Parental Income Shocks and Outcomes of Disadvantaged Youth in the United States∗

This paper uses layoffs and business closings to identify the effect of a permanent parental income shock on children’s long-run socioeconomic outcomes. We find that estimates of the intergenerational effects of parental job loss are sensitive to our definition of job displacement. Focusing on measures of displacement that are most likely to be exogenous, we find no evidence of intergenerational effects of job loss on the average child. In contrast, among disadvantaged children (defined by family income or race), we find evidence of negative effects of parental displacement on income, earnings, and completed education. ∗This research was funded by the Annie E. Casey Foundation. We thank them for their support but acknowledge that the findings and conclusions presented in this report are those of the authors alone, and do not necessarily reflect the opinions of the Foundation. Email: [email protected], annstevens@ucdavis,edu, [email protected].