Parental Unemployment, Socioeconomic Status and Economic Recession

We study the intergenerational impact of parental unemployment on the socioeconomic status of the children. We compare the Finnish children facing parental unemployment during the rapid economic growth of the late 1980s and the recession of the early 1990s at the age of 12-18, taking into account the length of parental unemployment spell. The recession was one of the worst in the OECD history and in Finland far more severe than the recession of the 1930s. The ISEI status of the children was observed when they were 30 years old in the mid-2000s, after a decade of growing economic prosperity.

We use propensity score matching to analyse high quality Finnish register data, including 15991 children. We match each individual experiencing parental unemployment in childhood to a pair with similar parental background according to matching variables and calculate the average treatment effect (ATE) to measure differences in ISEI. The matching variables include the  occupational class status and educational background of both parents, whether the parents were divorced or separated and household income during the examined period.

The results indicate that parental unemployment has a statistically significant negative effect on the socioeconomic status of the children only during economic growth. Only when the spell is longer than three years the unemployment also has a negative effect during depression. In the further analyses we consider the gender differences and the unemployment of both or only one of the parents.

The results suggest that the negative effect of parental unemployment is largely related to non-economic factors, such as lost social capital or stronger negative stigmatization. They also indicate that the economic depression may level off the negative intergenerational effects otherwise associated with parental unemployment.