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Improving the Measurement of the Relationship between Opportunities and Income: Evidence from Longitudinal Data from Chile

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  • Dante Contreras
  • Osvaldo Larrañaga
  • Esteban Puentes
  • Tomás Rau

Abstract

type="main"> The relationship between exogenous circumstances faced in early childhood (opportunities) and earnings has been increasingly studied in the past decade. In this article we assess the sensitivity of this relationship to different income measures. Typically the empirical evidence is based on short-term income measures that suffer from variability and measurement error. Using longitudinal data from Chile, we find that when four- and seven-year earnings are used, the relationship between inequality of opportunity and income inequality is significantly higher than that obtained with yearly measures. Monte Carlo simulations with several data-generating processes confirm this result. This supports policies targeted to reduce long-term income inequality via providing equal opportunity to individuals at early stages in life.

Suggested Citation

  • Dante Contreras & Osvaldo Larrañaga & Esteban Puentes & Tomás Rau, 2014. "Improving the Measurement of the Relationship between Opportunities and Income: Evidence from Longitudinal Data from Chile," Development Policy Review, Overseas Development Institute, vol. 32(2), pages 219-237, March.
    • Handle: RePEc:bla:devpol:v:32:y:2014:i:2:p:219-237
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    File URL: http://hdl.handle.net/10.1111/dpr.12052
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    References listed on IDEAS

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    1. Saavedra-Chanduví, Jaime & Molinas, José R. & De Barros, Ricardo Paes & Ferreira, Francisco H. G., 2009. "Measuring Inequality of Opportunities in Latin America and the Caribbean," IDB Publications (Books), Inter-American Development Bank, number 361, November.
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    6. Tomás Rau, 2013. "Modeling structural equations with endogenous regressors and heterogeneity through derivative constraints," Quantitative Economics, Econometric Society, vol. 4(1), pages 125-148, March.
    7. Francisco H.G. Ferreira & Jérémie Gignoux, 2011. "The Measurement of Inequality of Inequality of Opportunity: Theory and an Application to Latin America," Post-Print halshs-00754503, HAL.
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    9. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    10. David Bravo & José A. Valderrama Torres, 2011. "The impact of income adjustments in the Casen Survey on the measurement of inequality in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 38(1 Year 20), pages 43-65, June.
    11. François Bourguignon & Francisco H. G. Ferreira & Marta Menéndez, 2007. "Inequality Of Opportunity In Brazil," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(4), pages 585-618, December.
    12. Ricardo Paes de Barros & Francisco H.G. Ferreira & Jose R. Molinas Vega & Jaime Saavedra Chanduvi, 2009. "Measuring Inequality of Opportunities in Latin America and the Caribbean," World Bank Publications, The World Bank, number 2580, September.
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    Cited by:

    1. Carlos Gradín & Gabriela Zapata-Román, 2024. "Unpacking inequality of opportunity in Chile: the role of birth circumstances using a Shapley decomposition," Working Papers 676, ECINEQ, Society for the Study of Economic Inequality.
    2. Gabriel Otero & Rafael Carranza & Dante Contreras, 2017. "‘Neighbourhood effects’ on children's educational achievement in Chile: The effects of inequality and polarization," Environment and Planning A, , vol. 49(11), pages 2595-2618, November.
    3. Alejandro Bayas & Nicolas Grau, 2021. "Inequality of Opportunity and Juvenile Crime," Working Papers wp524, University of Chile, Department of Economics.
    4. Bayas, Alejandro & Grau, Nicolás, 2023. "Inequality of opportunity in juvenile crime and education," International Journal of Educational Development, Elsevier, vol. 103(C).

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