Stressful Home Environment and the Child’s Socio-Emotional Development

Children’s early-life socio-emotional skills predict long-run socioeconomic outcomes, yet large disparities exist between these skills at early ages. We study whether reduction of home environmental stressors can reduce these early-life skill disparities and how this depends on children’s preexisting socio-emotional skills. We estimate a dynamic model of socio-emotional skill production that depends on parental investment and accounts for unobserved heterogeneity in child ability. We find that improvement in sensitive parenting and mothers’ psychological well-being have a larger effect on children who have lower initial levels of socio-emotional skills and that children’s preexisting skills and parental inputs are substitutes, which has implications for which policies may best address later skill disparities.