Effect of Growing Up Poor on Labor Market Outcomes: Evidence From Indonesia

ABSTRACT We estimate the long‐term impact of child poverty on adult labour market outcomes in Indonesia, a middle‐income country. Our instrumental variable estimation shows that a child who lived in a poor family when aged between eight and 17 years old suffers from an 87% earnings penalty as adults relative to a child who did not grow up in a poor family. The direct effect remains large after we account for a large set of mediators. Depending on the set of mediators that we use, we estimate an earnings penalty of between 85% and 90%. Similarly, we do not find any evidence that receiving various government transfer programs mediates the effect of growing up poor on earnings as adults.