What are the economic costs of childhood socio-economic disadvantage? Evidence from a pathway analysis for 27 European countries

Growing up in socio-economic disadvantage has important and long-lasting effects on children’s lives. Children from disadvantaged households often fall behind in many areas of well-being and development, with effects that continue to limit their opportunities and outcomes – including their health and labour market outcomes – long after they reach adulthood. Drawing on Europe-wide survey data from 27 countries, this paper explores how childhood socio-economic disadvantage affects later adult labour market and health outcomes and evaluates the country-level GDP-equivalent cost of childhood disadvantage due to lost employment, lost earnings, and lost health, as well as the costs of lost government revenue and extra benefit spending. Results point to large costs for societies from childhood socio-economic disadvantage, totalling on average the equivalent of 3.5% of GDP annually. We also show that the labour market penalties linked to childhood disadvantage are often smaller in countries with lower absolute levels of disadvantage. While not causal evidence, these associations suggest much of the impact of childhood disadvantage in adulthood can be mitigated with the right environment and policy set up in childhood.