Effect of Growing Up Poor on Labor Market Outcomes: Evidence from Indonesia
The effect of growing up poor on earnings as adults is large, negative, and statistically significant.
We investigate the long-term effect of child poverty on labor market outcomes using a 14-year span of data from the Indonesian Family Life Survey. Our instrumental variables estimation shows that a child who lived in a poor family when aged between 8 and 17 years old suffers from an 87% earnings penalty relative to a child who did not grow up in a poor family. The direct effect remains large after we account for a large set of mediators. Depending on the set of mediators we use, we estimate an earnings penalty of between 85% and 90%. Similarly, we do not find any evidence that receiving various government transfer programs mediates the effect of growing up poor on earnings as adults.
WORKING PAPER NO: 1002