Monday, August 1, 2011

Parental education and income inequality in India

One of the most contentious ideological debates in public policy making is whether governments should seek to promote equality of opportunity or equality of outcomes. Over the years, public policies on various issues in India have been formulated with the specific objective of promoting equality of outcomes.

In this context, Ashish Singh has a nice paper which explores this debate by examining the relative contributions of individual effort and luck (or circumstances) towards the widening income inequality among households in India. He writes,

"This paper estimates the opportunity share of inequality in wage earnings as well as per capita household earnings for urban India and opportunity share of inequality in per capita household earnings as well as per capita household consumption expenditure for Rural India, for different age based cohorts for the year 2004‐05.
The estimates obtained are the lowest bound estimates and suggest that government’s redistributive policies should aim at reducing inequality of opportunity rather than aiming at reducing income inequality itself because inequality of opportunity is the cause which leads to income inequality which is an outcome."

About the philosophical underpinnings for this conclusion and its policy implications, he writes,

"The main suggestion of an equal opportunity philosophy is that social and economic inequalities due to factors beyond the individual responsibility are inequitable and to be compensated by society; whereas inequalities due to personal responsibility are equitable and not to be compensated. Therefore, according to the opportunity egalitarian conception, to judge a country’s status as an egalitarian society, one has to distinguish, in a given distribution of outcomes, the inequalities due to personal responsibility as opposed to the inequalities due to non responsible factors or opportunities...

By trying to understand the causes and the components of the earnings inequality, we will be in a better position to suggest focused policies in terms of type and extent of redistribution and welfare measures required to reduce (and how much to reduce) the disparities in the society."

He calculates the share of income inequality in urban and rural areas due to inequality of opportunity arising out of differences in parental education for four cohorts of people in the age group 20-65 for their respective incomes for the year 2004-05.

The paper uses only parental education as circumstance to calculate variations in percapita wage and household incomes, and per capita consumption expenditures. It does not examine the impact of other circumstance factors like parental occupation, caste, religion, place of birth, etc, which are likely to contribute significantly towards income inequality.

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