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Childhood Income Volatility and Adult Outcomes

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Demography

Abstract

Using data linked across generations in the Panel Study of Income Dynamics, I estimate the relationship between exposure to volatile income during childhood and a set of socioeconomic outcomes in adulthood. The empirical framework is an augmented intergenerational income mobility model that includes controls for income volatility. I measure income volatility at the family level in two ways: (1) instability as measured by squared deviations around a family-specific mean; and (2) instability as percentage changes of 25 % or more. Volatility enters the model both separately and interacted with income level. I find that family income volatility during childhood has a modest negative association with educational attainment. Volatility has a smaller descriptive role in explaining intergenerational outcomes relative to permanent income. Across the income distribution, the negative association between volatility exposure and educational attainment is largest for young adults from moderate-income families.

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Notes

  1. In unpublished results, I use an alternative specification substituting parental education for family income during childhood. The results are robust to this alternative specification.

  2. I also analyzed the association between income volatility during childhood and adult educational outcomes for persons between ages 29 and 31 (results not shown). When I retained observations containing 15 of 16 childhood years, the sample fell to 645 observations. The general results are consistent across models with respect to both statistical significance and direction of the relationships in question, although in some instances, the magnitudes differ. I therefore elect to focus the discussion on results for 25-year-olds.

  3. Before 1979, the top-code value of income was $99,999; by 1980, it is $999,999; and in 1981, it increases to $9,999,999. During 1968–1993, family income was bottom coded at $1; but after 1994, the definition allows for negative family income of –$999,999 from business or farm losses.

  4. The SEO sample of the PSID or the 1979 National Longitudinal Survey of Youth, for example, might provide a richer intergenerational file of low-income families, although these data come with their own tradeoffs.

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Acknowledgments

I thank Jim Ziliak, Chris Bollinger, Ken Troske, Scott Hankins, Bill Hoyt, Seth Sanders, Ngina Chiteji, Darrick Hamilton, Tim Smeeding, Tom DeLeire, Pamela Smock, Alison Jacknowitz, Laura Langbein, anonymous reviewers, and seminar participants at the University of Kentucky, University of Wisconsin–Madison Institute for Research on Poverty, Western Kentucky University, Mathematica Policy Research, and American University for helpful feedback and suggestions. I also thank conference participants of the Kentucky Economic Association, the AEA Pipeline Program at UC-Santa Barbara, and the Southern Economic Association.

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    Bradley L. Hardy

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Hardy, B.L. Childhood Income Volatility and Adult Outcomes. Demography 51, 1641–1665 (2014). https://doi.org/10.1007/s13524-014-0329-2

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