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

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.

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?

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.

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?

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

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over 3 periods  Child outcomes: PPVT Interviewer’s assessment of behavior Mother reported:  Aggressive behavior  Withdrawn behavior  Anxious behavior

Empirical Framework

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

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.

Are associations stronger for poorest children?  Answer: No

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.

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

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.

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.

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

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”.

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.