Does Intelligence Shield Children from the Effects of Parental Unemployment?

Abstract

Current literature offers several potential channels through which parental unemployment can affect children. In this paper, I provide new evidence based on variation across intelligence that identifies loss of human capital investment as the driving mechanism. I find that higher intelligence mitigates some of the impacts, but not all. Parental unemployment is more harmful to the education of children with higher intelligence. This forces them to start their careers at lower-paying jobs and continues to weigh down on their wages even later in life. Nevertheless, higher intelligence helps narrow the gap labour supply, job ranking and monthly earnings over time.

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