The Lasting Impacts of Childhood Exposure to Parental Job Loss: Evidence from Unemployment Insurance

Simon, David; Simon, David

Can exposure to unemployment insurance in childhood improve future human capital and labor market outcomes? Is there heterogeneity in the effects when children are exposed to unemployment insurance in conjunction with other social safety-net programs? We investigate these questions using a novel data set that links children observed in the Survey of Income and Program Participation to social security administration data on their future earnings. There are a number of reasons why unemployment insurance (UI) could impact the future economic success of children. Periods of extreme financial need following a parental job layoff could be particularly harmful to children, and be ameliorated by states that provide more generous UI benefits. For example, having stable levels of income and consumption could reduce stress and improve school performance. Conversely, UI has been shown to increase unemployment spells which could be harmful to children. Overall, little is known about how UI effects children, particularly in term of the intergenerational transmission of socio-economic status.

Therefore, in this project we: (1) replicate an earlier literature showing that unemployment insurance generosity increases family wellbeing in the short term. (2) study the long term impacts of state UI generosity on the employment and earnings of children. We also intend to look at the interaction of these effects with other important safety-net policies (the EITC, immigrant food stamp eligibility, and welfare reform). Understanding the long term impacts of UI on children is critical to designing optimal labor market policies. Policy makers need to know the full costs and benefits of UI in order to make informed judgements on the value of expanding (or cutting) such programs. Long term labor market outcomes are particularly important for such a cost benefit analysis. If children have improved later life earnings, then governments could recoup some of their fiscal spending on UI through a higher future tax base.

To answer our research question we use data from the Survey of Income and Program Participation linked (SIPP) linked to administrative social security (SSA) data on earnings. The SIPP is a short longitudinal survey of families that lasts from 2.5-4 years, I will have access to the linked SIPP for the following panels: 1984, 1990, 1991, 1992, 1993, 1996, 2001, 2004, and 2008.The detailed family data in the SIPP allows me to connect children to their family circumstances, and their parent’s eligibility and take-up of unemployment insurance. The linkage to the SSA earnings data allows us to look at the future labor market outcomes of these children.

Association for Public Policy Analysis & Management

Panel Paper: The Lasting Impacts of Childhood Exposure to Parental Job Loss: Evidence from Unemployment Insurance