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By Kai Lei

When we talk about income inequality, we often assert its impact on economic growth is arguable. Economists hold distinct views towards this. Whilst Barro (2000) recognizes that income inequality favors economic growth for developed countries; conversely, Berg et al. (2012) argue that it is another way round for developing economies. However, despite all these arguable ideas, we often neglect the role of inequality of opportunity, which is associated with the characteristics and circumstances beyond one’s ability to control and counteract, in bringing about and linking this relationship. 

It is generally recognized that education is the key to success. Yet, due to inequality of opportunities, schooling is not something attainable for some, and this brings about the inequality of outcomes – which is proposed by Bradbury and Triest (2016) as the contributing reason and effect of the inequality in opportunity. Compared to more affluent families, babies born and raised in poverty-stricken families with economic deprivation lack the resources to develop talents and potentials. This situation has led to their falling behind even prior to their nurseries and kindergartens. Wright (2012) also recognizes this and further points out that around 20% of American children under poverty do not have the same level of development opportunities compared to those from prosperous families. Besides, disadvantaged children usually live in areas with low quality of public schools. Without promising standard schooling, they are restricted from going on for tertiary education and a decent career path for future success. As firms tend to recruit competitive workers, they can merely work in the secondary sector in a dual labor market. Here we see that the effect of unequal opportunities has continued to escalate and amplify from infants to adolescence. As a result, this limits them from realizing and utilizing their capabilities to the utmost.  Not only does this lower the productivity of a certain segment of society, but it also holds back economic growth. Unequal opportunities bring about unequal outcomes, and this becomes a vicious cycle and lasts in perpetuity across generations.

What about the employment market? Stable jobs and secure pay are undoubtedly the primary concern for every worker in the labor force. However, the duality situation has led to unequal access to the labor market. The two distinct sectors in the labor market have long been criticized for involving discrimination, racism, and poverty. The primary sector consists of laborers with high pay, a high hierarchy of job roles, massive job security, and a promising promotion aspiration. On the flip side, workers in the secondary sector are described by Beer, S. and Barrunger, R. (1970) as “low skill levels, low earnings, easy entry, job impermanence, and low returns to education or experience.” Bounded by its nature, the secondary sector is flooded with the poor and minorities. This unequal opportunity to access labor markets prevents them from earning sufficient pay for living a flourishing life, not to mention supporting their families to walk out of poverty. It just escalates to the extent which the rich get richer, and the poor get poorer. As a result, income inequality further worsens and brings about hysteretic translation into a perpetual output loss in the economy as a whole.

Everything begins with an idea; soon, diligence and perseverance will eventually lead you to dedication and success. This is true for everyone, even for the aforementioned disadvantaged ones. Likewise, the founder of Forever 21, Do Won Chang, did not come from a prosperous family and he used to work three jobs for 19 hours a day before coming up with the business idea to launch the famous fashion chain, which has an estimated net worth of $3.3 billion today. Regardless of his background, he was able to gain access to finance in order to build his own brand. Therefore, there should not be unequal access to finance in society. Aiyar and Ebek (2019) are in agreement with this and suggested that the supply of finance should be directed to those with the best ideas but not with the best pedigree. In the case of unequal access to finance, not only does this leave out the disadvantaged from opportunities to setting up their business with their exclusive ideas and investing in their human capital, but in turn slacken the economy from growing as well. They can be successful, and everybody can develop a successful entrepreneurship idea and thus be worth given the opportunity to access finance to work that out.

But how do we reduce inequality of opportunity? Are economic growth and efficiency the promising solutions? The research by the International Monetary Fund in 2019 argues that reducing inequality of opportunity needs not merely come at the expense of these improvements, but a better operation of the economic policies as well. Price (2016) is in line with this also, and they proposed a portfolio of policies to lower the disparity of opportunities. They suggest that investment in children should be magnified. This includes broadening the attainment of high and standardized quality education for all and providing additional expenditure for disadvantaged pupils. This offers them the opportunity to access the quality of schooling just as the affluent ones. By doing so, we can foresee an improvement in the inequality of opportunities. As they have higher human capital, they end up having a rather equivalent outcome as the affluent ones for their development later in life. Besides, they also proposed that the dual labor market situation should be reduced to increase opportunities in the labor market, at the benefits of improving productivity, lowering inequality, and negative externalities. Other measures include reducing structural unemployment and broadening the sources of finance available to new entrepreneurs to increase factors mobility and opportunities to a certain extent. As far as these policies improve job security and financial stability for workers, particularly those in the secondary sector, they can better support their families to improve the standard of living to gain more equal opportunities in the society and social status. 

Promoting equality in opportunities is crucial as this helps to build a rather fair and moral grounds for the society and economy in operation. As long as there is the same equal startup position for every individual to access resources, nothing is unjust and complies with the “fair play” idea proposed by Wright (2012) to be moral and justice. The idea of Atkinson (2015) is to the degree that “Inequality of outcome among today’s generation is the source of the unfair advantage received by the next generation. If we are concerned about equality of opportunity tomorrow, we need to be concerned about inequality of outcome today.” When we consider the outcomes, we are aware that everyone’s life should not be determined by the place and background they are born with, but they should have the opportunities to pursue the kinds of lives they have reason to value, today and into the future. 

References

Aiyar, S. and Ebeke, C.H. (2019). Inequality of Opportunity, Inequality of Income and Economic Growth. International Monetary Fund. 

Atkinson, A.B. (2015). Inequality: What Can be Done?. Harvard University Press.  

Barro, R. (2000). ‘Inequality and Growth in a Panel of Countries’, Journal of Economic Growth, 5(1), pp. 15-32. Available at: https://doi.org/10.1023/A:1009850119329 (Accessed: 1^st November, 2020) 

Beer, S. and Barrunger, R. (eds) (1970). The Dual Labour Market: Theory and Implications in the State and the Poor. Cambridge: Winthrop Publishers. 

Berg, A., Ostry, J.D. and Zettelmeyer, J. (2012). ‘What Makes Growth Sustained?’, Journal of Development Economics, 98(2), pp. 149-66. Available at: https://doi.org/10.1016/j.jdeveco.2011.08.002 (Accessed: 1^st November, 2020)

Bradbury, K. and Triest, R.K. (2016). “Inequality of Opportunity and Aggregate Economic Performance.” RSF: The Russel Sage Foundation of the Social Sciences, 2(2), pp. 178-201. Available at: https://doi.org/10.7758/RSF.2016.2.2.08 (Accessed: 4^th November, 2020)

Price, C.C. (2016). ‘Fixing Inequality of Opportunity’, the RAND Blog, 6^th July. Available at: https://www.rand.org/blog/2016/07/fixing–inequality–of–opportunity.html (Accessed: 3^rd November, 2020)

Wright, E.O. (2012). ‘Transforming Capitalism through Real Utopias’, American Sociology Review, 78(1), pp. 1-25. 

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