Effect Inequality Of Opportunity On Inequality Of Income: Based On The Prospective Of Intergenerational Mobility

After the reform and opening up, China has gradually transformed from the planned economy to the market economy. Both national income and people’s income have achieved steady growth. At the same time, the income gap has also been enlarged. The growing income gap between the rich and the poor is a result of the incomplete reform, which doesn’t provide a fair development opportunity by an appropriate mechanism and results in a severe unequal opportunity. According to Roemer’s (1998) classification on the factors leading to inequality of opportunity, there are two categories which contribute to the unequal opportunity. One is called ’efforts’, the other is named’circumstances’. That the unequal opportunity results from the objective circumstances is unfair inequality and the unequal income caused by the unequal opportunity is unreasonable inequality. Nowadays in Chinese families, the family background factors from both parents always transfer to offspring through intergenerational mobility, which results in the inequality of children’s standing point, and then affecting the children’s income. So it will help to clarify the level of the unequal income by exploring unequal opportunity’s impact on income inequality through the point of intergenerational transfer. By analyzing the factors result in the unequal opportunity, we can have a deep understanding about the sources of the income inequality. It will offer objective basis to make public policy so that we can narrow the income gap and achieve inclusive growth with the equal opportunity as the core.The paper is composed of as follows:First, on the basis of a comprehensive overview of the literature both at home and abroad, the paper summarizes the measurement and classification methods of unequal opportunity from the existing studies. There are three methods, named Roemer’s classical taxonomy, the Ex-ante and Ex-post, Measuring Long-term inequality of opportunity respectively. Based on the current study about impact on inequality of opportunity and inequality of income, especially from intergenerational mobility, we establish the research perspective of this paper. Next, we use a classical taxonomy theory in measure and decomposition of inequality of opportunity proposed by Roemer in 1998 and adopt the mathematical models used by Bouriguignon et al. in 2003 to make mathematical deduction. Besides, based on Roemer’s classical taxonomy theory and definition of equal opportunity, we give an overview on the measure approach of opportunity inequality and pave the way for later empirical design.Secondly, the empirical design, which aims to measure to what extent intergenerational income inequality reflects inequality of opportunity. The data we use is the China Health and Nutrition Survey (CHNS) from 1989 to 2009. Family is selected as the basic research unit and some sample data is removed by the actual situation in our country. According to the model analyzed in former and the purpose of this paper, we select the relevant variables, such as individual characteristic variables, regional characteristic variables, characteristic variables of parents, family characteristic variables and give a descriptive statistics. Meanwhile, the specific empirical model is constructed and the method in measuring the degree of income inequality is also introduced, such as Gini coefficient, Theil index and Atkinson index, all of which provide a model basis for next empirical tests.Again, this article shows the empirical tests. The LSDV estimation from Fixed Effects Model is used for the test on the sample data, and the relationship between opportunity inequality and income inequality is also measured and the empirical testing to what extent each objective circumstance factors effects inequality of opportunity is realized too. In addition, in order to ensure the stability of the test, we make another calculation which adopts the Theil index and Atkinson index instead of Gini coefficient, and then compare the results of the calculation with the Gini’s. We find that inequality of income is positively related to the inequality of opportunity induced by intergenerational mobility. Inequality of opportunity explains about 54.61 percent of the total inequality of income on average. The objective circumstance factors, both areas of birth and hukou show a significant positive impact on children’s income. The intergenerational mobility of household disposable income is the most significant factor to offspring’s inequality of income. Father’s type of employer which is revealed by father’s social relationships performances an obvious effect on the shaping of children’s income. Compared with father’s type of employer, the contribution to children’s income from both father’s and mother’s educational level and mother’s type of employer in intergenerational mobility is smaller relatively. In the 21st century, the role of mother’s occupation in shaping offspring’s income highlights increasingly, and the level of education both parents don’t have a significant impact on children opportunity, so does on children’s income.Finally, this paper summarizes the conclusions from empirical tests. Based on the conclusions, we made relevant comments, and proposed related policy recommendations for both the root causes of income inequality and the current status which aims at narrowing inequality of opportunity and inequality of income.