Childhood Poverty and Labor Market Outcomes: The Mediating Role of Health and Education

(Job Market Paper)

In the study of the long run effect of childhood poverty, two issues are overlooked. First, the proportion of the total effect of childhood poverty on adult labor market outcomes that passes through mediator covariates is barely studied. Second, many studies considered childhood as a single period and neglected the differences in stages of child development (infancy, early childhood, mid-childhood, and late childhood) for acquiring specific types of skills. Separate analyses for each stage enable us to identify the most critical childhood period. The overall purpose of the paper is to bridge these gaps using data drawn from the Panel Study of Income Dynamics (PSID). The study employs propensity score matching (PSM) and average causal mediation effect (ACME) methods to provide empirical evidence to the overlooked issues. The total effect estimation results show that persistent childhood poverty significantly decreases average annual labor income (by $11,252) and hours worked (by 182.1 hours) whereas it increases the number of weeks unemployed per annum (by 1.96 weeks). The annual labor income causal mediation estimate shows that 42.25 percent of the total effect of childhood poverty passes indirectly through the negative influence of childhood poverty on education and childhood health. Similar figures for hours worked and the number of weeks unemployed are 22.57 and 21.73 percent respectively. The results from the PSM and ACME analyses for stages of child development revealed that early childhood is the most critical period.

Keywords: average causal mediation, labor market outcomes, health, education, childhood poverty

JEL Codes: I31, J13, J24,