Labor economists have long sought to identify the primary determinants of labor market earnings and economic status more generally with a theoretical and empirical focus on the role of human capital. An emerging literature in economics demonstrates the importance of early environmental conditions on human capital accumulation. To gain a better understanding of why early life conditions matter, however, one must turn to recent research conducted by psychologists and neurobiologists that has shown how ?the interaction between genetics and early experience literally shapes brain architecture.? This interdisciplinary project studies the role of prenatal conditions and postnatal environments in determining human capital and future economic status. The analysis is based on an economic framework and uses econometric methods to establish causality, but incorporates evidence and insights from the fields of developmental psychology and neurobiology in order to gain a better understanding of how and why early conditions appear to have such a significant effect on adult economic outcomes. The team of investigators includes an economist, developmental psychologist and epidemiologist/developmental psychologist.
The project consists of two related analyses. The first explores the role of prenatal conditions, and in particular, exposure to high levels of stress hormones (cortisol), in the perpetuation of intergenerational inequality. Previous research has attributed intergenerational correlations in earnings to either genetic heritance of ability or the greater investment of high income parents in their children?s human capital. This project examines the role of another mechanism in perpetuating intergenerational inequality ? prenatal programming via in utero exposure to stress. Prenatal programming refers to the action of a factor during a sensitive period or window of fetal development that exerts organizational effects that persist throughout life. Researchers have found that poor women and black women display elevated levels of cortisol and that in-utero exposure to high levels of cortisol leads to reduced cognitive functioning of offspring via damage to the hippocampus. In this context, prenatal programming can potentially explain not only reduced economic status later in life but also the intergenerational transmission of economic status and why persistent poverty may be greater for some groups (i.e., blacks) than others.
The second analysis explores how birthweight and parental investments might interact to affect long term outcomes. It focuses on birthweight because it is the most common measure of the overall health of the child at birth and has been linked with increased infant mortality, reduced educational attainment and earnings, and reduced IQ. This work follows that of Almond, Chay and Lee (2005) and Black, Devereaux and Salvanes (2007) who find that once one controls for maternal heterogeneity that may bias results, birthweight has little effect on short term outcomes but large effects on long term outcomes. They hypothesize that post-natal parental investments may interact with birthweight to significantly affect long term outcomes but do not have the data to test this. This project relies on insights from the psychological and neurobiological literature establishing the importance of strong emotional bonding for child development. Using a rich dataset that contains information on prenatal conditions, family background characteristics, birth outcomes, post natal parental investments and multiple child outcomes at age 7, it examines whether investments increase with birthweight as well as whether investments are more productive for higher birthweight babies.
Broader Impacts. The results may provide important insights regarding the causes of persistence of poverty and the recent rise in earnings inequality in the US, yielding important policy implications.
