World Bank’s Approach To Equity Measurement Paolo Verme World Bank and Department of Economics, University of Torino “International Experts Conference on Measurement and Policy Approaches to Enhance Equity for the New Generations in MENA” Rabat 22-23 May, 2012
Présentation de Paolo Verme, Senior Poverty Specialist, World Bank, à la Conférence Internationale d'Experts sur la mesure et les approches politiques pour améliorer l'équité pour les nouvelles générations dans la région MENA à Rabat, Maroc du 22 au 23 mai 2012.
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World Bank’s Approach To Equity Measurement
Paolo VermeWorld Bank and Department of Economics, University of Torino
“International Experts Conference on Measurement and Policy Approaches to Enhance Equity for the New Generations in MENA”
Rabat 22-23 May, 2012
Two questions and two puzzles
Q1) Would you like to reduce income inequality?
Q2) Would you like all incomes to be equal?
P1) So, what level of inequality would you like?
P2) Is there an optimal level of inequality?
Inequality and Equity
• Do people think about the Gini index when they talk about inequality?
• Or, do they think about equal treatment, equal rights, equal opportunities, fairness and justice?
• Inequality and inequity are two different concepts but easily confused
Definitions
• Inequality (equality) measurement: The quantitative measurement of distances between objects (incomes, heights or stars). The Gini coefficient was originally derived from astrophysics. The question asked is what is the combined distance between objects?
• Equity (inequity) measurement: The measurement of inequality under principles of fairness and social justice. The question asked is what is the difference between outcomes of people who have equal rights and make equal efforts?
The World Bank Approach• The WB has for long insisted on equity, not inequality • WDR (2006) Equity and Development, defines equity in terms
of fairness
• Inequality is not ignored. Poverty studies and Branko Milanovic work on world inequality, but few country studies focus on inequality per se
• Inequality reduction is not a policy goal
• Equity improvement is the policy goal
Why Equity Matters for Children (WDR, 2006)
Why Equity Matters for Children (WDR, 2006)
Equity Measurement – Recent Advances• Inequality of opportunities
– Roemer (1998)– WDR on Equity and Development, 2006– Recent World Bank work
• Relative deprivation– Runciman (1966), Yitzhaki (1979)– New indexes of relative deprivation– Recent World Bank work
• Perceptions of welfare– Happiness literature– Household Budget Surveys Vs. World Values Surveys– Recent World Bank work
Some recent examples of WB workWorldwide• Inequality of opportunity, various countries• Human Opportunity Index (HOI), LAC and other countries• Equitable distribution subsidies, various countries• Equitable distribution of social transfers, various countries• Health equity financing, various countries• Labor Opportunities in ECA
MENA• Gender equity in West Bank and Gaza• Labor Deprivation in Morocco• Perceptions of inequality in Egypt• Inequality of opportunities for Children in Egypt
Inequality of opportunity (Ferreira, F.)
Literature:• Rawls (1971) “A theory of justice”• Sen (1980) “Equality of What?”• Roemer (1998) “Equality of Opportunity”
Contents:• Circumstances Vs. Efforts• Ex-ante Vs. ex-post approach
– Ex-ante: inequality in the value of opportunity sets across types. Values the opportunity set of each individual but does not observe efforts
– Ex-post: inequality among people who exert the same degree of efforts. Does not value the opportunity set of each individual but observes efforts levels
Inequality of OpportunitySome Evidence (Ferreira, F.)
Inequality of OpportunitySome conclusions (Ferreira F.)
• Inequality of opportunity is possibly the most salient inequality concept in terms of its normative content: “bad inequality”
• It can be measured with respect to income or educational achievement, by ex-ante or ex-post approaches
• A review of the recent applied literature yields lower bound estimates from 2% (Denmark) to 50% (Guatemala)
Human Opportunity Index - LAC• The Human Opportunity Index (HOI) measures the percentage of available opportunities
needed to ensure children’s universal access to basic services and their equal allocation.
• The index ranges from 0 (absolute deprivation) to 100 (universality).
• The HOI for education includes two indicators: completion of sixth grade on time and school attendance for ages 10-14.
• The HOI for housing includes three indicators: access to water, sanitation, and electricity.
• The HOI for Latin American children has increased in the last decade for all basic opportunities
• Within each dimension (i.e. education and housing), the indicators have the same weight. In generating the composite HOI, each dimension has the same weight.
• Parents education seems to be the most important factor in explaining unequal distribution of children’s opportunities
• The Inequality of opportunity work is generally based on HBSs
• HBSs cover 95-98% of the population but typically exclude the extremely rich and the extremely poor
• HBSs very rarely measure intra-household distribution of resources
• HBSs very rarely question children, only adults• Head of households may not report accurately
information on children work, education, disabilities and mental status and do not usually report domestic violence
• HBSs do not cover street/homeless/parentless children• Standard HBSs are not sufficient instruments to assess
children opportunities
Secular and Recent Facts about Inequality
• Poverty decline Vs. inequality increases - secular trends
• The poor are joining the middle-class but the rich have left everyone else behind
• Then, the 2007-2008 global financial crisis, evidence on top 1% of incomes, banks’ premiums, wall street protests, Arab spring, bankrupt governments,…