Does Money Matter?
A Comparison of the Effect of Income on Child Development in the United States and
Great Britain
Alison Aughinbaugh Maury Gittleman
a b s t r a c t
In this paper, we examine the effect of income on child development in the United States and the United Kingdom, as measured by scores on cog-
nitive, behavioral, and social assessments. In line with previous results for the United States, we find that for both countries income generally has
an effect on child development that is positive and significant, but whose size is small relative to other family background variables.
I. Introduction
High rates of child poverty, the staggering rise in the number of chil- dren who spend time in single-parent families, the major shifts in child care arrange-
ments that have accompanied the rise in the labor force participation of women, and, more recently, the increased pressure on single parents with young children to enter
the workforce owing to the ongoing overhaul of the nation’s anti-poverty programs are among the many reasons why the United States is refocusing its attention on the
well-being of children. Social scientists have conducted a large amount of research that assesses the effects of family structure, child care arrangements, welfare receipt,
maternal employment, and family income on children’s health, cognitive develop- ment, school achievement, and emotional well-being. Although numerous studies
have demonstrated that low income is correlated with worse outcomes for children,
Alison Aughinbaugh and Maury Gittleman are research economists at the U.S. Bureau of Labor Statis- tics. This work does not reflect the opinions of the U.S. Bureau of Labor Statistics or any of its other
staff members. An earlier version of the paper was presented at the conference on ‘‘Cross-National Comparative Research Using Panel Surveys,’’ held at the University of Michigan, October 26–27,
2000. The authors are grateful to Joe Hotz, as well as to two anonymous referees for helpful comments and to Maureen Conway for valuable insights. The authors claim responsibility for all errors. The data
used in this article can be obtained beginning November 2003 through October 2006 from Alison Augh- inbaugh, 2 Massachusetts Ave. NE, Room 4945, Washington, DC 20212.
[Submitted March 2001; accepted May 2002] ISSN 022-166X
2003 by the Board of Regents of the University of Wisconsin System T H E J O U R N A L O F H U M A N R E S O U R C E S
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Aughinbaugh and Gittleman 417
recently researchers have begun to examine whether this negative relationship is attributable to a lack of financial resources or to other conditions—such as being
raised by a parent who is young, without much education, or without a partner— that are associated with lower family income Duncan and Brooks-Gunn 1997. If
raising the incomes of poor families can substantially improve the life chances of their children, then the increased redistribution of resources to the poor via the earned
income tax credit and more generous social insurance and assistance programs may have favorable outcomes. If not, then direct interventions to improve the health and
education of children or to encourage more effective parenting may be a more effec- tive route.
1
In this paper, we examine the effect of income on child development, as measured by scores on cognitive, behavioral, and social assessments. Children’s scores on
various cognitive assessments have been shown to be related to success as adults. For instance, Currie and Thomas 1999 find that children’s test scores at age seven
are positively related to their employment and earnings as adults, even when control- ling for a rich set of background variables. Thus, addressing the issue of whether
higher levels of financial resources help children perform better on achievement tests may inform policies that aim to help children succeed as adults.
Surprisingly, recent research using U.S. data suggests that family income has only a small effect on children’s outcomes compared to the effects of other characteristics,
such as race, parental education, and household structure Blau 1999. In this paper, we examine the relationship between child development and income in Great Britain
and compare it with that in the United States to see whether the experience in another developed country also runs counter to the conventional wisdom that additional in-
come can have a major impact on child development. While the United States and Great Britain are probably more similar to each other than they are to other developed
countries, they do differ in potentially important ways—for example, in terms of health care provision, educational institutions, and racial composition—that could
affect the links between financial resources and child outcomes. Consequently, in addition to serving as a check on the robustness of the U.S. findings, a U.S.–Great
Britain comparison may help distinguish among alternative explanations for the sur- prising U.S. results and point to cross-country differences in policies and institutions
that may explain any divergence in the findings for the two nations.
Our results indicate that the relationship between income and test scores is, how- ever, quite similar in the two countries. In line with previous results for the United
States, we find that in both countries income generally has an effect on child develop- ment that is positive and significant, but one whose size is small relative to that
of other family background variables. While the precise magnitudes depend on the specification and assessment under consideration, the estimates suggest that only
changes in income that are quite large relative to those currently induced by policy can have a substantial effect on test scores. The rest of the paper is organized as
follows: In Section II, the literature that has examined the relationship between in- come and child development in the United States is briefly discussed. Section III
details the data sources and the samples used. Empirical specifications are described
1. Currie 2000 reviews the literature on early childhood intervention programs and Currie 1998 surveys the impact of eight large Federal programs on child outcomes.
418 The Journal of Human Resources
in Section IV and Section V presents the results. Concluding remarks are contained in Section VI.
II. Background Literature
