The Great Recession, Household Income, and Children's Test Scores

The Great Recession had a major impact on the economic welfare of households worldwide. We examine how income changes during the recession were associated with children's educational performance in Ireland, one of the most affected countries. Using longitudinal data on standardised numerical and verbal test scores, collected before and after the height of the recession when cohort members were aged 9 and 13, we compare regression results from random effects and fixed effects models. The latter account for time invariant omitted variables that are potential common causes of both household income and academic performance. We also investigate non-linearities and effect heterogeneity using quantile regression. Log household income is correlated with reading and maths test scores in the random effects models for both girls and boys. Quantile results suggest that, for boys, those with high ability are less affected. However, in the fixed effects models the coefficients are attenuated by more than 50%. We find similar results using subjective perception of exposure to financial losses in place of household income. Overall, there is little evidence of short-run negative effects of income losses during the Great Recession on children's educational performance. In this paper we estimate the effect of transitory shocks; further data are required to isolate the impact of permanent income and any long-run impacts.