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September 06, 2005

Intergenerational Transfer of Poverty

From the National Bureau of Economic Research comes a new study on the effects of joblessness on family income.  From the abstract:

[J]ob loss leads to large permanent reductions in family income. Comparing outcomes among individuals whose fathers experienced an employment shock to outcomes among individuals whose fathers did not, 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.

Basically, if you were between the ages of 12 and 14 when the study began, and your father's firm shut down, then you could expect to earn substantially less as a young adult than children whose fathers didn't lose their jobs.  The effect was most pronounced among the bottom quartile of wage-earners -- so if you were near the bottom of the income ladder to begin with and your father lost your job, you saw a particularly steep drop in your long-term earning potential.

The implications of this are fairly obvious:  the effects of poverty and economic marginalization persist across generations, and your parent's socioeconomic status has a profound effect on yours.  And since the experiments matched families with similar income profiles before fathers' employers folded, it's fairly certain that it was the economic shock of job loss--rather than anything else about a family's profile--that caused incomes to decline.

Definitely worth keeping in mind -- especially for those inclined to believe that people at the low end of the economic scale are simply reaping what they've sown.

(Thanks to Kevin Drum and Brad Delong for pointing out the study.)

Posted by ClarkWD | Permalink

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Comments

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Posted by: Tafere Yisak | Sep 21, 2005 6:40:39 PM