Inherited Inequality: Unmasking Socio-Economic Status in Latin America

How strong is the transmission of socioeconomic status across generations in Latin America? Paolo Brunori, Francisco Ferreira, and Guido Neidhöfer (2023) explore this prerogative in their working paper “Inequality of Opportunity and Intergenerational Persistence in Latin America” through empirical cross-country comparisons and conclude that not only it is greater than previously thought, but that over 50% of income inequality observed in the region can be attributed to inherited, predetermined characteristics such as sex, race, place of birth, and family background. However, variations across countries emphasize the need to scrutinize the nuanced interplay between intergenerational mobility and inequality of opportunity amid a context of unique challenges and promising shifts within the region. From the glimmers of hope in educational mobility to the cautionary tales of persistent disparities in countries like Guatemala, Honduras, and Nicaragua, the landscape of Latin American inequality calls for a holistic exploration and a fusion of diverse data sources in order to enhance our understanding of its nature and, in turn, steer policies accordingly towards building a more equitable future.

Beyond Numbers: Inequality's Nature and Persistence

In the realm of inequality, the nature of its persistence matters just as much, if not more, than its sheer magnitude. While some level of income inequality may be tolerable if it is accompanied by upward mobility over time or between generations, the real concern arises when economic advantage or disadvantage becomes entrenched across successive generations. In such cases, where certain individuals or families consistently enjoy privilege while others are systematically excluded, addressing inequality becomes an even more daunting challenge. This underscores the urgent need to delve into the underlying factors driving these dynamics and how they intersect with what is coined as inequality of opportunity. This concept accounts for the disparities stemming from factors beyond individual control, such as race, gender, or family background, and is essential for understanding the divergent paths of economic mobility across generations.

Understanding how social mobility and equality of opportunity are intricately interwoven is crucial. The study of intergenerational mobility focuses on how individuals ascend or descend the socioeconomic ladder relative to their parents. This is often measured by examining the correlation between parental and offspring incomes. Likewise, inequality of opportunity is assessed by scrutinizing the proportion of unequal outcomes attributable to predetermined factors beyond individual influence. Both concepts share a common framework, relying on estimations of how inherited variables shape present incomes.

Essentially, intergenerational mobility and inequality of opportunity share conceptual ground and practical correlation. Social mobility thrives when equality of opportunity flourishes, and conversely, limited opportunity hinders upward movement, solidifying existing inequalities across generations. Despite these overlaps, they are not precisely identical. Studies in Latin America and elsewhere have often focused on either intergenerational mobility or inequality of opportunity, overlooking the nuanced interplay between these crucial dimensions of social equality.

Inherited Futures: Economic Mobility and Unequal Opportunities in Latin America

Understanding the dynamics of intergenerational income mobility in Latin America presents formidable challenges, primarily due to the scarcity of datasets directly linking parental incomes to those of their adult children. While recent studies leveraging administrative data show promise, they often struggle to capture the experiences of informal workers, who comprise a substantial portion of the Latin American workforce. Consequently, much of our comprehension of the intergenerational persistence of inequality in the region hinges heavily on analyzing educational transmission. The early exploration of intergenerational mobility in Latin America, particularly focusing on educational outcomes, revealed a strong link between family background and individual educational success. Examples include studies by Behrman and Wolfe (1987) for Nicaragua, Binder and Woodruff (2002) for Mexico, Lam and Schoeni (1993) for Brazil, and Heckman and Hotz (1986) for Panama.

However, while educational analysis provides valuable insights, it offers an incomplete picture of the intergenerational reproduction of inequality. Other mechanisms, such as the transmission of employers, social networks, or socio-emotional skills, can weaken the link between changes in educational achievements and income. Hence, an alternative approach involves assessing the inequality of opportunity, quantifying present-day inequality exclusively due to predetermined circumstances beyond individuals' control, such as parental education, occupation, birthplace, race, ethnicity, and biological sex at birth. The incidence of such variables is extensively emphasised in different studies on inequality of opportunity in Latin America by Bourguignon, Ferreira, and Menendez (2007); Ferreira and Gignoux (2011) and Núñez and Tartakowsky (2011), among many others. However, parental education is consistently ranked as the single circumstance with the strongest influence on income inequality.

In practice, assessing inequality of opportunity often involves employing various empirical methods, typically based on two main conceptual approaches: ex-ante and ex-post inequality of opportunity. The ex-ante perspective evaluates opportunities based on predetermined circumstances and the potential outcomes for different levels of effort individuals can exert. Conversely, the ex-post approach considers the actual effort each person puts in when assessing unequal achievements. While these perspectives may not always perfectly align with real-time sequences, Brunori, Ferreira, and Neidhöfer (2023) argue that they provide a convenient framework for intuitive interpretation. Within this paradigm, and drawing on the analysis of representative household surveys covering nine Latin American countries from 2000 to 2015, the authors reveal that, on average, over half of current income inequality is attributed to inherited factors, ranging from 44% in Argentina to 63% in Guatemala. Specifically, the study highlights the significant influence of family background variables, such as parental education and occupation, on perpetuating inequality. Moreover, factors like geography and ethnicity at birth are also identified as pivotal, especially among families from lower socioeconomic backgrounds and in countries with historical legacies of conquest or slavery, such as Bolivia, Guatemala, and Brazil. Additionally, the study underscores the contribution of the rural-urban divide and ethnic disparities within urban areas to income inequality, with evidence suggesting a growing role of ethnicity over time in shaping income distribution, particularly in countries like Chile and Peru.

Recognizing the persistence of these patterns is pivotal for shaping targeted policy interventions that foster greater equality and social mobility in Latin America. The stark reality that half of income inequality stems from predetermined circumstances, underscores the urgency for action. By acknowledging this, policymakers can design interventions that address the root causes of inequality and pave the path toward fairer and more inclusive societies. Hence, embracing a holistic fusion of diverse data sources and methodologies becomes essential to propel us towards a future where equitable opportunities eclipse the shadows of inherited disparity, heralding the dawn of a more just and inclusive Latin America.

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