Understanding the mechanisms through which adverse childhood experiences affect lifetime economic outcomes

Over the past two decades, researchers have shown a growing interest in the role of adverse childhood experiences (ACEs) – children's confrontation with maltreatment and household dysfunction – in shaping health outcomes. This is the first study to quantify the economic penalties of ACEs and identify the mechanisms which produce the relationship. We source data from the National Child Development Study to construct an ACE index based on prospective childhood information. We estimate a robust earnings penalty of 9% for each additional ACE, a 25% higher probability of being welfare dependent, and a 27% higher probability of subjective poverty at age 55, over and above the influence of childhood socioeconomic disadvantage. The income penalty of ACEs is mainly produced by parental neglect, a component of the ACE index based on teacher assessments. It is observed for children from all socioeconomic backgrounds. Observed differences in later-life earnings between children with and without neglect exposure can be almost fully explained by observable differences in human capital accumulated by the beginning of mid-age. The productivity loss in an economy due to parental neglect is likely to be high. Our findings contribute to a wider discussion on the multidimensionality of childhood poverty.