What if you had been less fortunate: The effects of poor family background on current labor market outcomes

Sungwook Cho (Department of Economics, Sogang University, Seoul, Korea)
Almas Heshmati (Department of Economics, Sogang University, Seoul, Korea)

Journal of Economic Studies

ISSN: 0144-3585

Publication date: 12 January 2015

Abstract

Purpose

The purpose of this paper is to examine the correlation between childhood poverty and its influence on adulthood wage distribution, where childhood poverty refers to the experience of poverty or poor family background during one’s childhood.

Design/methodology/approach

With data from the Korean Labor and Income Panel Study, a quantile regression technique and a decomposition method are conducted to identify and decompose the wage gap between low (poor) and middle class income groups along the whole current wage distribution, based on a simulated counterfactual distribution.

Findings

The results show that those who had been less fortunate during their childhood were also less likely to have the opportunity to gain labor market favored characteristics, such as a higher level of education, and even earn lower returns to their labor market characteristics in the current labor market. This leads to a discount of about 15 percentage points in the wage, on average, in total for those with underprivileged backgrounds during childhood compared to those with a middle class background. This disadvantage is observed heterogeneously, with a greater effect at the lower quantiles compared to the higher quantiles of the current wage distribution.

Originality/value

This research contributes to the literature by providing a partial understanding of poverty in Korea along with possible causes, including poor family background or childhood poverty, with which the implication of an intergenerational effect is considered.

Keywords

Acknowledgements

©Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies or the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. By making any designation of or reference to a particular territory or geographic areas, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area.

JEL Classification— C21, E24, J13, J31, J62, O15

The authors wish to thank two anonymous referees and the Guest Editor of the journal Esfandiar Maasoumi for comments and suggestions on an earlier version of this paper.

Citation

Cho, S. and Heshmati, A. (2015), "What if you had been less fortunate: The effects of poor family background on current labor market outcomes", Journal of Economic Studies, Vol. 42 No. 1, pp. 20-33. https://doi.org/10.1108/JES-10-2013-0143

Publisher

:

Emerald Group Publishing Limited

Copyright © 2015, Company

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