September 2022

IZA DP No. 15591: The Kids Aren't Alright: Parental Job Loss and Children's Outcomes within and beyond Schools

Diogo Britto, Caíque Melo, Breno Sampaio

We study the effects of parental job loss on children and how access to unemployment benefits can mitigate these impacts. We leverage unique nationwide data from Brazil linking multiple administrative datasets, and take a comprehensive approach studying impacts on education as well as other key dimensions of children's lives. First, leveraging mass layoffs for identification, we show that parental job loss increases school dropouts and age-grade distortion by up to 1.5 percentage points. These effects are pervasive, last for at least six years and significantly reduce high-school completion rates. Second, we document that other important dimensions of children's lives are affected. Following the layoff, children are more likely to work informally, commit crime, and experience early pregnancy. In turn, parents reduce educational investments by moving children from private to lower-quality public schools. Using a clean regression discontinuity design, we show that access to unemployment benefits effectively mitigates some of the intergenerational impacts of job loss, notably on teenage school dropouts and crime, and on parental investments in school quality. Our findings indicate that the income losses following parental displacement are an important mechanism of the effects on children, highlighting the importance of policies that provide income support for displaced workers.