The Great Recession, Household Income, and Children's Test Scores

Abstract

The Great Recession had a major impact on the wellbeing and welfare of households worldwide. Irish data provide a unique opportunity to examine how the recession affected children’s educational performance given the extent of the economic contraction in Ireland during this period. We use longitudinal data from the Growing Up in Ireland study to examine the impact of changes in household income on standardised numerical and verbal test scores during the recession, when cohort members were aged between 9 and 13. We compare regression results from random effects and fixed effects models, the latter of which account for time invariant omitted variables that are potential common causes of both household income and academic performance. We also investigate non-linearities and effect heterogeneity using quantile regression. Log household income is strongly correlated with test scores in the random effects models: a unit decrease is associated with a reduction of 0.2 standard deviations in verbal and numerical test scores for boys and verbal scores for girls, and 0.1 standard deviations in numerical scores for girls. Quantile results suggest that, for boys, those with high ability are less affected. However, in the fixed effects models the coefficients are attenuated by more than 50%. Overall, there is little evidence of short-run negative effects of the Great Recession on children’s educational performance. In this paper we estimate the effect of transitory shocks; further data are required to isolate the impact of permanent income and any long-run impacts.