Unpacking inequality of opportunity in Chile: The Role of Birth Circumstances Using a Shapley Decomposition

Working Paper 2024-676

Abstract

We investigate the role of inherited circumstances in the inequality of opportunities in the labor market in Chile. We estimate the aggregate Shapley contribution of circumstances consistently across various measures reflecting legitimate views on inequality. We argue that the decomposition of path-dependent measures does not consider the effect of circumstances on inequality through the interaction of inequality between and within types. This largely overestimates their contribution using the Gini index and underestimates it with entropy measures. Circumstances explain 27-28 percent of inequality in 2022 using three entropy measures and 17 percent with extreme sensitivity to the poorest. They also explain 36 percent of inequality with the Gini index, which is less sensitive to both extremes and primarily affected by social stratification. Despite its persistence, inequality of opportunity has mainly driven inequality since the Great Recession. We also investigated population group contributions using a decomposition based on the Recentered Influence Function.

Authors: Carlos Gradín, Gabriela Zapata-Román.