Non-Technical Summary:
Children raised in material poverty are at a disproportionately higher risk of developmental delays, poorer educational and health outcomes, lifelong under- or unemployment, welfare dependency, and involvement in crime. The resulting economic cost of growing up poor to individuals, families and society is therefore sizable.
However, it is unclear whether it is early-childhood economic hardship per se that causes later-life socio-economic disadvantage, or whether it is the adverse childhood experiences to which children in economically disadvantaged households are disproportionately exposed (e.g. parental abuse and neglect, parental relationship instability, and parental mental health or substance abuse). Using high-quality cohort data from the United Kingdom (National Child Development Study), we examine how adverse childhood experiences between ages 7 and 16 affect individuals’ lifetime economic outcomes (as captured by income, welfare dependency and subjective poverty). We also identify the channels through which this link takes place.
Our findings indicate that exposure to adverse childhood experiences is more common amongst children growing up in economically disadvantaged families, who are twice as likely as children in economically better-off families to experience at least one adverse life event. However, adverse childhood experiences affect children’s developmental pathways negatively irrespective of parental socio-economic background.
We also find that adverse childhood experiences are strong predictors of economic outcomes at age 55, over and above the influence of other important early-life predictors (e.g. health at birth, parental education and parental occupation). One additional adverse childhood experience is associated with an earnings “penalty” of 7.3 percent, and a significant increase in the probability of welfare dependence and subjective poverty.
The experience of neglect, as assessed by the child’s teacher when the child was age 7 to 11, is the driving factor in the association between adverse childhood experiences and economic outcomes. Differences in earnings by age 55 between those who experienced neglect and those who did not are almost entirely explained by differences in human and health capital accumulated by age 33.
Altogether, our findings have important policy implications. Critically, they suggest that large gains in productivity could be attained by targeting household dysfunction as a way to alleviate childhood poverty. Further research into the factors leading to these forms of early life adversity, and the processes that can be put in place to minimise these is needed.