Inequality of opportunity with regard to household wealth

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Economic inclusion

Chart 5.5 shows actual inequality of household wealth for each country, using a measure of inequality that is comparable across countries and over time.¹ The measure is shown for two rounds of the LiTS – 2006 and 2010 – to give a sense of its stability. With a few exceptions (such as Belarus, where inequality declined, and Albania, where it increased) asset inequality appears to be very stable – that is, there is a high correlation between country-level asset inequality in 2006 and 2010. In both years, Romania turns out to be the most unequal transition country with respect to household assets, while inequality is lowest in Uzbekistan, Tajikistan and the
Kyrgyz Republic.²

To what extent is asset inequality in each country attributable to inequality of opportunity based on the circumstances identified above, rather than individual effort or luck? Chart 5.6 gives the answer. For each country the height of the bar shows IOp^wealth – the extent to which the four circumstance-related variables explain total variation in the asset index across households – while the subdivisions in each bar indicate the contributions of each individual circumstance to IOp^wealth. Like the previous charts, the chart is organised in terms of geographical groups of countries; within each group, countries are shown in declining order of IOp^wealth.

Inequality of opportunity with regard to wealth varies substantially across and within most regions. Circumstances at birth explain less than 1 per cent of total variation in the LiTS-based household asset index in some countries (Estonia, Germany and Sweden), but over 35 per cent in others (FYR Macedonia, Georgia and Tajikistan). On average, IOp^wealth is lowest in western Europe, but is almost as low in CEB countries (except Croatia) and Turkey. Most Central Asian, EEC and SEE countries have much higher IOp^wealth, although with significant variation. For example, IOp^wealth levels in Armenia, Mongolia and Uzbekistan are no higher than in CEB countries.

The relative contributions made by circumstances to IOp^wealth also vary greatly across regions and countries. In most Central Asian and EEC countries, together with Bulgaria, Lithuania, Romania, Slovak Republic, Slovenia and Turkey, the most important driver of IOp^wealth is the place of birth. In western European countries, the place of birth does not noticeably contribute to IOp^wealth, except in France (where a rural birthplace tends to increase household wealth). By contrast, in Hungary, Latvia and Poland, and particularly in the Western Balkans, IOp^wealth seems to be driven predominantly by parental education.

Chart 5.7(a) and (b) shows IOp^wealth for male and female-headed households respectively.³ Although there are some differences across countries, the regional ranking (and that of most countries within each region) is the same as in Chart 5.6. However, IOp^wealth is higher in the male-headed sample than the female-headed sample – that is to say, circumstances are better able to explain variation in outcomes among men than among women. In Bulgaria, FYR Macedonia, Romania and Tajikistan the difference exceeds 10 percentage points.

In addition, the two samples differ somewhat in terms of the circumstances that tend to account for inequality of opportunity, particularly in Central Asian, EEC and SEE countries, where IOp^wealth is highest. Compared with male-headed households, IOp^wealth in female-headed households appears to depend less on whether a birthplace is urban or rural and more on parental education. This may reflect the fact that differences in wealth between urban and rural households tend to be greater in these regions when the households are headed by men, rather than women. A possible explanatory factor may be remittances, which are significant in many of these countries and may have the effect of narrowing the asset gap between urban and rural households headed by females.

1. Namely, the standard deviation of the index for each country divided by variance in the index for households across all countries; see McKenzie (2005). This measure is used because Gini coefficients cannot be calculated for the asset index as it contains negative values. [back]
2. Based on the correlation between LiTS-based inequality of household assets for 2010 and the most recent Gini coefficients of income inequality (source: SWIID). [back]
3. Overall, 53 per cent of the heads of households in the 2010 LiTS are female and 47 per cent are male. The male share falls between 40 and 60 per cent in 21 of the 35 countries. [back]

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