Ideas Hub

What does it mean?

A high level of inequality of opportunities implies that the circumstances in which a child was born will determine with a high degree of certainty his or her future social, economic and political positions. That is, they will mark their trajectories throughout the educational cycle, access to the labor market, material well-being, justice systems, citizen security and their ability to participate in decisions and in the public space. As their resulting social destinies go beyond individual responsibility, inequality of opportunities is considered unjust because people cannot be held accountable.

How are they different?

Intragenerational mobility corresponds to changes in an individual’s social position over the course of his or her lifetime, which makes it possible to assess the stability of a person’s income. In contrast, intergenerational mobility occurs between generations and analyzes the degree of ‘inheritance’ between the characteristics of parents and children in dimensions such as schooling, income or wealth. Thus, intergenerational mobility provides information on the effects of social circumstances of origin on the economic and social destiny of individuals.

What do they imply?

In societies where the degree of inheritance is higher, individuals will experience greater social rigidity and limited movement, while in societies where the degree of inheritance is lower, they will experience less social reproduction and greater possibilities of movement.

How are they distinguished?

Absolute mobility is the result of changes in individuals’ incomes that generate variations in the number of individuals belonging to different classes-what we call class size-over time. This measure helps to indicate how changes in relative class size affect rates of social mobility.

Relative mobility incorporates the concept of equality of opportunity and refers to the difference in opportunity that a person from a given class of origin has, with respect to people with another origin, to access a destination class with respect to other destinations, controlling for the change in the size of these classes. Therefore, relative mobility allows us to know the levels of openness of different destination classes for different origin classes.

What does it mean?

According to the Organisation for Economic Co-operation and Development (OECD), economic inequality results from the uneven distribution of economic resources among individuals, social groups or countries, and their concentration in segments of the population. Traditionally, the phenomenon is quantified with the GINI, an index that calculates the income dispersion of the entire population. This index varies between 0 and 1; the value 0 corresponds to perfect equality, where all individuals have the same income, and the value 1 corresponds to perfect inequality, where only one person has all the income.

Meaning?

The United Nations (UN) stresses that inequality is not just about wealth or income, but can encompass life expectancy, how easy it is for an individual to access health services, quality education or public services, and can also be reflected between social groups or between genders. This is what we call, for example, social, educational or gender inequality, the consequences of which can manifest themselves both on a day-to-day and long-term basis.

What are the differences?

Equality is not synonymous with equity, since despite their conceptual proximity they have different meanings. On the one hand, equity introduces an ethical principle or principle of justice in equality. Thus, equity obliges us to consider the objectives to be followed or achieved in order to advance towards a fairer society. Therefore, equity is about giving people what they need, in proportion to their circumstances, to guarantee them the same opportunities as the rest. Equality, on the other hand, is about ensuring that each individual has the same opportunity to make the most of their lives and talents. Although both concepts promote social justice, equality achieves it by assisting all people in the same way, regardless of their needs, while equity does it by treating them differently according to their needs. Therefore, a society can be both equitable and unequal.

What is poverty?

The United Nations (UN) defines poverty as a condition characterized by severe deprivation of basic human needs, including food, drinking water, sanitation, health, housing, education and information. The indicator most frequently used to identify the poor is monetary income, as it helps to indicate the purchasing power of an individual or household with respect to their needs, and is therefore referred to as “income poverty”.

Absolute vs relative?

Income poverty is defined in absolute and relative terms. Absolute poverty is defined as the situation in which individuals lack the basic necessities to enjoy a dignified life. According to the National Statistics Institute (INE), this concept is considered universal as it is strongly related to misery and can be identified by a criterion that is defined in the same way all over the world. However, absolute poverty is not adapted to the context in which the individual lives. Relative poverty, therefore, places the phenomenon of poverty in the context surrounding the individual and measures the phenomenon in terms of the costs of living and needs of each country. This perspective of poverty highlights those who are economically and socially disadvantaged compared to their peers.

Who are the poor?

The poor are identified by analyzing their income according to a predetermined threshold or poverty line that makes it possible to distinguish the population between the poor and the non-poor. As highlighted by the National Statistics Institute (INE), the objective of the threshold is to establish the cost of acquiring a basket of essential products (goods and services) that allow minimum levels of satisfaction of basic needs to be reached. Due to the diversity in living conditions between countries, each country calculates its own national poverty line. To compare income poverty between countries, the World Bank sets the international poverty line at less than $1.90 a day.

How is it different from poverty?

Poverty is not a concept equivalent to extreme poverty. Extreme poverty is the most severe state of poverty that corresponds to individuals who are unable to meet the most basic needs, such as food, clean water, shelter, sanitation and education. To distinguish between the two situations, the World Bank sets the extreme poverty line at $1 or less per day.

What is multidimensional poverty?

Multidimensional poverty encompasses the various deprivations that poor people experience in their daily lives, such as poor health, lack of education, inadequate living standards, poor quality of work, and the threat of violence, among others. According to the Oxford Poverty and Human Development Initiative (OPHI), as opposed to a unidimensional measure of poverty such as monetary income, a multidimensional measure of poverty can incorporate a range of indicators that capture the complexity of the phenomenon to inform policies aimed at reducing poverty in a country. Depending on the context of a country and the purpose of the measure, different indicators can be chosen to reflect the needs and priorities of a nation, as well as its constituent regions, districts or provinces.

What does it mean?

The poverty trap is a self-reinforcing vicious cycle of poverty that prevents the poor from escaping precariousness and achieving a dignified life. In other words, poverty today is the cause of poverty in the future, which will result in the persistence of the phenomenon. According to the World Bank, the discontinuity or continuity of this trap depends on structural factors unique to each country that determine the probability of acquiring the human and physical capital necessary to escape poverty. The acquisition of human capital, the stock of skills possessed by the labor force that are acquired through education, health and experience, and physical capital, wealth in the form of money or other assets owned by an individual available for investment, depend on access to education, credit markets, infrastructure, health services and contraception, among others. These factors serve as tools for acquiring the necessary level of human and physical capital to escape poverty, provided they are universally accessible and adequately provided. If there are obstacles to their access or provision, the poor conditions will persist, interact with each other and reinforce the deprivation of the poor, resulting in the inheritance of poverty between generations. Therefore, individuals with few resources will surround themselves with other individuals in the same situation, which will result in isolation from society and, therefore, social exclusion.

Social mobility and equality of opportunity

Relative social mobility serves as an appropriate approximation to the measurement of equality of opportunities since it allows us to know the differences in mobility rates for people belonging to different social conditions of origin. In this sense, social mobility helps to highlight between which classes there are barriers to upward mobility, which makes it easier to determine the main sources of immobility.

The concept of “perfect mobility” allows us to visualize the relationship between equality of opportunity and social mobility. In a state of perfect mobility, there is no association between origins and destinations since the possibilities of accessing any kind of destination are equal for anyone. If the trajectory of an individual or a group suffers a deviation from perfect mobility, it indicates the presence of inequality of opportunities in view of the fact that the social destiny has not been conditioned by meritocratic factors, but by ascriptive factors.

Social mobility, inequality and poverty

In immobile societies, the future of children will be largely conditioned by the income level of the household in which they grow up. Both poverty and wealth will be inherited and result in the persistence of inequality in society over time.

This link between inequality and social immobility occurs because of unequal opportunities. Fathers and mothers in better economic and social situations are able to provide their sons and daughters with tools and resources that allow them to preserve or improve their position and income, which will consequently allow them to take better paying jobs and more socially attractive positions in the future. However, this possibility is beyond the reach of children whose parents have lower incomes. Therefore, the more differences there are between the starting points of one and the other, the more difficult it will be for children from poorer families to reach positions similar to those attained by those born and raised in higher-income families.

For this reason, the negative consequences of economic inequality are accentuated if there is no income mobility, since the advantages and disadvantages of inequality will always be concentrated among the same people. The groups that are particularly disadvantaged and benefited are the most immobile: those at the extremes of the distribution. In other words, the rich and the poor are the social groups that remain at their income level in greater proportion and for longer, perpetuating inequality for a greater part of the life cycle, which consequently reinforces the social repercussions of social immobility across generations.

Consequences of social mobility

In societies with or without low social mobility, the negative and positive impacts of inequality of opportunity will always be concentrated in the same social groups, since the level of income remains constant across generations. Thus, the poor will perpetually experience the consequences of poverty – shorter lives, poorer health or fewer opportunities – while the rich will take advantage of the advantages and resources that their parents have inherited. In contrast, in societies with a moderate or high social flow, the disadvantaged will not be permanently conditioned to live in economic hardship and may have equal access to and enjoyment of rights and opportunities. In conjunction, if opportunities are open and social groups have an equal chance of accessing or moving toward positions of greater prestige and social recognition, this will stimulate the ambition and effort of individuals, which helps to promote social cohesion. At the national level, this phenomenon has negative repercussions for a country’s productivity and economic growth. In societies where social mobility is low and social groups are limited in aspiring to move up the income ladder, the return on investment in human capital will be reduced both for individuals and for the society as a whole that has financed access to universal public services. This loss of efficiency not only entails high social costs, but also intensifies the concentration of wealth and reduces the beneficiary focus of the advantages linked to social status. The result is an economy that pays too much for the labor of a privileged group and that means increasing its productivity with little human capital.

Inequality

Inequality has been a widely debated topic in economics, and recent years have witnessed an explosion in the number of studies on its main dimensions, such as income and wealth. Much progress has been made in the analysis of its dimensions, scope and extent, especially in the field of economic growth -what we call the positive evolution of a country’s overall income within a specific period of time-. Considering the relevance of economic growth as one of the best indicators of the performance of a country’s economy, the literature has helped to shed light on the negative effects of economic inequality on a concept of vital importance for achieving economic and social development.

Certainly, the relationship between growth and economic inequality is one of the most extensive debates that has been the subject of study by economists for more than a century and, despite this, it is still alive. One of the main arguments is that the impact of rising income inequality in a high-growth environment may be accepted by citizens to some extent. This is due to general income growth that may lead to higher investments, both financial and savings, and higher acquisition of higher education due to high incentives to work and achieve higher rates of return. Whereas, in an environment of slow economic growth and high inequality growth, the only social groups that will take advantage are those at the upper end of the income distribution. Thus, disadvantaged groups will be disadvantaged in the face of a decrease in the number of professional opportunities, which, consequently, will result in equal or worse economic conditions.

Beyond economic growth, the worsening of differences and distancing between various social spheres, caused by economic inequality, leads to growing social inequality that negatively influences the economy in terms of productivity and overall well-being, weakening social cohesion, increasing social conflict and potentially fostering distrust in institutions. Moreover, economic inequality is considered a key factor when analyzing the underlying drivers of populism at the global level. Indeed, several contemporary studies confirm that an extreme level of inequality is not compatible with a prosperous society.

Poverty

The consequences of poverty can be devastating for those who live in it due to the obstacles they face in education, healthcare, and the labor market. Poor individuals have limited access to adequate education, which prevents them from developing and acquiring the skills needed to obtain employment, both in youth and adulthood. As a result, poor nutrition exposes them to nutritional deficiencies and, consequently, a higher risk of medical complications that negatively impact their long-term health.

Moreover, from an economic perspective, poverty hinders economic productivity, as a segment of society cannot develop the necessary skills to participate in the creation of added value. This, in turn, limits the expansion of markets and the businesses that operate within them. If the consequences of poverty are not addressed and the incomes of the wealthy continue to rise, economic inequality will increase.