Childhood economic shocks and adult wage effects

Abstract: Early childhood shocks and the long-run implications of them have been of great research and policy interest. Even though a large body of literature has analyzed medical shocks and a variety of outcomes, research on how economic shocks affects the individuals later life economy has been limited. Using repeated cross-sectional data from Integrated Public Use Microdata Series for USA (IPUMS USA) for individual characteristics matched with Bureau of labor statistics (BLS) state unemployment records for individuals born between 1977 and 1990 effects of fluctuation in unemployment on adult wage are measured. Fixed effects are used for birthyear and state of residence to control for differences between cohort and states wage heterogeneity driving results. The results indicate a positive effect of additional 0.0018 wage log point per change in unemployment percentage point for the whole sample. When looking at heterogeneity in the results the interpretation seems more ambiguous as the effect is visible for adults up until thirty especially for groups particularly exposed to recessions during the time. In order to arrive at general wage results for the whole lifecycle more data is needed on elder individuals. Overall, the results suggest an effect and changes in labor market activity caused by economic shocks in early childhood. More research and policy evaluation seems warranted for providing more flexibility in labor and financial markets for families with children in early childhood.