by Faizal Sharma
This article was originally published in the spring 1997 issue of the Expert Witness.
One of the most difficult tasks facing personal injury litigators is predicting the income stream which a minor would have earned had he or she not been injured. This prediction is almost universally based on research by economists, psychologists, and sociologists concerning the impact which genetics and socio-economic factors, such as parental income and education, have on adult earnings.
The most reliable summary of information concerning this research has been found in Christopher Bruce’s Assessment of Personal Injury Damages (Butterworths: 1992). Recently, however, a number of studies have been published which use much more sophisticated statistical techniques than those reported in Bruce’s text. These articles both report a much stronger correlation between parents’ and children’s incomes than had been found in the past and investigate a much broader set of explanatory variables than had been considered previously. The purpose of this article is to summarise some of the most important findings of the recent research.
From the economist’s perspective, the family can be viewed as an economic unit in which the parents are responsible for generating and distributing economic resources. The amount of resources allocated to the children, as well as the nature and timing of their distribution, can affect the success attained in later life. Nevertheless, children are also affected by other parental choices such as the number of siblings in the family, the type of neighbourhood in which they grow up, the number of locational moves, and family structure changes. The impact of these choices are usually summarised in the academic literature in terms of either “intergenerational mobility” (the correlation between the incomes of parents and children),
“educational attainment” (the impact of parental variables on children’s educational success), or “determinants of adult incomes.” I will consider these three literatures separately.
Many sociologists and economists have attempted to measure the correlation between the socio-economic status of fathers and sons. Two 1992 studies using highly sophisticated statistical techniques find strong evidence that in the United States, the father-son income correlation is about 0.4. This is twice as large as previously thought, and depicts a much less mobile society (i.e. one with fewer differences between fathers and sons) than earlier estimated.
For instance, a father-son income correlation of 0.2 implies that a son whose father’s status is in the bottom 5 percent of the income distribution has a 0.30 chance of remaining in the bottom 20 percent, a 0.37 chance of rising above the median, and a 0.12 chance of reaching the top 20 percent. However, a correlation of 0.4 suggests that the son in this situation has a 0.42 chance of remaining in the bottom 20 percent, a 0.24 chance of rising above the median, and a 0.05 chance of reaching the top 20 percent. These findings do not suggest that the sons of low-income fathers are condemned to live their father’s lives; but they do suggest that father’s income status can act as a significant predictor of son’s success.
Factors affecting educational attainment
In all the studies reviewed, the number of years of
schooling completed by the parents is the single most important factor influencing (i) the probability of the child’s completion of high school and (ii) the total number of years of schooling completed by the child. Interestingly, parental completion of either high school or one or two years of post secondary schooling have larger effects on children’s schooling than do years of parental education beyond that level.
Parental income also has been found to have a significant positive effect on children’s schooling achievements. This measure is usually used as a proxy for the economic resources available to the child while growing up. Some studies also indicate that the source of the income may be important to the children’s educational attainment. For instance, a number of studies have found that, everything else being equal, children whose parents received income from welfare have lower educational attainments than do those whose parents did not receive welfare.
Two recent studies have demonstrated that family structure
is extremely important to the educational success of children. They found that children from single parent families, step-parent families, and other non-traditional arrangements have a lower probability of completing high school and attaining further education than do children from traditional, two-parent families. Similarly, it has been estimated that a child who experiences two parental separations during the ages of 6 – 15 has a 5 percent lower probability of completing high school than a child from an intact family; and there is strong evidence that a child living in a single parent family during the ages of 14 – 17 has a 16 percent lower probability of graduating from high school than a child living in an intact family. (The effect of living in a single parent family will be discussed in greater detail in the next issue of The Expert Witness.) Further, parental separation during the child’s preschool years seems to have the greatest adverse effect on educational attainment later on.
The number of siblings in the family also affects the educational success of children – as the number of siblings increases the level of educational attainment declines.
The number of location moves and the availability of reading material in the home significantly affect the educational success of children. While an increase in geographical moves has a negative impact on children’s attainments, the availability of reading material such as newspapers and magazines has a positive impact on their success.
Background characteristics such as race and gender have not been found to be important in determining educational success. In addition, although the supportive characteristics of the neighbourhood have been found to be positively correlated with children’s educational achievements, they are not as significant in determining success as the factors considered above.
Factors affecting earnings
The studies considered indicate that the same factors affecting children’s educational success also affect their labour market performance. This is not surprising since higher education levels attract better jobs.
Parental income while children are growing up is the single most important factor influencing children’s income as young adults. Further, children brought up in families that received welfare have lower earnings than children who grew up in affluent families. Parental education level indirectly influences children’s earnings because parental choices affect children’s educational choices and, hence, earnings. Once again, a family structure which differs from the traditional family has a negative impact on earnings.
While these studies considered background factors such as neighbourhood, gender, race, and county unemployment rate when the children were growing up, these factors were not found to have significant, independent impacts on the children’s labour market performances as young adults. What these surprising results indicate is that, after differences in background and in educational and occupational choice were taken into account, the incomes of young males did not differ significantly from the incomes of young females. Similarly, no significant differences were found among the incomes of different racial groups.
Summary of the findings
- Children who were brought up in low-income families tend to have a lower education as well as lower income during adulthood than do children from affluent families. Further, the source of parental income appears to affect children’s success. Children whose parents received welfare support are less likely to be successful than children whose parents did not receive such assistance.
- Growing up in a single parent family, step-parent family, or family structure other than the traditional one appears to have a negative influence on educational achievement and labour market performance. In addition, stressful events such as changes in geographical location also have a negative impact on future success.
- Although growing up in an affluent neighbourhood has a positive effect on a child’s success, this factor is only marginally significant compared to the others mentioned above.
- Background characteristics such as race and gender do not have independent effects on future success.
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