The Influence of Early-life Economic Shocks on Long-term Outcomes: Evidence from the U.S. Great Depression

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Lauren Schmitz, University of Wisconsin-Madison and Valentina Duque, University of Sydney

We show that earnings over the life cycle and health and productivity around retirement age vary with exposure to economic conditions in early life.  Using state-year-level variation from the most severe and prolonged economic downturn in American history – the Great Depression –combined with restricted micro-data from the Health and Retirement Study, we find that changes in macroeconomic indicators during the in utero period and in early childhood are associated with changes in accumulated earnings, human capital, metabolic syndrome, and physical limitations decades later.  After evaluating changes in endogenous fertility responses and mortality rates for Depression-era birth cohorts in the U.S. Census and Vital Statistics Death Records, we conclude that these effects likely represent lower-bound estimates of the true impacts of the economic shock on aging outcomes.  Our results could help inform the design of retirement and healthcare systems and pinpoint the long-term costs of business cycles.