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Are Your Children Being Impacted by the Economic Downturn?

Children Affected by EconomyAn article in the Wall Street Journal from January 1, authored by Sudeep Reddy entitled “Downturn’s Ugly Trademark: Steep, Lasting Drop in Wages” highlighted a number of interesting points.

Among them was a recent US Department of Labor study reflecting that those losing jobs in the United States are more likely than not to suffer lasting income decreases of more than 20%, and that many of them never financially recover. This is probably not really news to most of us, since we experience it and/or see it around us every day.

However, buried deeper in the article is a reference to another economic study being conducted at the University of California, Davis which is unearthing a troubling phenomenon related to the children of parents who are displaced from their jobs. Children whose parents experience job loss appear to achieve lower income levels in their own adult lives.

Some excerpts from this excellent study by Page, Stevens, and Lindo include the following. The study is available for review at:

  1. “Like previous studies, we find that family resources decline substantially when a job loss occurs. For example, when all displacements are followed, head’s earnings fall by 36% and family income falls by 21% in the year after displacement. Family resources recover somewhat over time, but even 6 years later head’s earnings are approximately 26% lower than they would have been if the displacement had not occurred. Similarly, family income is reduced by 20 percent.”
  2. “Specifically, children whose parents experienced a job loss have adult earnings that are about 9% lower than children whose parents did not, even after controlling for family background characteristics other than income.”
  3. [Findings] “suggest that children whose parents lose their jobs via a firm closure are less likely to complete high school and less likely to attend college.”
  4. On the probability that a child will be found to be working after age 24, “individuals are significantly more likely to be working if their father experienced a job loss.”

There is, of course, much more to this study. This list is not meant to represent the scope of the study – just some of the elements I found most interesting. But it does foster some thoughts along these lines:

Why do layoffs and other financial setbacks impact the children still in the home, or is this a causal relationship at all? Perhaps it’s simply a matter of less discretionary spending in the household on private school tuition, private tutoring, and other extracurricular enrichment activity. This seems unlikely though, because the study seems to suggest that the financial impact on the next generation is most pronounced among those families having the lowest baseline income before the job loss occurred. In other words, the poorest families suffer the most. In these families, it is far less likely that there was much discretionary spending on private schools and tutoring. There simply isn’t enough money to provide those things. Is the child’s self-esteem or desire to excel diminished in some way by these events that plague the lives of their most prominent role models – their parents? Does the loss of a parent’s job necessitate a geographic move or other similar change that results in attendance at a school with lower-performing teaching staff? What other possibilities seem most likely? If the relationship is non-causal (or coincidental) it could arise from a more general economic downturn in the area that simply reduces employment opportunities and / or causes the most talented and skilled education professionals to migrate away from the area or from their teaching positions.

Whatever the reasons for this unfortunate phenomenon, what can and should be done to minimize this damage? If the root cause here is job loss, is it reasonable to expect that the employment situation in troubled areas can be stabilized quickly enough to prevent these job losses? If so, how should this be done and by whom? If local job displacement is not a fixable problem in the near term, what steps could be taken to assist the children of parents afflicted by this economic malady, and by whom?

What do you think?

3 Responses to “Are Your Children Being Impacted by the Economic Downturn?”

  1. Marie Luft says:

    Well, here I go again…

    OBVIOUSLY, a family income would go down from a job loss. However, speaking from experience, I can’t agree with the flat statement “Children whose parents experience job loss appear to achieve lower income levels in their Own adult lives”.

    In the mid 70’s, hubby had heart problems and went on long term disability with JD and subsequent permanent disability with SS, and I left my secretarial job while we were going thru the by-pass at Mayo, etc. (terrible summer) and neither one of us was working. The children were ages about late grade school to mid high school at that time. I took the profit-sharing that I had built up and at 40 years of age, got a part time office job and started college full-time. I did manage to get a two-year degree – kind of fun doing my English assignment along with the kids doing their homework. – before running out of money again. It took a few years (as the article says) but my income improved considerably. As for the children, tho they had the option of going to college with SS footing the bill (that law has now been changed) none of them did at that time. Now I can proudly say that out of my five children, three of them have master’s degrees and are doing well financially, and one has a good trade; not bad on average. But the thing is, they did it on their own, which all boils down to that old adage of “where there’s a will, there’s a way”.

    • Marie: Thanks for your post! I am glad that your experience has been better than the majority of the families who go through a job loss in America. I think Patty and Steve have both done remarkably well! However, what we of course will never know is whether things would have been even better for your family without that “terrible summer”.

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