membership to a number of latent groups. Their method reduces the number of types and hence avoids large sampling variance in the counterfactual distribution.
 
6
In a framework where the outcome is measured with error and the sampling variance of the counterfactual distribution is ignored, Wendelspiess (2015) predicts the opposite direction of bias.
 
7
Based on our conclusion Brunori et al. (2018) have recently compared popular econometric approaches to estimate IOp. Their analysis shows that conditional inference random forests, a machine learning algorithm introduced by Hothorn et al. (2006), outperforms other methods in predicting IOp out-of-sample.
 
8
We are aware that the number of alternative models exponentially increases when circumstances are interacted. Moreover, researchers might have the choice to consider some circumstances with different levels of aggregation, e.g. country/region/district of birth. In these cases, our method should be complemented with an algorithm that can restrict the number of models considered, for example, best subset selection or stepwise selection, see Gareth et al. (2013).
 
9
Austria (AT), Belgium (BE), Bulgaria (BG), Switzerland (CH), Cyprus (CY), Czech Republic (CZ), Germany (DE), Denmark (DK), Estonia (EE), Greece (EL), Finland (FI), France (FR), Croatia (HR), Hungary (HU), Ireland (IE), Italy (IT), Iceland (IS), Latvia (LV), Lithuania (LT), Luxembourg (LU), Malta (MT), the Netherlands (NL), Norway (NO), Poland (PL), Portugal (PT), Romania (RO), Spain (ES), Slovakia (SK), Slovenia (SI), Sweden (SE), and the United Kingdom (UK).
 
10
Those are based on the International Standard Classification of Occupations, published by the International Labour Office ISCO-08. Blue collar includes parents that who do not work or were occupied as: clerical support workers; service and sales workers; skilled agricultural, forestry and fish; craft and related trades workers; plant and machine operators; elementary occupations.
 
11
Education categories are based on the International Standard Classification of Education 1997 (ISCED-97). When coded into two, low includes ISCED below level 3.
 
12
ISCO-08 1-digit: armed forces occupations; managers; professionals; technicians and associate professionals; clerical support workers; service and sales workers; skilled agricultural, forestry and fish; craft and related trades workers; plant and machine operators; elementary occupations; did not work/unknown father/mother
 
13
Unknown father/mother, could neither read nor write; low level (ISCED 0-2); medium level (ISCED 3-4); high level (ISCED 5-6).
 
14
Figure 4 in Appendix C shows a closer but far from perfect ranking correlation between the estimates of Brzenziński (2015) and Suárez and Menéndez (2017).
 
15
Note that these are the sample sizes used in the regression; they include only individuals with non-missing information.
 
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Metadata
Title
Upward and downward bias when measuring inequality of opportunity
Authors
Paolo Brunori
Vito Peragine
Laura Serlenga
Publication date
23-11-2018
Publisher
Springer Berlin Heidelberg
Published in
Social Choice and Welfare / Issue 4/2019
Print ISSN: 0176-1714
Electronic ISSN: 1432-217X
DOI
https://doi.org/10.1007/s00355-018-1165-x

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