Parents and Children

PARENTS AND CHILDREN….If you lose your job, your income goes down. No surprise there.

In fact, it turns out that if you lose your job, your income is permanently lowered. That’s a little more surprising, but still plausible.

But there’s more: it turns out that if you lose your job, your children have permanently lower incomes too. Via Brad DeLong:

Using a Canadian panel of administrative data that follows almost 60,000 father-child pairs….we find that children whose fathers were displaced have annual earnings about 9% lower than similar children whose fathers did not experience an employment shock. They are also more likely to receive unemployment insurance and social assistance.

Actually, the results of this study were even worse than the summary indicates. The authors used a large Canadian dataset to compare two comparable groups of families in the year 1982. Both groups of families had similar incomes and worked in similar industries, and only children of similar age (12-14) were included in the study. However, the fathers in the first group all lost their jobs due to a plant closure, and as the chart shows, these fathers experienced a sharp decline in income that they never fully made up.

The more surprising result is that two decades later, the grown children of the two families had substantially different incomes too. But the effects weren’t evenly distributed:

The displacement effects appear to be concentrated among those families for whom father?s earnings are in the lowest quartile. Among children in this group subsequent earnings are 17% lower than they would have been if the father had not been displaced, and the probability of social assistance and [unemployment insurance] receipt are 4 and 6 percentage points higher. In contrast, there is no evidence that there is any intergenerational effect among families in the top two quartiles.

In other words, children of families with above average incomes did fine. Children of families with low incomes, however, were devastated by the plant closures: by 1999 their incomes were still 17% lower than similar children whose fathers didn’t lose their jobs.

You hear a lot of talk from conservatives ? mainly ones who want to find excuses not to fund social programs ? about the effect of traits like IQ on things like income levels and the likelihood of receiving welfare. And it’s true that there’s a correlation: children of low IQ parents tend to have lower incomes than children of high IQ parents. However, the effect is nowhere near 17%. The importance of studies like this, then, is to remind us that, especially at low income levels, the effect of environmental catastrophes can be far higher than the effect of heritable abilities. We can do something about environment and it does make a big difference. Many conservatives would like to pretend otherwise, but the data doesn’t back them up.