What if you had been less fortunate: The effects of poor family background on current labor market outcomes

Purpose – The purpose of this paper is to examine the correlation between childhood poverty and its influence on adulthood wage distribution, where childhood poverty refers to the experience of poverty or poor family background during one’s childhood. Design/methodology/approach – With data from the Korean Labor and Income Panel Study, a quantile regression technique and a decomposition method are conducted to identify and decompose the wage gap between low (poor) and middle class income groups along the whole current wage distribution, based on a simulated counterfactual distribution. Findings – The results show that those who had been less fortunate during their childhood were also less likely to have the opportunity to gain labor market favored characteristics, such as a higher level of education, and even earn lower returns to their labor market characteristics in the current labor market. This leads to a discount of about 15 percentage points in the wage, on average, in total for those with underprivileged backgrounds during childhood compared to those with a middle class background. This disadvantage is observed heterogeneously, with a greater effect at the lower quantiles compared to the higher quantiles of the current wage distribution. Originality/value – This research contributes to the literature by providing a partial understanding of poverty in Korea along with possible causes, including poor family background or childhood poverty, with which the implication of an intergenerational effect is considered.