Parental Job Loss, Parental Ability and Children’s Educational Attainment

The recent recession has focused attention on the effects of job loss and unemployment, but job loss is a common experience even during times of economic expansion. While much is known about the impact of job loss on the earnings, income, and unemployment of adults, less is understood regarding the relationship between parental displacement and children's outcomes. I estimate the effect of parental job loss on children's educational attainment. In particular, I focus on the role of parental ability, both cognitive and non-cognitive, using observed measures of parents' attributes and an instrumental variable analysis to account for unobserved attributes. Using the Panel Study of Income Dynamics (PSID) I find that experiencing a parental job loss during childhood reduces the probability that an offspring will obtain any post-secondary education (by age 21) by at least 10 percent and perhaps as high as 50 percent. Furthermore, household resources, including family income and wealth, do not explain this effect.