Indonesian children who grow up in poverty earn less as adults, study shows

VOICES.NEWS- The cycle of poverty has demonstrated its effects on Indonesian children as a recent study shows that kids who are raised i...

VOICES.NEWS- The cycle of poverty has demonstrated its effects on Indonesian children as a recent study shows that kids who are raised in poor families are likely to earn less as adults compared to their higher income counterparts.

The study, titled Effect of Growing up Poor on Labor Market Outcomes: Evidence from Indonesia, was published by the Asian Development Bank Institute in September and conducted by three Smeru Institute researchers, Mayang Rizky, Daniel Suryadarma and Asep Suryahadi.

The research studied the long-term impact of living in a poor family during childhood on adult labor market outcomes. It found that growing up poor has a significant and negative effect on earnings in adulthood.

"Our instrumental variables estimation shows that a child who lived in a poor family when aged between 8 and 17 years old suffers an 87 percent earnings penalty relative to a child who did not grow up in a poor family," the study reads.

“The magnitude effect on labor market outcomes is similar to individuals who have a severe physical limitation in adulthood. Those who are in the second quintile suffer the most.”

As many as 25 million Indonesians are classified as poor, living on less than Rp 425,250 (US$30.29) per person per month, according to Statistics Indonesia (BPS) data released in March. That means they get by on $1 per day, well below the global poverty line benchmark of $1.90 per person per day.

A separate study by the Asian Development Bank, International Food Policy Research Institute and the National Planning Agency (Bappenas) also show that 22 million people in Indonesia endured hunger from 2016 to 2018 during President Joko “Jokowi” Widodo’s first term.

Meanwhile, the Smeru researchers found that the direct effect of living in poverty as a child was significant after they accounted for a large set of mediators.

“Similarly, we did not find any evidence that receiving various government transfer programs mediates the effect of growing up poor on earnings as adults,” it added.

“However, the Indonesian government has implemented programs aimed at breaking the intergenerational cycle of poverty, called PKH [Family Hope Program]. Whether the PKH could have long-term benefits is an important future research area.”

For the study, the researchers used Indonesian Family Life Survey (IFLS) data from 2000, 2007 and 2014. The survey is an ongoing longitudinal survey in Indonesia conducted by the RAND Corporation.

Through all three surveys, the Smeru Institute examined whether growing up in poverty from ages 8 to 17 had any effects on the hourly wages of individuals in the labor market 14 years later.

The first IFLS survey was conducted in 1993 with more than 22,000 individuals from 7,224 households. It covered 13 provinces in Indonesia and represented about 83 percent of the population.


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