Measuring Income Inequality of Opportunity : Accounting for Dynamic Complementarity

Abstract

According to the egalitarian principle of justice, life success can be attributed to two main factors: circumstances beyond an individual’s control and personal effort within an individual’s control. Roemer’s concept of equality of opportunity proposes that individuals should be compensated for inequalities resulting from unequal circumstances. Dynamic complementarity in skill formation suggests that early childhood skill gaps often persist into adulthood, leading to unequal outcomes. Using PSID data, I classify all measurable factors before the age of consent at 18 as circumstances. My findings show that 42.57% of inequality can be attributed to inequality of opportunity before an individual becomes an adult. Moreover, nearly 34% of total outcome inequality stems from circumstances faced by individual at or before age 5. These results highlight the importance of considering childhood circumstances (factors beyond individual control) when measuring inequality of opportunity rigorously.