Inequality of opportunity in individuals’ wages and households’ assets in Egypt

Abstract EN

Inequality has often been cited as one of the leading sources of discontent in Egypt and one of the causes of the 2011 revolution.

However, there is no consensus on how much inequality exists or what its root causes are.

In this paper, we attempt to contribute to filling this gap by estimating the extent to which factors related to the circumstances a person is born into contribute to inequality of opportunity in earnings as well as in wealth or asset distribution.

We use three rounds of the Egypt Labor Market Panel Survey (ELMPS), spanning the period 1998 to 2012, to conduct the analysis.

Our results indicate that circumstances account for a lower bound of 9%-11% of inequality of opportunity in earnings and 30%-33% with respect to inequality of asset distribution.

We also find that area of birth and father’s education level are the two most important circumstantial factors contributing to inequality of opportunity.

Our interpretation of the results is that the two measures are complementary in that earnings are associated with flows, and assets are the stock of that and other flows over a longer period of time.

In that sense, inequality of opportunity in earnings gives a better indication of inequality in the short run, while inequality in the household assets distribution gives a better sense of inequality in the long run.

This interpretation has important policy implications, suggesting the need for two courses of action to bring about a more egalitarian society: the first is to limit excessive variations in current earnings and the other is to narrow the degree of wealth concentration.

JEL Classifications: D31 and D63