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Income inequality and inequality of opportunity: Cues from Egypt’s Arab Spring

Lire Ersado's picture
Also available in: العربية
This post was originally published in Let's Talk Development, the World Bank's Chief Economist Blog on October 15, 2012.

On October 8, President Mohamed Morsi issued a decree pardoning all "Arab Spring" political prisoners. While the decree, if implemented, marks a milestone in Egypt’s hard-fought 21-month-long revolution, the quotient of inequality that contributed to setting it off still remains.

From the Arab Spring to Occupy Wall Street, inequality has risen to the top of social agenda. However, our measures of inequality are often limited to final outcomes, such as income, wealth, and educational achievement, which do not distinguish between the impact on inequality of personal responsibility and that stemming from factors beyond the scope of individual responsibility.

Kim Eun YeulAcross the ideological spectrum, there is a role for personal responsibility and that hard work and wise choices ought to be rewarded. On the other hand, inequality that arises from differences in circumstances outside an individual’s control, such as race, gender, ethnicity, family background and birthplace, is generally viewed as unfair. There are two important implications from such distinction. The first is that while there may be arguments for and against inequality in final outcomes, there tend to be no disagreements about individuals having equal opportunity at achieving them Income inequality arising from differences in individual efforts, as long as there is a level playing field, may generally be considered acceptable. To the extent that final outcomes differ based on effort, it may even be argued to provide incentives for greater effort. Likewise, there are arguments against high income inequality, including assertions that it may reduce growth and hinder poverty alleviation efforts and be a cause for crime, violence and conflicts. The second implication is that the distinction would allow economic and social policies to compensate for factors beyond the control of individuals, while letting individuals bear the consequences of factors for which they can be held responsible.

So what type of inequality might have been a factor in Egypt’s Arab Spring?
Quantitative data from pre Arab Spring Egypt indicate that measures of income inequality in Egypt were moderate by international standards. According to a recent household data, income inequality, as measured by Gini coefficient, was about 31% in 2009. While this figure is higher than in the most egalitarian countries, it is not at a level that would contribute to the setting off massive uprisings witnessed during the revolution. Similarly, the World Value Survey (WVS) conducted in about 70 countries during 2005-2008 show that the public perceptions of income inequality in Egypt are low (Figure 1). While more than 12% of all WVS respondents agreed that “incomes should be made more equal,” the corresponding figure for Egypt was 3%. About 30% of Egyptians felt that “we need more income differences as incentives for individual efforts”, compared to 16% for all participating countries. Finally, nearly all respondents from Egypt (97%) agreed with the statement “if someone worked harder, it is fair for him or her to be more rewarded”, compared to 78% for all participating countries.

                        Figure 1: Perceptions of Income Inequality and Fairness in Egypt
        Click here to see a larger image of this figure.

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A recently completed World Bank study that drew on the methodology developed in the recent literature of inequality of opportunity (e.g., John Roemer, 1998; 2006 WDR) shows that Egyptians’ ability to achieve life goals depends to a large degree on circumstances beyond their control. The findings are enlightening: despite moderate income inequality, there are larger and growing disparities in development opportunities because of circumstances beyond control (Figure 2). Inequality of opportunity, measured by dissimilarity index, ranges from 6.5 percent in access to nutrition during the early years to 42 percent in acquiring a well-paid job by aspiring young females. Two important cautionary remarks are in order to help better understand these numbers. First, since it is impossible to account for all circumstances, the figures should be taken as a lower bound and the actual inequities could be considerably larger. Second, a relatively low disparity in access to early nutrition does not suggest a low prevalence of malnutrition in Egypt, rather it is indicative of the phenomenon affecting many children regardless of their circumstances.

        Click here to see a larger image of this figure.
                                                 (Click to Enlarge)

From the very start, circumstances influence a child’s probability of healthcare and nutrition services that are necessary to succeed in life. Family background, especially parental education and wealth, and geographic factors are key factors in children’s access to basic services. Later on, the disparities in children’s educational outcomes (such as test scores) are reinforced by these exogenous circumstances. Afterwards, during the individual’s early working years, productivity levels, probability of obtaining a well-paid job, and earnings suffer progressively more.

What do the findings mean for Egypt and its new government?
Egyptians’ ability to achieve life goals to a large extent depends on circumstances beyond their control. Inequality of opportunity, present substantially early in most Egyptians’ lives, tends to increase over time resulting in poor outcomes - at a time crucial for shaping their financial freedom and civic participation. While these findings shed light on some of the underlying causes of the uprising, they also provide insights on important social and economic policies that the new Government can focus on.

How can the Bank support the new government in this effort?
To help focus the attention on these underlying issues, the World Bank is organizing a policy workshop in Cairo in November 2012. Among other things, the findings of this study will be shared with policy-makers and other stakeholders. As we prepare to present these findings, we look forward to hearing your suggestions and ideas.

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