Does Childhood Poverty Affect the Life Chances of Children?

Although it has long been known that parental socioeconomic status correlates strongly with various measures of child and adult achievement, the causal roleplayed by income remains controversial. Important unanswered questions include: 1) the role of the timing of economic deprivation during childhood, especially poverty very early in life; and 2) how to obtain estimates of the effects of income from survey data that are free from the confounding effects of unmeasured aspects of the home and neighborhood environments. After summarizing findings from recent contributions to this literature, we engage in new analyses of data from the Panel Study of Income Dynamics relating children's completed schooling and nonmarital fertility to income during middle childhood, adolescence, and, for the first time, very early childhood. They suggest that economic conditions in early childhood clearly matter the most and that income effects are nonlinear, with the largest impact associated with increments to very low incomes. A second analysis addresses the issue of unmeasured heterogeneity by using PSID siblings to relate sibling differences in completed schooling to sibling differences in stage-specific family income. Although estimated with less precision, results from this analysis also suggest that economic conditions in early childhood affect child development.