How useful is inequality of opportunity as a policy construct?

October 23, 2014

By: Ravi Kanbur (Cornell University)
Adam Wagstaff (The World Bank)


The academic literature on equality of opportunity has burgeoned. More recently, the concepts and measures have begun to be used by policy institutions, including in specific sectors like health and education. Indeed, it is argued that one advantage of focusing on equality of opportunity is that policy makers are more responsive to that discourse than on equality of outcomes per se. This paper presents a critique of equality of opportunity in the policy context. While the empirical analysis to which the literature has given rise is useful and is to be welcomed, current methods for quantifying and implementing the concept with a view to informing the policy discourse face a series of fundamental questions that remain unanswered. Without a full appreciation of these difficulties, these methods may prove to be misleading in the policy context.

Career Progression, Economic Downturns and Skills

October 23, 2014

By: Jérôme Adda (University College London – London’s Global University)
Christian Dustmann (University College London – London’s Global University (UCL))
Costas Meghir (UCL Department of Economics)
Jean-Marc Robin (Département d’économie)
This paper analyzes the career progression of skilled and unskilled workers, with a focus on how careers are affected by economic downturns and whether formal skills, acquired early on, can shield workers from the effect of recessions. Using detailed administrative data for Germany for numerous birth cohorts across different regions, we follow workers from labor market entry onwards and estimate a dynamic life-cycle model of vocational training choice, labor supply, and wage progression. Most particularly, our model allows for labor market frictions that vary by skill group and over the business cycle. We find that sources of wage growth differ: learning-by-doing is an important component for unskilled workers early on in their careers, while job mobility is important for workers who acquire skills in an apprenticeship scheme before labor market entry. Likewise, economic downturns affect skill groups through very different channels: unskilled workers lose out from a decline in productivity and human capital, whereas skilled individuals suffer mainly from a lack of mobility.

Shelter from the Storm: Upgrading Housing Infrastructure in Latin American Slums

October 21, 2014

By: Sebastian Galiani (University of Maryland)
Paul Gertler (UC Berkeley)
Ryan Cooper (J-PAL)
Sebastian Martinez (Inter-American Development Bank)
Adam Ross (Bill & Melinda Gates)
Raimundo Undurraga (New York University)
This paper provides empirical evidence on the causal effects that upgrading slum dwellings has on the living conditions of the extremely poor. In particular, we study the impact of providing better houses in situ to slum dwellers in El Salvador, Mexico and Uruguay. We experimentally evaluate the impact of a housing project run by the NGO TECHO which provides basic pre-fabricated houses to members of extremely poor population groups in Latin America. The main objective of the program is to improve household well-being. Our findings show that better houses have a positive effect on overall housing conditions and general well-being: treated households are happier with their quality of life. In two countries, we also document improvements in children’s health; in El Salvador, slum dwellers also feel that they are safer. We do not find this result, however, in the other two experimental samples. There are no other noticeable robust effects on the possession of durable goods or in terms of labor outcomes. Our results are robust in terms of both internal and external validity because they are derived from similar experiments in three different Latin American countries.
JEL: I12 I31 J13 O15 O18

Transfers to Households with Children and Child Development

October 21, 2014

By: Del Boca, Daniela (University of Turin)
Flinn, Christopher (New York University)
Wiswall, Matthew (Arizona State University)
In this paper we utilize a model of household investments in the development of children to explore the impact of various transfer policies on the distribution of child outcomes. We develop a cost criterion that can be used to compare the cost effectiveness of unrestricted, restricted, and conditional cash transfer systems, and find that an optimally chosen conditional cash transfer program is the most cost efficient way to attain any given gain in average child quality. We explore several design elements for the conditional cash transfer system and discuss the role of production function uncertainty and measurement error.
Keywords: child development, time allocation, income transfers, conditional cash transfers
JEL: J13 D1

World Income Inequality Databases: an assessment of WIID and SWIID

October 21, 2014

By: Jenkins, Stephen P.
This article assesses two secondary data compilations about income inequality – the World Income Inequality Database (WIIDv2c), and the Standardized World Income Inequality Database (SWIIDv4.0) which is based on WIID but with all observations multiply-imputed. WIID and SWIID are convenient and accessible sources for researchers seeking cross- national data with global coverage for relatively long time periods. Against these benefits must be set costs arising from lack of data comparability and quality and also, in the case of SWIID, questions about its imputation model. WIID and SWIID users need to recognize this benefit-cost trade-off and ensure their substantive conclusions are robust to potential data problems. I provide detailed description of the nature and contents of both sources plus illustrative regression analysis. From a data issues perspective, I recommend WIID over SWIID, though my support for use of WIID is conditional.

Policy for better mental health

October 21, 2014

By: Richard Layard
Treating mental illness should be a top national priority, especially as proven psychological therapies effectively cost nothing. Richard Layard explains how CEP research has led to a new deal for mental health – but much remains to be done. Mental illness has much greater economic costs than physical illness – but evidence-based ways of treating mental health problems have no net cost to the Exchequer.
Keywords: mental health, psychological therapy, government policy