Raising Children in New Zealand: The Influence of Parental Income on Children's Outcomes

About the Author

Susan E. Mayer is an Associate Professor in the Harris School of Public Policy Studies at the University of Chicago. She has been named the next Dean of the Harris School effective from 1 July 2002. She is Deputy Director and past Director of the Northwestern University/University of Chicago Joint Center for Poverty Research. Mayer received her Ph D in sociology from Northwestern University. She has published numerous articles and book chapters on the measurement of poverty, the effect of growing up in poor neighbourhoods, and the effect of parental income on children's well-being. Recent articles include "How Did the Increase in Economic Inequality between 1970 and 1990 Affect Children's Educational Attainment?" (American Journal of Sociology) and "How Economic Segregation Affects Children's Educational Attainment" (Social Forces). She is the author of What Money Can't Buy: Family Income and Children's Life Chances (Harvard University Press), and co-editor with Paul Peterson of Earning and Learning: How Schools Matter (Brookings Institute and Russell Sage Foundation Press). She is currently doing research on intergenerational economic mobility and completing a book on the consequences of economic inequality for children's well-being.

Foreword

In 1999, the Social Policy Agency was granted funding from the Departmental Contestable Research Pool administered by the Ministry for Research, Science and Technology for a three-year work programme it proposed under the title "Family Dynamics/Family Effectiveness". The proposal was for a co-ordinated programme of work aimed at increasing understanding of factors - at the individual level, the family level and the environmental level - that contribute to good outcomes for children.

Over the course of the funding tri-ennium - from 1999/00 to 2001/02 - the Agency and its successor organisations established a range of studies, including commissioned work from selected leading international scholars. The focus of this work has been on sources of influence on child outcomes, with an emphasis on family-level factors, including the economic circumstances of families, family structure, parenting practices, and so on. The results of this work are being published by the Ministry of Social Development in a new research series entitled Raising Children in New Zealand.

The present report - commissioned from Susan E. Mayer of the University of Chicago - represents the first publication in this series. The report examines the effect of parental income on a range of child outcomes, including cognitive development, educational attainment, health, socio-emotional functioning and behaviour, teenage childbearing and economic outcomes in adulthood, based on a review of research studies on these topics. The report focuses on the findings of research that has aimed to isolate the effect of parental income, net of all other influences, on child outcomes.

The report largely draws on published studies based on analysis of longitudinal data sets, since only data of this type are able to be used to examine the sources of influence on children's outcomes, as these emerge over time. Because there is only a small body of New Zealand work of this nature, the report largely relies on papers published in the US, Canada and the UK, although reference is made to a small number of New Zealand and Australian studies. Despite this reliance on overseas evidence, the findings are of substantial relevance to New Zealand, since Professor Mayer's focus is on discerning consistent patterns of effects on broad domains of children's outcomes. The broad outlines of these findings are likely to be relatively invariant across cultures - although there may be variations at a more detailed level. The study will provide a good basis for establishing locally based research to investigate the particular ways in which parental income exerts its effects on children's outcomes in New Zealand.

By focusing on the net effect of family income - independent of the influence of other factors - the report permits an assessment of the extent to which gains in family income are likely to lead to improvement in child outcomes. Thus it focuses on an issue of considerable importance to public policy in the field of income support. As well as strengthening the knowledge base for policy work on families and children, it is anticipated that the report will also make a valuable contribution to the public debate about the importance of family income on the life chances of children.

Overview

It is well established that parental income is positively associated with virtually every dimension of child well-being that social scientists measure. This report advances beyond simple analyses of the correlation between parental income and children's outcomes, by separating out the effect of parental income on children's outcomes, net of other influences such as family structure and parental education.

The report opens with an examination of theoretical perspectives that hypothesise why parental income might affect children's outcomes. It discusses a range of methodological issues that confront researchers in this field. It documents the findings of a range of research on the effect of parental income on six broad areas of child outcomes: cognitive test scores; socio-emotional functioning, mental health and behavioural problems; physical health; teenage childbearing; educational attainment; and future economic status. It considers whether the source of parental income matters for child outcomes, whether the effect of parental income might vary according to the age of the child, and whether the effect of parental income depends on the child's gender or race. The report concludes with a discussion of policy insights that might be gleaned from the research literature in this field.

Parental income is positively associated with all outcomes covered in the review. When family background variables are controlled, however, the estimated size of the effect of parental income reduces, and the residual effects are generally small to modest on most outcomes. The size of the effect of income differs across different outcomes: it appears to have its largest effect on cognitive test scores and educational attainment. For some outcomes, such as health, there is too little research to draw strong conclusions about the effect of income. The effect of income is larger when incomes are measured over a longer period - that is to say, extended durations on low income have stronger adverse effects on children than short periods on low income. There is some evidence that the effect of income is larger for low-income than for high-income children.

No general conclusions can be drawn about whether parental income is more important at different stages of childhood; however, there is some evidence to suggest that income is more important in early childhood for schooling outcomes. There is little evidence to suggest that income has differential effects on children of different gender or race. Welfare income is found to be negatively associated with a range of children's outcomes; however, this seems to be due not to welfare receipt per se but to parental characteristics that make some parents more prone to be on welfare than others. Finally, it is noted that most of the research has been done in the US and there is insufficient evidence to draw any conclusions about whether the effect of parental income varies across countries.

Although parental income generally has only a small to modest effect on any particular outcome, it contributes to many aspects of children's well-being. This means that income gains have the potential to make a significant cumulative difference to the lives of children.