Family income and children’s outcomes: evidence for the UK

This thesis explores inequalities in educational attainment by family background, focusing on three specific aspects of this important issue. University participation is one outcome which displays large gaps by family background. I examine the effect of debt aversion on university participation and find firstly, that young people from all family backgrounds who are debt averse are less likely to attend university when they finish school, and secondly, that the size of this effect does not differ substantially by family background. Thus whilst debt aversion poses a barrier to entry into university, it doesn’t explain the gap in participation rates by family background. In fact, these gaps open up much earlier and are already apparent when the children are still very young. The second empirical chapter uses data at ages 5 and 7 to explore this further, and shows that family income itself seems to have a direct impact on children’s cognitive test scores at these ages, with other important influential factors including the stability of the child’s environment, the presence of the natural father, and parental behaviours such as taking the child to the library regularly. As well as highlighting the importance of these and other factors, this chapter makes a methodological contribution by introducing an augmented random effects model which helps address issues of endogeneity and a lack of within-variation in key variables that have faced similar studies in the past. Finally, children’s test scores demonstrate substantial stochastic variation, with the implication that the development trajectories of groups divided according to ability and family background may demonstrate regression to the mean effects. Dealing with this statistical phenomenon using various methods in order to isolate the substantive effects of family background confirms that bright children from poorer families do drop behind their peers, providing justification for a continued policy focus on this group. The existence of inequalities in educational outcomes by family background also has implications for social mobility, which further highlights the importance of investing in the cognitive development of young children from disadvantaged backgrounds.