Parental Income and Children's Well-being and Future Success: An Analysis of the SIPP matched to SSA Earnings Data

March 2011

Bhashkar Mazumder, Federal Reserve Bank of Chicago

Download 'working_paper11-07.pdf'.


Abstract

A vast literature in the social sciences has studied the association between parental income and children's outcomes to establish the importance of parental economic resources on children's well being. One limitation of nearly all of these studies is the lack of availability of parental earnings histories over long periods of time for a very large and representative sample of families in the US. It is well established that the bias in using single year measures of parental income to proxy for long-run income can be sizable and can vary by parental age (Solon, 1992; Mazumder, 2005; Haider and Solon, 2006). Similarly, few studies have been able to distinguish the relative importance of parental income obtained in specific periods of the life course of the child. A growing literature has shown that there are critical periods in childhood development where material resources may be especially valuable (e.g. Cunha and Heckman, 2007, Almond and Currie, 2010). This paper addresses these issues by assembling a rich intergenerational dataset containing measures of parental income taken over many years and at various points of the life course of the child.

An even bigger challenge is to convincingly demonstrate that the statistical associations between parental income and children's outcomes truly reflect causal processes and are therefore amenable to policy interventions. This paper like most of the preceding literature settles for providing descriptive estimates that may nonetheless prove informative for future research and provide a better backdrop for policy discussions. Improving our understanding of the true association between parental resources and children's outcomes may still be useful until we are able to obtain convincing estimates of causal effects. For example, larger estimates for particular outcomes or at particular stages of the lifecycle may provide important suggestive results.

In order to construct an intergenerational sample I pool families from the 1984, 1990-1993, 1996, 2001 and 2004 SIPP panels. Each of these SIPP samples were matched to earnings histories contained in SSA administrative earning records. I use the administrative data to construct long-term time averages of parents' earnings. There are two distinct parts of the analysis. In the first part, I use these time averages of parent earnings to estimate the association between parent income and childhood well-being. I use SIPP topical modules on Children's Well-Being, Functional Limitations and Disability, Health Status and Utilization of Health Care and Extended Measures of Well Being to obtain a broad set of measures related to childhood health and well-being. In the second part of the analysis, the earnings of the children as adults are the main focus of the analysis and I show the extent to which the importance of parent income differs over the life-cycle of the child.



Keywords:
Child Well-being and Child Development, Employment, Unemployment, and the Labor Market