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What is driving Europes political change? The role of Inequality of Opportunity Hugo del Valle-Incl an Cruces RGEA, ECOBAS CELSI research visit, March 2018 H. del Valle-Incl an Cruces Political change and IOP CELSI, March 2018 1 /

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What is driving Europe’s political change? The role of Inequality of Opportunity

Hugo del Valle-Incl´ an Cruces

RGEA, ECOBAS

CELSI research visit, March 2018

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 1 / 25

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We are going to talk about...

1

What political change?

2

Why is it happening?

3

What is inequality of Opportunity?

4

Political change and inequality of Opportunity

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 2 / 25

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SLIDE 3

What political change?

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 3 / 25

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SLIDE 4

What political change?

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 4 / 25

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SLIDE 5

What political change?

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 5 / 25

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SLIDE 6

What political change? The perspective of ’establishment’ parties

We propose a measure that qualifies parties as members of the ’establishment’ if they have hold power frequently during the last three decades. establishmenti =

  • 1

if η(partyik) > µk

  • therwise

where: η(partyik) is the number of times partyik has been in cabinet µk is the average times all parties have been in cabinet in country k since 1988

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 6 / 25

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SLIDE 7

What political change? The perspective of ’establishment’ parties

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 7 / 25

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SLIDE 8

What political change?

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 8 / 25

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SLIDE 9

Why is it happening?

Three main explanations have been proposed:

  • Cultural backslash hypothesis: “the spread of progressive values [such as

environmental protection, increased acceptance of gender and racial equality, and equal rights for the LGBT community] has provoked a backlash from people who feel threatened by this development. Less educated and older citizens, especially white men, who were once the privileged majority culture in Western societies, [may] have come to feel that they are being marginalized within their own countries” (Inglehart and Norris, 2016)

  • Loosers of globalization hypothesis: global economic dynamics during last decades

(financial crisis, off-shoring, automatization of routine jobs...) are responsible for the stagnation of incomes among median earners and the rise of income inequality within advanced economies (Milanovic, 2016)

  • Brahmin left vs. Merchant right: “in the 1950s-60s, the vote for left-wing

(socialist) parties in France and the Democratic Party in the US used to be associated with lower education and lower income voters. [The left] has gradually become associated since 1970s-80s with higher education voters, giving rise to a multiple-elite party system: high-education elites vote for the left, while high-income/high-wealth elites for the right, i.e., intellectual elite (Brahmin left) vs business elite (merchant right)” (Piketty, 2018)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 9 / 25

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SLIDE 10

Why is it happening?

Three main explanations have been proposed:

  • Cultural backslash hypothesis: “the spread of progressive values [such as

environmental protection, increased acceptance of gender and racial equality, and equal rights for the LGBT community] has provoked a backlash from people who feel threatened by this development. Less educated and older citizens, especially white men, who were once the privileged majority culture in Western societies, [may] have come to feel that they are being marginalized within their own countries” (Inglehart and Norris, 2016)

  • Loosers of globalization hypothesis: global economic dynamics during last decades

(financial crisis, off-shoring, automatization of routine jobs...) are responsible for the stagnation of incomes among median earners and the rise of income inequality within advanced economies (Milanovic, 2016)

  • Brahmin left vs. Merchant right: “in the 1950s-60s, the vote for left-wing

(socialist) parties in France and the Democratic Party in the US used to be associated with lower education and lower income voters. [The left] has gradually become associated since 1970s-80s with higher education voters, giving rise to a multiple-elite party system: high-education elites vote for the left, while high-income/high-wealth elites for the right, i.e., intellectual elite (Brahmin left) vs business elite (merchant right)” (Piketty, 2018)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 9 / 25

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SLIDE 11

Why is it happening?

Three main explanations have been proposed:

  • Cultural backslash hypothesis: “the spread of progressive values [such as

environmental protection, increased acceptance of gender and racial equality, and equal rights for the LGBT community] has provoked a backlash from people who feel threatened by this development. Less educated and older citizens, especially white men, who were once the privileged majority culture in Western societies, [may] have come to feel that they are being marginalized within their own countries” (Inglehart and Norris, 2016)

  • Loosers of globalization hypothesis: global economic dynamics during last decades

(financial crisis, off-shoring, automatization of routine jobs...) are responsible for the stagnation of incomes among median earners and the rise of income inequality within advanced economies (Milanovic, 2016)

  • Brahmin left vs. Merchant right: “in the 1950s-60s, the vote for left-wing

(socialist) parties in France and the Democratic Party in the US used to be associated with lower education and lower income voters. [The left] has gradually become associated since 1970s-80s with higher education voters, giving rise to a multiple-elite party system: high-education elites vote for the left, while high-income/high-wealth elites for the right, i.e., intellectual elite (Brahmin left) vs business elite (merchant right)” (Piketty, 2018)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 9 / 25

slide-12
SLIDE 12

Why is it happening?

Three main explanations have been proposed:

  • Cultural backslash hypothesis: “the spread of progressive values [such as

environmental protection, increased acceptance of gender and racial equality, and equal rights for the LGBT community] has provoked a backlash from people who feel threatened by this development. Less educated and older citizens, especially white men, who were once the privileged majority culture in Western societies, [may] have come to feel that they are being marginalized within their own countries” (Inglehart and Norris, 2016)

  • Loosers of globalization hypothesis: global economic dynamics during last decades

(financial crisis, off-shoring, automatization of routine jobs...) are responsible for the stagnation of incomes among median earners and the rise of income inequality within advanced economies (Milanovic, 2016)

  • Brahmin left vs. Merchant right: “in the 1950s-60s, the vote for left-wing

(socialist) parties in France and the Democratic Party in the US used to be associated with lower education and lower income voters. [The left] has gradually become associated since 1970s-80s with higher education voters, giving rise to a multiple-elite party system: high-education elites vote for the left, while high-income/high-wealth elites for the right, i.e., intellectual elite (Brahmin left) vs business elite (merchant right)” (Piketty, 2018)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 9 / 25

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Why is it happening?

Our hypothesis is that people without high education and with low to medium incomes (the majority of the population) are suffering worsening economic conditions, and they could be blaming the political establishment for it Measuring ’economic hardship’ with income inequality, as have been proposed so far, does not provide evidence supporting this hypothesis Measuring it with inequality of opportunity might be more appropriate because it is perceived as especially unfair (Schokkaert and Devooght, 2003; Gaertner and Schwettmann, 2007; Cappelen et al., 2010; Alm˚ as et al., 2011)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 10 / 25

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SLIDE 14

Why is it happening?

Our hypothesis is that people without high education and with low to medium incomes (the majority of the population) are suffering worsening economic conditions, and they could be blaming the political establishment for it Measuring ’economic hardship’ with income inequality, as have been proposed so far, does not provide evidence supporting this hypothesis Measuring it with inequality of opportunity might be more appropriate because it is perceived as especially unfair (Schokkaert and Devooght, 2003; Gaertner and Schwettmann, 2007; Cappelen et al., 2010; Alm˚ as et al., 2011)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 10 / 25

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SLIDE 15

Why is it happening?

Our hypothesis is that people without high education and with low to medium incomes (the majority of the population) are suffering worsening economic conditions, and they could be blaming the political establishment for it Measuring ’economic hardship’ with income inequality, as have been proposed so far, does not provide evidence supporting this hypothesis Measuring it with inequality of opportunity might be more appropriate because it is perceived as especially unfair (Schokkaert and Devooght, 2003; Gaertner and Schwettmann, 2007; Cappelen et al., 2010; Alm˚ as et al., 2011)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 10 / 25

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What is inequality of Opportunity?

The Inequality of Opportunity approach considers that any outcome is a function of circumstances and efforts: I = Φ(C, E)

  • Circumstances are those factors that might influence a given outcome but cannot be

chosen by individuals, and therefore they cannot be held responsible for them. These include gender, race, geographical origin, family background...

  • The level of effort exerted by individuals, on the contrary, can be decided, and hence

individuals can be held responsible for it Thus, the Inequality of Opportunity approach distinguishes between inequalities that are due to personal responsibility, which may be considered ethically acceptable, and those that are not, which may therefore be classified as unjust.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 11 / 25

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SLIDE 17

What is inequality of Opportunity?

The Inequality of Opportunity approach considers that any outcome is a function of circumstances and efforts: I = Φ(C, E)

  • Circumstances are those factors that might influence a given outcome but cannot be

chosen by individuals, and therefore they cannot be held responsible for them. These include gender, race, geographical origin, family background...

  • The level of effort exerted by individuals, on the contrary, can be decided, and hence

individuals can be held responsible for it Thus, the Inequality of Opportunity approach distinguishes between inequalities that are due to personal responsibility, which may be considered ethically acceptable, and those that are not, which may therefore be classified as unjust.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 11 / 25

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SLIDE 18

What is inequality of Opportunity?

The Inequality of Opportunity approach considers that any outcome is a function of circumstances and efforts: I = Φ(C, E)

  • Circumstances are those factors that might influence a given outcome but cannot be

chosen by individuals, and therefore they cannot be held responsible for them. These include gender, race, geographical origin, family background...

  • The level of effort exerted by individuals, on the contrary, can be decided, and hence

individuals can be held responsible for it Thus, the Inequality of Opportunity approach distinguishes between inequalities that are due to personal responsibility, which may be considered ethically acceptable, and those that are not, which may therefore be classified as unjust.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 11 / 25

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SLIDE 19

What is inequality of Opportunity?

The Inequality of Opportunity approach considers that any outcome is a function of circumstances and efforts: I = Φ(C, E)

  • Circumstances are those factors that might influence a given outcome but cannot be

chosen by individuals, and therefore they cannot be held responsible for them. These include gender, race, geographical origin, family background...

  • The level of effort exerted by individuals, on the contrary, can be decided, and hence

individuals can be held responsible for it Thus, the Inequality of Opportunity approach distinguishes between inequalities that are due to personal responsibility, which may be considered ethically acceptable, and those that are not, which may therefore be classified as unjust.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 11 / 25

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The Ferreira and Gignoux (2011) approach

We employ the parametric procedure proposed by Ferreira and Gignoux (2011). It consists on regressing yi on a set of circumstances Ci lnyi = ψCi + ui Actually, that is a reduced form of lnyi = αCi + βEi + ei where Ei is the influence of circumstances on the level of effort. Then, we apply an inequality measure to the fitted values, ˆ yi, usually the Gini index and the GE(0) (Mean Log Deviation), and finally we get an absolute measure of IOP IOPabs = I({µk

i })

and a relative one IOPrel = I({µk

i })

I(y)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 12 / 25

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SLIDE 21

The Ferreira and Gignoux (2011) approach

We employ the parametric procedure proposed by Ferreira and Gignoux (2011). It consists on regressing yi on a set of circumstances Ci lnyi = ψCi + ui Actually, that is a reduced form of lnyi = αCi + βEi + ei where Ei is the influence of circumstances on the level of effort. Then, we apply an inequality measure to the fitted values, ˆ yi, usually the Gini index and the GE(0) (Mean Log Deviation), and finally we get an absolute measure of IOP IOPabs = I({µk

i })

and a relative one IOPrel = I({µk

i })

I(y)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 12 / 25

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SLIDE 22

The Ferreira and Gignoux (2011) approach

We employ the parametric procedure proposed by Ferreira and Gignoux (2011). It consists on regressing yi on a set of circumstances Ci lnyi = ψCi + ui Actually, that is a reduced form of lnyi = αCi + βEi + ei where Ei is the influence of circumstances on the level of effort. Then, we apply an inequality measure to the fitted values, ˆ yi, usually the Gini index and the GE(0) (Mean Log Deviation), and finally we get an absolute measure of IOP IOPabs = I({µk

i })

and a relative one IOPrel = I({µk

i })

I(y)

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 12 / 25

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SLIDE 23

Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 13 / 25

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SLIDE 24

Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 14 / 25

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Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 15 / 25

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How can we measure inequality of opportunity beyond 2005 and 2011?

We propose a new methodology that is not limited by the scarcity of data on parental

  • background. The idea is to find a variable that is highly correlated with parental

education but available in all years of the EU-SILC. Hence, we construct a proxy for “inheritance received”: inheritancei =

  • 1

if Kinci > (0.1 ∗ Yi) & > 5000€

  • therwise

where: Kinci is total capital income of householdi Yi is total equivalised income of householdi

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 16 / 25

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SLIDE 27

How can we measure inequality of opportunity beyond 2005 and 2011?

We propose a new methodology that is not limited by the scarcity of data on parental

  • background. The idea is to find a variable that is highly correlated with parental

education but available in all years of the EU-SILC. Hence, we construct a proxy for “inheritance received”: inheritancei =

  • 1

if Kinci > (0.1 ∗ Yi) & > 5000€

  • therwise

where: Kinci is total capital income of householdi Yi is total equivalised income of householdi

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 16 / 25

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SLIDE 28

How can we measure inequality of opportunity beyond 2005 and 2011?

Dependent variable: Kinc.

OLS Logit Probit Parental education .0148*** Low education .280 .131 Medium education .177* .084* High education .623** .298** Education .0223*** .528*** .237*** Age .0171*** .389*** .179*** N 333,672 333,672 333,672 R2 / Pseudo R2 .0120 .0345 .0344

***, ** and * indicate significance at the 1, 5 and 10 percent level, respectively.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 17 / 25

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SLIDE 29

Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 18 / 25

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SLIDE 30

Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 19 / 25

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SLIDE 31

Inequality of Opportunity in Europe

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 20 / 25

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SLIDE 32

Political change and inequality of opportunity

We intend to study the relationship between political change and inequality of

  • pportunity’s evolution.
  • Data for elections outcome: Parlgov
  • Data for IOP and income inequality: EU-SILC
  • Data for job satisfaction: WageIndicator
  • Period of study: 2004-2014
  • Dependent variables: evolution of center parties’ combined share and establishment

parties’ combined share

  • Regressors: evolution of IOP, income inequality and mean job satisfaction

Empirical strategy: an example with the case of Spain

2004 = ⇒ 2008 = ⇒ 2011 = ⇒ 2015 = ⇒ 2016

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 21 / 25

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SLIDE 33

Political change and inequality of opportunity

We intend to study the relationship between political change and inequality of

  • pportunity’s evolution.
  • Data for elections outcome: Parlgov
  • Data for IOP and income inequality: EU-SILC
  • Data for job satisfaction: WageIndicator
  • Period of study: 2004-2014
  • Dependent variables: evolution of center parties’ combined share and establishment

parties’ combined share

  • Regressors: evolution of IOP, income inequality and mean job satisfaction

Empirical strategy: an example with the case of Spain

2004 = ⇒ 2008 = ⇒ 2011 = ⇒ 2015 = ⇒ 2016

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 21 / 25

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SLIDE 34

Political change and inequality of opportunity: center parties

Dependent variable: Center parties’ combined share evolution.

OLS FE RE OLS FE RE IOP

  • .062
  • .016
  • .062
  • .420*
  • .551*
  • .392*

Income inequality

  • .053
  • .654
  • .098

Job satisfaction

  • .048
  • .730**
  • .150

Ex-soviet .412

Omitted

1.08 Intercept

  • 1.81
  • 1.91
  • 1.81
  • 1.88

.212

  • 1.70

N 73 73 73 41 41 41 R2 .03 .03 .03 .11 .04 .08 Hausman test .679 .082

***, ** and * indicate significance at the 1, 5 and 10 percent level, respectively.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 22 / 25

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SLIDE 35

Political change and inequality of opportunity: right-wing parties

Dependent variable: Right-wing parties’ combined share evolution.

OLS FE RE OLS FE RE IOP .050 .050 .050 .224* .314 .210 Income inequality .097 .217 .038 Job satisfaction .073 .372 .078 Ex-soviet .719

Omitted

.397 Intercept 1.45 1.45 1.45 .751 .128 .853 N 66 66 66 39 39 39 R2 .01 .01 .01 .07 .04 .06 Hausman test .587 .548

* indicate significance at the 10 percent level.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 23 / 25

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SLIDE 36

Political change and inequality of opportunity: left-wing parties

Dependent variable: Left-wing parties’ combined share evolution.

OLS FE RE OLS FE RE IOP .082* .073 .082 .261* .473 .261* Income inequality

  • .208

.581

  • .208

Job satisfaction .196* .622 .196* Ex-soviet

  • .953

Omitted

  • .953

Intercept .494 .510 .494 .751

  • 1.92

.896 N 47 47 47 25 25 25 R2 .03 .03 .03 .22 .20 .23 Hausman test .939 .566

* indicate significance at the 10 percent level.

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 24 / 25

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SLIDE 37

ˇ Dakujem

  • H. del Valle-Incl´

an Cruces Political change and IOP CELSI, March 2018 25 / 25