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Income Impact on Child Development: Breaking Intergenerational Poverty Cycle

Explore effects of income on children's outcomes & home environment in the context of intergenerational poverty. Analyze policy implications using empirical data.

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Income Impact on Child Development: Breaking Intergenerational Poverty Cycle

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  1. Income and Child Development Lawrence Berger, University of Wisconsin Christina Paxson, Princeton University Jane Waldfogel, Columbia Univerity

  2. Motivation • Poorer children are at greater risk for worse cognitive and behavioral outcomes. • If the association between economic status and child outcomes is causal, it has implications for intergenerational transmission of poverty. • Policies and programs that improve outcomes for poorer children may break (or, dampen) the links between poverty across generations.

  3. Previous literature • Strong associations between family incomes and children’s outcomes. • Issues: • Measurement error and unobserved heterogeneity. • What are the routes through which money matters? • Is the association between income and children’s outcomes larger for poorer children?

  4. This paper • Examine the routes through which income and outcomes are associated. • Use data from the Fragile Families and Child Wellbeing Study. • Examine children’s cognitive and behavioral outcomes at age 3.

  5. Specific questions • How is income related to a variety of measures of the home environment and to children’s outcomes? • How are child outcomes and home environment measures related? • Can income transfer programs be expected to have large effects on children’s outcomes?

  6. Sample • Children from 20 US cities, with an oversample of nonmarital births. • The sample is about 50% black, 25% Hispanic and 25% white. • In-home observations done at age 3, making it possible to collect detailed measures of the home environment. • 1,699 children

  7. Variables • Income averaged over 3 periods • Child outcomes: • PPVT • Interviewer’s assessment of behavior • Mother reported: • Aggressive behavior • Withdrawn behavior • Anxious behavior

  8. Empirical Framework

  9. Question 1 How are measures of the home environment and child outcomes associated with income?

  10. Regression models • Convert outcomes and home environment measures to z-scores. • Estimate three ways: • Controls for age, gender and city • Extended SES controls (race, education, mother’s PPVT) • Experiment with IV strategies to handle measurement error bias.

  11. Are associations stronger for poorest children? • Answer: No

  12. Question 1 summary • With a few exceptions, income has larger associations with material aspects of the environment. • Adding extended SES controls generally reduces coefficients, and IV (for measurement error) has only small effects. • Estimates for child outcomes are in line with previous literature.

  13. Question 2 How are measures of the home environment related to child outcomes?

  14. Question 2 Summary • The association between children’s outcomes and income declines (a lot) when controls for the child’s home environment are included. • Parenting matters more than maternal mental health and the physical environment.

  15. How should these results be interpreted? • The mediation model—in which income affects children’s outcomes through the home environment—is correct. • Aspects of the home environment may not be mediators, but may influence income (or be correlated with things that do). • The interpretation chosen has important implications for policy analysis.

  16. Question 3 How will income transfer programs affect children’s outcomes?

  17. We look at two policies: • Case 1: Bring all families up to the poverty line. • Case 2: Give an income transfer of $2400 per child ($3600 per infant) for families with incomes under $60K (Duncan and Magnuson). • Look at average differences between poor, near poor and “upper income”.

  18. Conclusions • Even under the most “generous” interpretation, simulated effects of income transfers are relatively small. • Raising all families to the poverty line (at a cost of $9000 per family per year at a minimum) produces (at most) a 1/5 of a standard deviation increase in the PPVT. • Alternatives? Possibly high quality child care.

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