Children and Familial Economic Welfare: The Effect of Income on Child Development - April 2001

6. Discussion

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The simple descriptive results of section four reveal that a large proportion of children face changes in their economic circumstances over the relatively short period of two years. As well, we observed that changes in family structure and number of earners in the labour market have considerable effect on the economic circumstances of children. The evidence presented demonstrates that these fluctuations in children's household incomes and the persistence of a large proportion of children in poverty situations, are in keeping with evidence found in other studies (Picot et al., 1999; Duncan and Brooks-Gunn, 1997; Duncan et al., 1994).

Our cross-table comparisons of the variations in household income and changes in children's behavioural and cognitive outcomes did not reveal an easily discernible relationship. Large proportions of children did experience changes in their behavioural and cognitive scores from 1994 to 1996, as well as changes in their household incomes. There are individual instances where some differences in child outcomes were observed to be related to changes in household income. However, overall these changes did not seem to be noticeably related to changes in the household income of children.

What might account for the lack of an easily noticeable relationship? A likely reason for the weak relationship is that health and development variables are weakly linked to income changes in the short-run. The research literature suggests that the effect of income on children's outcomes is relatively small to begin with (Blau, 1999; Duncan et al., 1998; Mayer, 1997) and may be particularly so with the behavioural variables we used. This suggests that it may be more difficult for us to observe any relationship in a cross-table form.

Our regression results in Table 10 are less mixed than the cross-table results. In the majority of simple bivariate relationships our four income measures are found to be significantly related to children's cognitive, academic and behavioural outcomes. There are exceptions when observing the categorized income variables, where lower income categories are frequently not significantly related to different outcome scores. When we compare the standardized coefficients of the bivariate relationships we observe that income has its largest effect on the PPVT, while the smallest is for the prosocial behaviour scale. Nevertheless, the relationship between income and the child outcomes examined in this research is relatively weak to moderate.

Introduction of the control variables into the regression had the effect of reducing the income coefficients for most of the outcomes. The "true" effect of income for the majority of the outcomes is found to be much lower than we had observed in the simple bivariate relationships. As a result of the controls we see that the standardized income coefficients for the child outcomes are now much closer in size to those for prosocial behaviour (our lowest bivariate outcome result). This effect is similar to the findings of Blau (1999) and Mayer (1997), where the initial income effect is reduced by the introduction of parental background characteristics and other controls.

Children's home environment has been identified by American researchers as being an important variable for the relationship between income and outcomes (Blau, 1999; Jekielek et al., 1998; Smith et al., 1997). Our home environment proxy variable is not based on the same inventory of items as the HOME scale used in America. Nevertheless, we do find in Table 10 that it is related moderately with income, similar to what has been found in previous research. If we compare the magnitude of the standardized regression coefficients for our income variables in our home environment proxy regressions we note that the home environment variables are considerably higher for children from higher income families.

The positive effect of income on the home environment proxy variables is most apparent for the log income and categorical income variables and for older children. Children living in families with incomes greater than $65,000 scored much higher on our home environment scale than children in families with incomes below $20,000. These results suggest that income does play a role in affecting the home environment of the children and the demands and choices made by parents. Our results are somewhat different from those of Blau (1999) where income had a larger influence on behavioural outcomes than on cognitive and learning outcomes. However, they are not dissimilar to those of Duncan et al. (1998) where income had a larger influence on achievement and ability related outcomes rather than on behavioural.

It should be remembered that our findings do not control for all possible background characteristics of the parents or household income. Many of the studies discussed in our literature review used geographic and grandparent data of the children as controls. These variables are not available on the NLSCY. Overall, the results suggest that income is important for children's development particularly for the PPVT and reading scores, but that in many cases the relationship is not uncomplicated. The relationship may become clearer with the continuing growth in the number of cycles from the NLSCY. Our conclusions, therefore, are very preliminary given that we observed income and developmental changes over such a short period of time. Further research into these relationships would provide a clearer picture of the pathways through which income affects children's outcomes.

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